In today’s debt laden world, the Jury that decides on where the costly high profile sporting events go, carries quite a big responsibility. Therefore, it is not entirely surprising that as of recently we have seen such awards go to the places that are actually able to foot such a hefty bill.
After Rio got the Olympics, the trend was only further confirmed by the choice for Russia and Qatar for the next 2 FIFA world cups. Is FIFA playing it safe by putting away 12 years of liabilities? Maybe, in any case it provides us with yet another way to reflect on the state of global macro economics.
What were England, Japan, Belgium, Spain and Portugal thinking of anyway? Don’t they have other priorities to sort out first? Shouldn’t they focus on finding ways to deal with their respective debt burdens before committing to such a costly appointment? At least Mexico had the prudence to withdraw its bid due to financial constraints. They already hosted the event back in 1986. As a Belgian, it was an event to remember for making it all the way to the semi-finals!
As Qatar lies in Silk Invest’s territory of focus, we thought we’d provide some perspective what all this will mean for this little big country. Today, Qatar’s GDP is growing and will continue to grow at a rate of around 20%. With a population of just over 1.6 million people, the amount of capital expenditure and investment that is taking place is largely disproportionate to its size. Anyone who has been to Qatar immediately realizes that they are building a state of the art infrastructure in the span of only a decade.
Qatar is not really a demographic consumption opportunity, it should rather be seen as a long term infrastructure proposition. It is in the same neighbourhood as Dubai and therefore has the similar advantage of its central geographic location, surrounded by populous high growth economies. However, in contrast, it does have the benefit of a very solid balance sheet.
Qatar’s economic fortune is no mystery, it sits on one of the world’s largest oil and gas reserves which still accounts for more than half of its GDP and over 80% of its export earnings. Qatar almost ties the number 1 spot along with Liechtenstein of the GDP/capita global rankings. The Qatari government is actively pursuing a strategy of investing to diversify its economy across all sectors. Qatar is not only doing this because it should, but more importantly, it is doing so because it can.
Project FIFA World Cup 2022 will only further add to the already existing investment schedule. It is already estimated that Qatar will spend about $50bn on infrastructure including rail network, road development, a new port, a new airport, and 12 stadiums (9 new and 3 renovations). In addition, the country is planning to increase hotel rooms to 95,000. In the short-term, the markets have already concluded that the contractors in the MENA region will strongly benefit from this appointment. All in all, it is estimated that it will mean a increase of around 25% of capital investment from what was previously projected.
What is certain, is that the spotlight will increasingly shine on Qatar and it may give places like Dubai and Abu Dhabi more of a run for their money. A bit of competition is always good, but more importantly, it may also help foreign investors realize that there really is much more to the Middle East than just Dubai.
The bottom line is that this a fairly simple story, easy to understand and provides for an environment where confidence runs high and where investments are done assertively – isn’t that the kind of place investors are always looking for?
It gets very hot in Qatar during the summer so they promised to provide for air-conditioned stadiums. One thing is for sure, during the matches, there will again be a buzz in the background…
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