Qatar economy: Qatar seeks more self-sufficiency in food and manufacturing

FROM THE ECONOMIST INTELLIGENCE UNIT

In response to the regional boycott, Qatar has been encouraging local and international firms to invest in production facilities to boost its self-sufficiency in food and other commodities. The most visible developments are in the dairy sector, new projects in which will contribute to economic growth. However, the self-sufficiency drive will not necessarily prove to be cost-effective and may raise some sustainability concerns.

The regional boycott launched in June 2017 and led by the UAE and Saudi Arabia, which were the main sources of Qatar’s imports, had an immediate impact on supplies. In the short term Qatar airlifted in goods and rapidly established new direct shipping routes, leading to a rebound in imports by August. However, as it has increasingly appeared that the boycott will persist indefinitely, there has been a growing focus on boosting domestic production of a range of goods, particularly food.

Food security

There has been considerable interest in food security in Qatar (and the wider Gulf region), particularly since 2008, when a spike in global food prices and export restrictions in some countries raised concerns. This led to international investments in agricultural land and companies; Hassad Food, a subsidiary of the Qatar Investment Authority (the sovereign wealth fund), has invested heavily in Australian farms.

However, the boycott raised new concerns, particularly regarding fresh food, such as dairy products, which would be too costly to transport over long distances. Previously, Qatar had sourced much of its dairy production from Saudi Arabia. In the immediate aftermath of the boycott, Qatar airlifted alternative supplies from places such as Turkey and Iran, albeit at a premium.

In response, a local firm, Baladna, has taken advantage of the situation to speed up its expansion plans. The company, which operates a large indoor factory farm near Al Khor, around 50 km north of Doha, had a herd of about 45,000 sheep and goats. In May 2017 it had plans in place to bring in 5,000 cows—Qatar’s first—with a goal of producing around 250 tonnes/day of milk within three years. These plans were advanced and expanded sharply in the aftermath of the boycott. Qatar airlifted in cows in 2017 and has brought in more by boat during 2018, as quickly as it can build facilities to host them. By June the country had around 10,000 cows, twice its original target for 2021 and about enough to fully supply Qatar’s dairy needs. It plans to expand the herd further to 14,000 cows, presumably creating some export capacity.

There have also been expansions in other areas of food production, such as poultry and offshore fish and shrimp farming. The minister of municipalities and environment, Mohammed al‑Rumaihi, said in February that Qatar was targeting 100% self-sufficiency in fresh meat and 20% in frozen meat by the end of 2018. The National Development Strategy 2018‑22, launched in March, targeted 65% self-sufficiency in fish production. Production of fresh vegetables from climate-controlled drip-irrigation facilities was already on the rise prior to the boycott, but has also been stepped up through public land grants to large farming projects, with a goal of 70% self-sufficiency in fresh vegetables within two years.

Import substitution and sustainability

The investments in food production have attracted considerable domestic and international attention, and have served as powerful propaganda about the mitigation of the boycott’s impact. Baladna (which, by chance, has a patriotic name meaning “Our Country”) is now planning an initial public offering on the Qatar Exchange. However, it is unclear how economic some of these investments will prove in the long run. The IMF warned in its Article IV report, released on May 30th, that Qatar should avoid “import-substitution strategies, with attendant inefficiencies”. The government has long subsidised the agricultural sector, through methods such as cheap power and loans, and has probably stepped up this support in response to the boycott.

In the case of food production, there is a particular concern about water requirements, given that Qatar is one of the driest countries in the world and relies on drawing on limited aquifers and desalination for its water supplies. The latest water data released by the Ministry of Development Planning and Statistics showed that in 2015 Qatar drew 252m cu metres of groundwater, more than 90% of which went to agriculture; that is over five times the renewable yield of 44m cu meters. The sharp increase in agriculture since the boycott will have presumably further intensified the depletion of aquifers. The recent start-up of the Umm al‑Houl Power Plant, which will produce around 185m cu metres a year of desalinated water, will help, but sustainability concerns remain.

Manufacturing

The self-sufficiency drive extends beyond food and fits with Qatar’s long-standing drive for diversification and private-sector development. Existing plans to expand the range of sectors in which 100% foreign investment is permitted and to develop special economic and logistical zones are being accelerated. These and other reforms, such as those relating to expatriate worker residency, are intended to catalyse the local economy and to encourage projects that support self-sufficiency. In April the first Qatar Self-Sufficiency Exhibition was organised, with 120 companies represented. That followed the Made in Qatar exhibition in December 2017, organised by Qatar Chamber, with around 320 companies represented.

One priority area for greater manufacturing self-sufficiency is building materials, with scope to increase the downstream value-add from Qatar’s existing metal and plastics production. As yet, there do not appear to be many sizable new projects in these areas, but this is likely to become a growing focus once the more immediate food-security goals are met. Overall, the drive for self-sufficiency should support non-oil economic growth, particularly in the agricultural and manufacturing sectors, and should reduce imports over time, further boosting the current-account surplus.

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