Identifier
Created
Classification
Origin
07DOHA1043
2007-11-05 12:35:00
UNCLASSIFIED
Embassy Doha
Cable title:  

INFLATION, HOUSING COSTS TAKING TOLL ON QATARI

Tags:  AFIN AFSN ALOW AMGT APER ECON ELAB QA 
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VZCZCXRO7985
PP RUEHDE RUEHDIR
DE RUEHDO #1043/01 3091235
ZNR UUUUU ZZH
P 051235Z NOV 07
FM AMEMBASSY DOHA
TO RUEHC/SECSTATE WASHDC PRIORITY 7207
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/USDOC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS SECTION 01 OF 04 DOHA 001043 

SIPDIS

SIPDIS

NEA/EX FOR WILLIAM J. HAUGH AND THOMAS QUINZIO
NEA/ARP FOR ASHLEY BAGWELL AND SANJAY RAMESH

E.O. 12958: N/A
TAGS: AFIN AFSN ALOW AMGT APER ECON ELAB QA
SUBJECT: INFLATION, HOUSING COSTS TAKING TOLL ON QATARI
LABOR MARKET, EMBASSY STAFF

UNCLAS SECTION 01 OF 04 DOHA 001043

SIPDIS

SIPDIS

NEA/EX FOR WILLIAM J. HAUGH AND THOMAS QUINZIO
NEA/ARP FOR ASHLEY BAGWELL AND SANJAY RAMESH

E.O. 12958: N/A
TAGS: AFIN AFSN ALOW AMGT APER ECON ELAB QA
SUBJECT: INFLATION, HOUSING COSTS TAKING TOLL ON QATARI
LABOR MARKET, EMBASSY STAFF


1. SUMMARY: Double-digit inflation in Qatar has become the
norm, with increases in the housing sector felt most
acutely. The high cost of living dominates public and
private discourse. The government has begun to take steps
to address inflation, though they have been ineffective
thus far, and the private sector is taking matters into its
own hands by dramatically increasing compensation packages
and building private housing complexes for its employees.
One negative outcome of the nationwide rise in costs is
that Post's LES are demoralized and severely stretched
financially by the increase in housing and other costs. As
elsewhere in Qatar, absent a significant increase in funds
to help LES salaries keep pace with inflation, the economic
hardships of working in Qatar will soon be reflected in
staff attrition. END SUMMARY.

--------------
Double-Digit Inflation the New Norm
--------------


2. The IMF reported Qatar's inflation at 11.8 percent in
2006, with a projected rate of 12 percent in 2007.
According to Qatar's Planning Council, inflation reached
12.8 percent in the second quarter of 2007 after reaching
14.8 percent in the first quarter. These levels of
inflation have outpaced Qatar's impressive real GDP growth,
which was 6.3 percent in 2005 and 8.8 percent in 2006.
During the second quarter of 2007, the overall Consumer
Price Index reached 147.86 compared to 2001 prices, while
the CPI for rents reached to an astronomical 279.38
compared to 2001 levels. Qatar's inflation is the highest
among GCC countries, with the next highest level 9.3
percent in the UAE.


3. The oil and gas sector accounts for over 60 percent of
Qatar's economy, and the sustained increase in these
commodities' prices, coupled with sharp rises in the volume
of Qatar's energy exports, has caused a dramatic increase
in inflows and public expenditures. Moreover, the decline

of the U.S. dollar-pegged Qatari riyal has increased the
cost of imports, including many basic consumables. The
rapid expansion of the Qatari economy has lured hundreds of
thousands of new workers to Qatar in the past few years,
further stressing demand for housing, services, and
products. Qatar's population was only 522,000 in 1997 but
has grown to over 900,000 this year, with a native
population of just over 200,000.


4. Residents, and particularly expatriates, have felt the
increase in costs most acutely in the housing sector.
Reliable statistics are hard to find, but the Qatari
Planning Council reported that rents increased by 116
percent from 2001-2007. Minister of Finance Yousef Hussain
Kamal recently stated, however, that rents had increased by
168 percent in the last two years alone. (Note:
Anecdotally, Emboffs regularly hear stories of 100 percent
annual rental increases.) According to a report released
in October by the Kuwait Financial Center, Doha has
experienced the highest growth in rental prices among major
GCC cities over the past two years. The sharp increase in
demand coupled with a steep increase in the cost of
building materials -- 70 percent since 2003 by some
estimates -- is reportedly to blame for inflation in the
housing sector.

-------------- -
Cost-of-Living Dominates Mocktail Circuit Talk
-------------- -


5. The high cost-of-living has dominated local press in
recent weeks and is the main topic of conversation among
locals, long-time residents, and expatriates in Qatar. Many
expatriates are reportedly rethinking living in Qatar due
to inflation. The steep cost of housing and the weakness of
the dollar-pegged riyal (making repatriation of salaries to
other currencies less advantageous) are the main reasons
given in the press and anecdotally to Emboffs.


6. Even Qatari citizens, generally regarded as very
well-off with one of the highest per capita incomes in the
world, are not exempt from feeling inflationary pressures.
The National Human Rights Committee has noted an increase
in requests from Qatari citizens to help them find housing.
The Committee's legal advisor said that many of the
requests are from Qatari women who are divorced from
non-Qatari men. One of the local Arabic dailies recently
published a letter from a Qatari citizen attacking remarks

DOHA 00001043 002 OF 004


on inflation by the Finance Minister. The unusually frank
public rebuke included the accusation that: "In developed
countries ministers resign their seats when they fail to do
their jobs, while our minister procrastinates and denies
the reality and defends greedy merchants."

--------------
Government Response Minimal, Ineffective
--------------


7. In November 2006, the Amir issued a decree giving civil
servants a 40 percent salary increase. Government human
resources officers have signaled that another
across-the-board salary increase is likely soon, indicating
the GOQ recognizes the effects of price increases in Qatar.
The GOQ has floated several ideas to combat inflation and
taken some action to try and ease supply pressures, though
these measures have been ineffective thus far. For example:

-- The government is planning to build a new port south of
Doha which will have a capacity several times larger than
the current port of Doha, which is running at capacity. The
construction contracts have not even been tendered yet,
however, and construction will take a minimum of five
years.

-- Under Qatari law, landlords are not allowed to raise
rents more than 10 percent a year, but the law and practice
is fraught with loopholes, and examples abound of Doha
residents (including the Embassy's LES) facing annual rent
increases substantially higher than 10 percent.

-- The GOQ removed the customs duties on imports of cement
and steel. As an incentive to importers, the government is
also reportedly importing cement in its name and paying the
fines in case a ship carrying cement is stuck at the port.

-- In early October, the Finance Minister announced a
two-year moratorium on housing demolitions (in order to
keep the housing supply as high as possible). This
moratorium is not being implemented evenly, however, and it
is unclear if this will alleviate the supply shortage.
Examples abound of housing units being readied for
demolition to make way for other housing or commercial
developments.

-- The General Secretariat for Development Planning website
will soon post prices of essentials and the government has
reportedly begun to subsidize some basic food items.

-- In early October, the GOQ formed a Central Rents
Committee to be housed under the Ministry of Finance. The
Committee will fix lease and rent prices for properties
used by government agencies.

-------------- ---
Private Sector Adjusting to New Cost of Business
-------------- ---


8. Not able to wait for effective government action, the
business community in Qatar is taking matters into its own
hands. Salaries in Qatar's private sector rose 10.6 percent
over the last year, according to a study by a Dubai-based
online recruitment firm, Gulf Talent. Several large
companies, including many Western energy firms and the
semi-private Qatar Foundation, have built their own housing
compounds to avoid having their employees suffer in the
broader market. Unfortunately, these projects have only
increased demand for construction services in the
short-term, thereby putting small and medium-sized
enterprises (SMEs) and their employees at a disadvantage.


9. According to Stephanie Carvell at the American Business
Council in Qatar, large U.S. companies have been able to
adjust to the price increases by augmenting their salary
and benefits packages accordingly. SMEs are having a harder
time coping with the rise in prices, and inflation has
affected their recruitment. Carvell stated that Qatar is
"no longer a market to enter into lightly" and companies
will need to put out "serious capital" to start up
operations. For example, she's noted that many companies
can no longer afford temporary office and living space for
employees researching business opportunities, and will now
fly staff in for short trips to do market research. Since
most established U.S. companies in Qatar are large
multi-national corporations, however, the U.S. business
community as a whole appears to be able to adjust for now

DOHA 00001043 003 OF 004


without suffering employee attrition. For example,
ExxonMobil's solution to high housing rental costs was to
build their own compound for employees.


10. Amy Nikiel, head of Compensation for the Qatar
Foundation's Human Resources Department, noted that the
foundation's private compounds (it has built one compound
with 640 units and is building two more compounds) enables
them to adopt to inflationary pressures without losing
expatriate expertise. The foundation is also in the process
of raising its entire pay scale to adjust to the cost
increases in Qatar.

--------------
Post's Local Employees Feel Burden Acutely
--------------


11. In July 2006, a State/HR Comprehensive Wage Survey
revealed that the Embassy lagged far behind in salary and
benefits for its employees, compared to the local
comparators surveyed. The evidence suggests that other
employers in Qatar are responding faster to demands for
higher salaries because of their greater flexibility to
respond to market forces. Post employs 95 LES from 21
countries, but not a single Qatari. Many LES have lived in
Qatar for years, whereas others came more recently, lured
by financial opportunities. However, what seemed a
profitable opportunity several years ago has turned into a
financial burden with many employees in debt and struggling
to make ends meet.


12. Local staff report that the cost of housing and the
general increase in prices is their number one concern. A
survey by Post's Financial Management office revealed that
from 2005-2006, LES paid an average of 167 percent of their
housing allowance for housing, or two-thirds more than they
receive from Post. Likewise, inflation over the same period
caused a 15 percent rise in the costs of other expenses
beyond salary increases. A separate analysis revealed that
from 2001-2007, LES salaries increased between 9-24 percent
(depending on grade),with an average increase across all
grades of 17 percent. At the same time, however, Qatar's
inflation was over 50 percent during the same time period,
while rents increased by at least by 116 percent, as noted
earlier.


13. Some specific examples of hardships being endured by
our LES, which are representative of Qatar as a whole
include:

-- Notices from landlords of imminent evictions so that the
land can be used for commercial development, and requests
from landlords for cash advances of up to two-years for
rental costs. One senior employee is taking a month of
leave to look for a new apartment after being given an
eviction notice from the building he has lived in for 24
years. Another employee who received an eviction notice has
spent weeks searching for new accommodation and only found
apartments that are renting for more than double the amount
he receives for his housing allowance. A third longtime
employee was recently given an eviction notice by her
landlord who wants to build a shopping complex on the site
of her apartment bilding. With a son leaving for college,
she consders herself lucky that she can now search for and
live in a smaller apartment.

-- Many employee have had to take out bank loans to pay
for basicliving requirements, such as housing and
educatin for their children.

-- Seven percent of Embasy employees have had to send
their families back home and move to shared accommodation
because the cost of living is too high.

-- One employee in ten is sharing accommodation with other
families, and 12 percent are sharing kitchens.


14. American staff have noted with growing concern the
burden the housing situation has placed on our LES
colleagues. This has also created a host of new management
problems, as employee morale is low, anxiety about the
future is high, and employee productivity is down, as many
local staff need lots of time during work hours to look for
new accommodation. Local employees continue to carry out
their work professionally but there is palpable anger that
the U.S. government and "the system" are not listening to
their valid concerns or adequately addressing their very

DOHA 00001043 004 OF 004


real needs. Uncertainty over housing places a large
psychological distress on employees and detracts from
overall mission cohesion and performance.

-------------- --------------
---
COMMENT: Qatari Labor Market Being Squeezed, Embassy Not
Immune
-------------- --------------
---


15. Qatar's booming economy is caught between the need to
import foreign workers at every level - from managers to
laborers - who provide the human capital for the country's
development, and the disincentives to life here posed by
the high cost of living. No one comes to a conservative
desert country for the social life, and as inflation in the
housing and broader market erodes expatriate
quality-of-life, Qatar will find it harder to attract and
retain skilled workers in particular.


16. More immediately worrying for Post, we are reaching a
"tipping point" for retaining our LES, many of whom have
served here for years, enjoy their work, and would like to
continue employment with the Embassy. With no Qataris on
the payroll and only expatriate LES employed throughout the
Embassy, however, working in Doha has stopped being
financially profitable for most of our LES. The only thing
saving Embassy Doha from a mass exodus of LES to other
employers is the difficulty of transferring sponsorship
under Qatari law and the fear of deportation if a
sponsorship transfer request is denied by Qatar labor
authorities. As one senior employee put it, "we all would
have left a long time ago," were it not for the sponsorship
system. Ironically, pressing for modification of the
sponsorship system - which locks employees in to one job
and causes labor market rigidity and encourages abusive
employment practices - is one of Post's main areas of
engagement with the GOQ. Even if the sponsorship system
does not change, Post believes that absent a significant
increase in salaries and/or funds committed for housing
allowances, we will begin to see employee attrition.
RATNEY