Identifier
Created
Classification
Origin
08DOHA190
2008-03-05 13:07:00
CONFIDENTIAL
Embassy Doha
Cable title:  

EASY MONEY AND A WELFARE-STATE MENTALITY CREATE

Tags:  ECON EFIN ELAB QA 
pdf how-to read a cable
VZCZCXYZ2683
PP RUEHWEB

DE RUEHDO #0190/01 0651307
ZNY CCCCC ZZH
P 051307Z MAR 08
FM AMEMBASSY DOHA
TO RUEHC/SECSTATE WASHDC PRIORITY 7670
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/USDOC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
C O N F I D E N T I A L DOHA 000190 

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E.O. 12958: DECL: 03/05/2018
TAGS: ECON EFIN ELAB QA
SUBJECT: EASY MONEY AND A WELFARE-STATE MENTALITY CREATE
ONE OF QATAR'S MAJOR SOCIAL CHALLENGES

REF: DOHA 1043 (2007)

Classified By: CDA Michael A. Ratney, reasons 1.4 (b) and (d).

C O N F I D E N T I A L DOHA 000190

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E.O. 12958: DECL: 03/05/2018
TAGS: ECON EFIN ELAB QA
SUBJECT: EASY MONEY AND A WELFARE-STATE MENTALITY CREATE
ONE OF QATAR'S MAJOR SOCIAL CHALLENGES

REF: DOHA 1043 (2007)

Classified By: CDA Michael A. Ratney, reasons 1.4 (b) and (d).


1. (C) SUMMARY. Qatar's impressive economic growth over the
past few years has been accompanied by increasing economic
and social challenges, particularly soaring levels of
consumer debt. Meanwhile, the government is trying to wean
its citizenry off a welfare state mentality but its own
policies and the lack of public financial awareness undermine
this goal. This unhealthy mix of easy money and a
paternalistic government poses a major challenge to a country
that provides remarkable educational opportunities to its
citizens while offering few incentives to work hard and spend
responsibly. END SUMMARY.

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By the Numbers, an Impressive Story
--------------


2. (U) Qatar's economy is the fastest-growing in the Middle
East -- GDP growth has averaged over 15 percent for the past
five years, with a 2006 GDP of $52.7 billion. Qatar's wealth
is based on oil revenues and, increasingly, profits from
massive development over the past decade of its natural gas
reserves; Qatar has the largest non-associated gas field in
the world and the third-largest reserves of natural gas. The
country's sovereign wealth fund -- the Qatar Investment
Authority (QIA),established only in 2005 -- is already
estimated to control over $60 billion in assets and has made
high profile investments throughout Europe, the Middle East,
and Asia.


3. (U) Reports on Qatar often highlight that the country has
one of the highest GDP per capita rates in the world,
averaging over $62,000 in 2006. Economists generally agree,
however, that this statistic obscures more than it reveals,
as Qatar's wealth is unevenly distributed. First, a high
percentage of national income -- particularly the proceeds
from oil and gas -- goes to the government. Second, Qatari
citizens only account for less than one-fifth of Qatar's
estimated population of over 1 million people, so the number
of people who benefit from official "welfare" programs is
relatively small. Personal income in Qatar generally falls

into four categories: Asian laborers eking out an existence,
Western and other expatriates making a comfortable living
working in management and advisory roles, average Qataris
getting by on a government job and state welfare benefits,
and well-connected Qataris who have significant business
interests and multiple sources of income.

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The Disease of Luxury: Economic and Social Challenges
-------------- --------------


4. (SBU) Qatar's rapid wealth poses several challenges to the
country's social fabric and economic stability. First,
inflation has become the Achilles heel of Qatar's economy and
is currently running at 14 percent. As reported in reftel,
double-digit inflation has become the norm over the past few
years and is taking its toll on expatriate labor, including
Embassy staff, as housing and other costs double but salaries
stay relatively static. Anecdotally, Emboffs constantly hear
of Qataris and expatriates taking loans to maintain their
standard of living.


5. (C) Second, Qatar is caught between the need to import
massive numbers of workers to fuel the booming economy and
the danger that Qataris will become even more outnumbered in
their own country, leading to pressures for greater political
participation or social unrest. Indeed, the country has
attracted hundreds of thousands of laborers from South Asia
to work in construction and other services over the past few
years. Economic Advisor to the Amir Dr. Ibrahim Al-Ibrahim
told Charge in February that the national hospital system
conducted over 400,000 health checks for new arrivals in a
12-month period alone. Qatar's sponsorship law is under
scrutiny from the USG and others due to practices that
contribute to abuse and trafficking in persons. Qataris are
wary of altering the law, however, as this is perceived as
relaxing control over a tenuous situation. Government
officials have begun to express fear that the combination of
high inflation and a falling dollar (and therefore, lower
real wages and remittances) will lead to social unrest. For
example, in a December meeting with Charge, Minister of State
for Energy and Industry Dr. Mohammad Al-Sada cited recent
labor problems in the UAE and expressed concern that the
dollar's weakness will become a security issue in Qatar.


6. (C) The high inflation and worries over labor unrest are

prompting calls to revalue Qatar's currency, which has been
pegged to the U.S. dollar at a constant rate since 1980.
While our Central Bank interlocutors insist that no decision
is imminent and any revaluation would be taken in concert
with other Gulf states, key Qatari decision-makers, including
Dr. Ibrahim and the Prime Minister and Foreign Minister Hamad
Bin Jassim Al Thani, have said recently the GOQ is studying
currency revaluation and called for monetary policy changes.


7. (SBU) Third, Qatar is caught between the expectations of a
citizenry accustomed to the welfare state and the demands of
the global economy. The GOQ's benefits for Qatari citizens
include interest-free housing loans, access to free land,
free higher education, free water and electricity, and the
ability to petition the Amiri Diwan for help during times of
financial trouble. There are also regular stipends for
members of the ruling Al Thani family. Qatar's leadership
recognizes that the hydrocarbon-based largesse of the last
few years may not last forever and is trying to diversify the
economy and build an educated workforce. However, the
state's generous welfare benefits and common public
perception that easy government jobs will be available for
all makes it difficult to motivate young people to work hard
and obtain an education relevant to a knowledge economy.


8. (SBU) The Amir's wife, Sheikha Mozah, has had the vision
to support educational reforms at all levels, including the
introduction of independent schools for children and
Education City for college students (Note: Education City
hosts branch campuses of six U.S. universities and offers the
same degree and standards as their parent institutions in the
U.S.). However, Education City has thus far only touched a
fraction of Qatari youth and motivating young men to study
has proven particularly challenging.


9. (C) The government's drive for "Qatarization" -- which
mandates 50 percent Qatari employment at all levels of an
organization -- has furthered the sense of entitlement and
created artificial demand, particularly in the private
sector, for Qatari workers who are not necessarily qualified.
Sheikha Hanadi Al Thani, Chairperson of Amwal (Qatar's first
and largest investment bank),told Charge in December that
the GOQ recently produced an internal paper on the level of
qualified Qataris in higher management but was shocked to
find such a small proportion that it forbade publication of
the study. Qualifications aside, achieving full Qatarization
is statistically impossible given the size of Qatar's economy
and current demographic realities. Several well-connected
Qataris have acknowledged this privately to Emboffs but the
GOQ appears unsure how to manage the process of changing
public perceptions. For now, the government is trusting
education reform to help it -- in Sheikha Hanadi's pithy
phrase -- "stop creating jobs for nationals and start
creating nationals for jobs."

-------------- --------------
Consumer Debt Causing Cracks in Qatar's Economic Foundation
-------------- --------------


10. (U) Despite extensive welfare benefits and easy access to
jobs, many Qataris find themselves stretched beyond their
means. Most observers say the rapid increase in wealth has
created a "keeping up with the neighbors" mentality resulting
in high levels of spending on cars, vacations, and consumer
goods.


11. (U) Recent press reports have highlighted a growing trend
of consumer debt. For example, a January article in local
Arabic daily Al-Raya reported that 90 percent of bank loans
for vehicles and house construction are taken out by Qatari
citizens. The Central Bank reported that outstanding bank
loans in 2007 equaled 160 billion Qatari riyals (44 billion
USD); this is a 69 percent increase from the 94.7 billion
Qatari riyals (26 billion USD) in outstanding loans at the
end of 2006. A separate January article in the
English-language daily The Peninsula cited Saeeda Kash, a
lawyer for a local bank, who said she was referring about 20
default cases a month to the civil courts. She noted: "It
is not because of the rising cost of living that people are
using credit cards to meet their basic expenses and getting
trapped in debt. The defaults are basically resulting from a
lack of awareness about how the credit card system works and
how interest is calculated. People tend to spend beyond
their means when they have access to a credit card."


12. (SBU) Qatar's growing financial services industry has
also created a host of new opportunities for Qataris to gain,
and lose, money. Banks allow Qataris to borrow up to 70
percent of their annual salary as a personal loan (though
many Qataris have other sources of income, such as sponsoring

foreigners or owning businesses, so this may not represent
their total income). Investing in the increasing number of
private companies listed on the Doha Securities Market (DSM)
has also become a popular pastime for Qataris. The market has
been subject to wide swings, however, and anecdotally Emboffs
sense that many Qataris make impulsive and ill-informed
investment decisions. Moreover, an increasing number of
sophisticated financial products have confused the many
Qataris new to investment.

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Lack of Financial Savvy
--------------


13. (C) QIA Managing Director Dr. Hussein Al-Abdulla recently
bemoaned to Charge the lack of investment awareness and
stronger consumer protection safeguards in Qatar. For
example, he cited an investment salesman who had been shunned
by QIA but was nonetheless successful in soliciting large
private investments from Qataris by falsely playing up an
affiliation with QIA (Note: Despite this example, the lack of
transparency for QIA investments would make it hard for
Qataris without inside information to know for sure whether
or not the fund was investing in a specific project.). In a
separate conversation with P/E Chief and Econoff, Al-Abdulla
said that one reason the QIA keeps its assets and profits
secret is that the GOQ fears that if the true amount was

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known the Qatari public would pressure the government to
spend the money now or distribute it to nationals.


14. (C) Sheikha Hanadi noted that Qatari personal
indebtedness "goes hand-in-hand" with the DSM, as nationals
are putting a lot of money into listed companies, and banks
engage in profligate lending which fuels speculative
investments. She claimed that during a sharp downturn in the
DSM in 2006, there was strong pressure on the government to
"rescue" listed companies. She added that other Gulf
countries experiencing similar downturns, such as the UAE and
Kuwait, bought shares in troubled companies to lift the
market, though the GOQ did not engage in this practice
"except maybe a little under the table."


15. (C) In a December meeting with Econoff, Saif Khalifa
Al-Mansoori, the DSM's Acting General Manager, acknowledged
that many Qatari investors make uneducated financial
decisions and noted that the Qatar Financial Markets
Regulatory Authority is considering offering public seminars
to educate citizens on how to invest by analyzing companies'
financial performance. (NOTE: Post is examining
opportunities to help provide Qatar with investment awareness
and consumer protection training, for example through the
Financial Services Volunteer Corps).


16. (C) The credit squeeze and deceptive credit practices
have not only hit the citizen population, but the large
expatriate population as well. The Ambassador of the
Philippines told Poloff March 2 that among the most
significant problems within the Filipino community in Qatar
are personal consumer loans. He said Filipino workers in
Qatar are offered easy credit from local institutions; they
only need their work sponsors' approval, which is often
granted. The terms of the loans often surpass their contract
period in Qatar and the interest rates are often deceptive.
Rather than conventional loans, where the borrower pays
interest on the remaining balance, some institutions in Qatar
charge interest on the total loan amount for the entire
period of the loan, resulting in much higher annual
percentage rates than expected. Even though some of the
borrowers use the loans to send money to their families, many
will not be able to pay back their loans. Foreigners who owe
money to a financial institution will normally not be allowed
to leave the country until the debt is paid, putting the
borrower into very vulnerable situations.

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COMMENT: Lots of Money, Little Motivation or Responsibility
-------------- --------------


17. (C) The rapidly increasing opportunities for loans from
banks and credit cards, questionable investment opportunities
on the DSM, and complicated financial products has created a
dangerous mix of easy money and high risk. Qatar's
educational system and cultural milieu have not done a good
job of imparting to citizens skills that would make them
financially savvy or independent, and most Qataris believe
the government will ultimately take care of them. Qatar is
wealthy enough that this dynamic poses little threat to the
country's economy. But it does pose a massive social
challenge to a Qatari leadership seeking to instill a work
ethic and create a culture of responsibility worthy of the

remarkable educational opportunities this country's citizens
enjoy.

RATNEY