SUPPLY CONSTRAINTS PINCH QATAR'S BOOMING

UNCLAS DOHA 000538

SIPDIS

E.O. 12958: N/A
TAGS: ECON EIND QA
SUBJECT: SUPPLY CONSTRAINTS PINCH QATAR'S BOOMING
CONSTRUCTION INDUSTRY


1. (SBU) Doha's fast-growing construction industry continues
to suffer from supply constraints as the availability of raw
materials remains inadequate to meet surging demand. While
construction only accounts for 6 percent of GDP, the sector
registered a 22 percent growth rate last year, and the
capital's rapidly growing skyline underscores the breakneck
speed of construction. Residential and commercial property
demand remains high due to strong economic growth and a
fast-growing expatriate population. A Business Monitor
International study recently estimated that the value of the
construction sector in Qatar would reach USD 33 billion by

2012.


2. (SBU) The GOQ has attempted to accommodate this growth by
easing import requirements and limiting prices. Most notably,
in June the GOQ imposed a three-year freeze on the price of
cement, steel, and sand. The price of cement is fixed at 250
Qatari Riyals (less than USD 69) per ton, but cement is
selling for at least four times that on a flourishing black
market, according to recent press reports. The
government-owned Qatar National Cement Company (QNCC) sells
to many small and medium-sized companies, but its local
production capacity has been overwhelmed by demand in recent
years. According to press reports, QNCC officials do not
expect relief anytime soon "as the unprecedented demand for
(cement) requires huge investments before bridging the gap
between supply and demand." Many suppliers had depended on
Saudi Arabia for cement supplies, but the Kingdom recently
restricted exports due to its own internal construction
demands, further exacerbating supply woes in Qatar.


3. (SBU) Embassy contacts in the construction industry blame
the lack of import capacity in Qatar as the chief reason for
shortages. Andre Fayad, Procurement Manager for Construction
Development Company (CDC - a contractor with over 7,000
employees),told Econoff July 30 that his company is "losing
a lot of money" on contracts due to the supply shortages.
CDC has had to push back timelines by months and "pay wages
for workers who are doing nothing" due to the lack of
materials. He added that his clients are not accepting the
black market prices for cement in contracts, further cutting
into the company's ability to make a profit or complete
projects on time. Mohammad Khan, General Manager for
medium-sized contractor Redco Construction, echoed these
concerns, telling Econoff that his company cannot get
external shipments cleared in a timely manner through customs.


4. (SBU) Comment: Strong economic growth and a fast-growing
expatriate population will keep the pressure on property
developers to meet demand. Indeed, developers continue to
launch mega-projects in Qatar, from new luxury hotels to
residential developments, commercial towers, and mixed-use
properties. However, there are too many builders chasing too
few shipments of raw materials, and price controls will not
alleviate the problem. For example, the Pearl, Doha's
premier mixed-use development currently under construction,
has seen its original cost estimates of USD 2.5 billion
revised upward to USD 9 billion.


5. (SBU) Projects will continue to face delays and cost
overruns until Qatar can significantly expand its import
infrastructure to accommodate the new level of demand.
Qatar's supply bottleneck is a microcosm of the global
problem of finding enough raw materials, but the lack of
local suppliers for many key goods leaves Qatar particularly
exposed. The GOQ is making massive investments in
infrastructure, including plans for a USD 22 billion
deep-water port south of Doha which would increase by twenty
times Qatar's seaport capacity. The first phase is projected
to cost USD 4.5 billion and is still only in the tendering
process; real relief will be years away.

LeBaron