QATAR'S ECONOMIC FORECAST: PARTLY SUNNY

C O N F I D E N T I A L SECTION 01 OF 03 DOHA 000789

SIPDIS

E.O. 12958: DECL: 11/06/2018
TAGS: EFIN EINV ECON QA
SUBJECT: QATAR'S ECONOMIC FORECAST: PARTLY SUNNY

REF: DOHA 190

Classified By: Amb. Joseph LeBaron for Reasons 1.4 (b) and (d).

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(C) KEY POINTS
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-- Qatar is riding out the global financial storm relatively
well, although the Embassy's finance contacts are not
certain, given the lack of transparency across the financial
sector.

-- However, personal debt has clearly ballooned. It will
present a growing challenge to Qatar's social cohesion as
over-extended citizens pressure their families and/or the
government for help.

-- The extreme volatility in the small Doha Securities Market
should not/not be read as a bellwether of Qatar's financial
health.

-- In the bank sector, conflicts of interest and the lack of
transparency could create a near-term challenge.

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(C) COMMENTS
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-- Even with the limited financial visibility we have, this
seems clear enough: personal debt among Qatari citizens is
rising, to the extent that it could become a significant
socioeconomic issue having ultimately political consequences.

-- Qatar's tribal society, with its practice of basing credit
for Qataris by name, not by income and net worth, is partly
to blame for the rising personal debt.

-- As Qatar becomes part of a globalized economy, and as the
global downturn continues, these lending policies almost
certainly will have to change.

END KEY POINTS AND COMMENTS.

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Slowdown Welcome but Personal Debt a Growing Problem
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1. (C) Sheikha Hanadi Al Thani, Chairperson of the Qatari
investment bank Amwal and Deputy CEO of Nasser Bin Khalid
Holding, told P/E Chief and Econoff November 4 that the
financial and economic situation in Qatar is "still smoky"
but there is no question the country is being affected by the
global financial crisis. She assessed, however, that the
Gulf will be one of the most-shielded places in the world,
and Qatar will be the most-shielded in the Gulf. Referring
to her private business interests, she said that "luxury is
the first to get hit during an economic downturn," but so far
she is not/not seeing numbers from her Mercedes-Benz
dealership to suggest Qataris are changing their spending
habits. Al Thani speculated that the need to keep up image
and a belief that debtors will be bailed out is encouraging
moral hazard.


2. (C) She echoed comments by other interlocutors that a
slowdown in Qatar's rapid economic growth would be somewhat
welcome - particularly in the real estate sector - to allow
the government and businesses to focus on growing managerial
capacity and improving the quality of current projects. In
mid-October, Al Thani's company completed the first part of a
major financing package (USD 1.3 billion out of a USD 3.2
billion project) for Al-Waab City, which will be one of the
largest multi-use developments in Qatar when it opens in

2010. She noted that she expects some other companies' newer
projects to be delayed or canceled, due to difficulties in
finding financing and higher financing costs.


3. (C) Al Thani continued that local Qatari reactions to the
global turmoil range from those who are confused or ignorant
about what it all means to those who are panicking as they
see their investments decline in value. She lamented that
Qatar has become an over-financed society and many locals are
over-extended on credit cards, noting she had directed her
company's collection department to start evaluating
customers' outstanding debts. She cautioned that Qatar is
still a tribal society and most companies lend based on name,
not on an objective, data-based assessment of an applicant's
credit-worthiness. Al Thani sees the development of a
trustworthy credit-reporting system as an essential near-term
development for Qatar's financial well-being.


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4. (C) Al Thani underscored that she expects to see "enormous
societal pressure" as the problem of over-extended citizens
affects family life and increases demands on government and
the Amir. She continued that Qatar's "welfare syndrome" has
led a generation to believe its members can live carelessly
and be bailed out by relatives or a paternalistic government.
She also faulted the Central Bank for not cracking down on
local banks, which she said are offering irresponsible loans
to Qataris, including personal credit lines worth many times
their annual salaries. (Note: see reftel from March 2008 for
an in-depth examination of growing personal credit/debt
problems).


5. (C) Former Qatari Ambassador to the UK and the chairman of
a prominent local construction firm, Sherida Al-Ka'abi, told
P/E Chief November 4 that he, like many Qataris, had seen the
market value of his stock portfolio plummet. The losses in
al-Ka'abi's case, and that of most of his friends, are only
on paper. As long-term investors, they are generally unfazed
by the current market currents. Another major Qatari sector
for investors, real estate, had taken a hit - but in a good
way. Prices in this sector were stable, rather than growing,
and a pause in market growth is good for Qatar in Al-Ka'abi's
view. It reduces the likelihood of a real estate bubble and
will bring more realism into the investment decision-making
process. He emphasized that Qatar's stable real estate
prices in the current global climate are welcome news, since
around the globe such prices are falling.


6. (C) According to Al-Ka'abi, the real danger is the
mounting debts of Qataris. He said the interest rates on
loans they had undertaken were up 1-2 percent on an annual
basis since the global financing problems began. From the
perspective of his own business, Al-Ka'abi noted that
subcontractors on construction projects were approaching him
with increasing frequency for help lessening the burden of
their bank debts. His standard response is that bank
obligations are obligations between the subcontractor and the
bank and that he can't pay off his subcontractors' debts.
Many Qataris are leveraged beyond their ability to pay, and
this is the real economic risk he sees for Qatar.

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Doha Securities Market Swings Psychological,
Financial Transparency a Continuing Problem
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7. (C) General Manager of the Doha Securities Market (DSM)
Saif Al-Mansoori told Econoff October 23 that financial
analysts over-emphasize the importance of the DSM to Qatar's
economy. With only 43 listed companies, and a relatively
small overall capitalization, the DSM is not central or even
necessarily a bellwether of Qatar's economic health.
Al-Mansoori continued that the actual "free float" of the DSM
is only five to ten percent, and a few wealthy individuals
can make the market swing dramatically by changing their
positions. He sees the local effect of DSM movements as
primarily psychological.


8. (C) In a candid aside, Al-Mansoori noted that there is
little transparency (either publicly or within the GOQ and
key financial institutions) on important financial actions
being undertaken by the government. He believed that the
"big three" players on financial matters, especially
decisions related to the Qatar Investment Authority (QIA),
are Prime Minister/Foreign Minister and QIA CEO Sheikh Hamad
Bin Jassim Al Thani, Finance and Economy Minister Yousef
Hussain Kamal, and QIA Executive Board Member Dr. Hussein
Al-Abdulla. As an example, he cited the planned NYSE
Euronext tie-up with the DSM. Al-Mansoori charged that the
QIA, which is the DSM's owner, is managing the deal directly
and discreetly - "just like they did with (recent deals with)
the London Stock Exchange and Singapore" - and the DSM is
only involved in providing a liaison staffer to provide
information to the QIA. He believes that the final
arrangement will ultimately be similar to what has been
publicly announced, i.e., NYSE Euronext will ultimately take
a 25 percent ownership of the market and assist in management
and information technology.


9. (C) Referring to the QIA's publicly announced plan to buy
up to 20 percent equity stakes in local banks, Al-Mansoori
said Sheikh Hamad had met with bank heads but "nothing is
clear until now." He assessed that the QIA was looking at
the deal not so much as a bank rescue or fall-back, but as an
investment, and it held options to buy bank shares at October
13 prices (i.e., after there was a significant drop in share
prices) so it could make a profit.


10. (C) Qatar Financial Center (QFC) Regulatory Authority
Managing Director for Supervision Mike Lesser told P/E Chief

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and Econoff October 26 that he sees "emerging liquidity
issues" in Qatar. Noting the potential property bubble in
the UAE and liquidity tightness in other GCC states, Lesser
said he expects to see a spread of problems to Qatar.
However, he noted that Qatar is less exposed to foreign hot
money in the real estate sector as there are only a few
properties open to foreign investment.


11. (C) Similar to Al-Mansoori's assessment, Lesser noted
that DSM fluctuations are normal and not very important for
understanding Qatar's financial health. Likewise, he also
cited transparency as a major concern in Qatar's banking
sector, as CEOs act as chokepoints on information within the
banks, and the boards usually don't have independent
reporting from the banks' risk management sections. As a
result, they often operate on incomplete information. He
believed that these practices could cause trouble for banks
in the future, particularly as money becomes tighter and
global problems spread to Qatar. Lesser continued that the
interlocking boards of directors between the government and
banks (e.g., Finance and Economy Minister Kamal is also the
Chairman of Qatar National Bank - the country's largest - and
the Chairman of the QFC and a QIA Executive Board Member)
creates a substantial conflict of interest.

LeBaron