Post-COVID-19 transformation

Back in 2013, PwC identified five long-term powerful and interdependent megatrends that are expected to fundamentally reshape the world and the GCC region over the next decade:

Demographic and social change
Resource scarcity and climate change
Shift in power east
Rise of technology
Urbanisation

Even prior to COVID-19, leaders needed to respond quickly, changing their strategies to address these megatrends. We captured these in our ADAPT framework. Both globally and locally, the pandemic has intensified the ADAPT forces, catalysing change at an even greater speed.

Impact on Qatar

In Qatar, the pandemic accelerated the impact of these five forces, increasing pressure for localising the workforce, testing institutional ability to respond, and renewing the importance of digitisation, sustainability and self-sufficiency. Overall, the additional pressure added to the sense of urgency for economic diversification plans for all GCC countries, pushing policymakers to redouble efforts on issues such as the development of a strong private sector, upskilling the local talent, localisation of supply chains and faster digital transformation.

Despite the magnitude of the crisis, Qatar has several advantages to mitigate these challenges. Qatar Investment Authority’s assets provide a backstop, if needed, to absorb economic shocks and support economic transformation plans. The restoration of this year’s travel and trade ties with neighboring GCC countries supported Qatar’s regional integration in contrast to the growing global polarisation trends.

Another significant strength has been the trust in institutions, which has remained strong throughout the pandemic as the government proactively managed the crisis with minimal disruption in the healthcare system.

Six economic transformation themes in Qatar

To rebuild the economy, the Qatari government will have to step in with several policies, including those related to six transformation themes: Diversification and private sector development; Fiscal management and innovation; Digitisation; Glocalisation and talent attraction; Value creation; Energy transition and sustainability. Each of these themes has relevance for the post-pandemic economy.

Diversification and Private Sector Development
Fiscal Management and Innovation
Digitisation
Glocalisation and Talent Attraction
Value Creation
Energy Transition and Sustainability

Diversification and Private Sector Development

Qatar National Vision 2030, published in 2008, and the 2019 Economic Diversification and Private Sector Development (EDPSD) strategy have provided the framework for the government’s efforts to diversify the economy, emphasising productivity, competitiveness and private sector-led growth.

Thirteen years later, the State of Qatar has made concrete strides towards diversification, including through reforming the business environment and increased government spending on large-scale infrastructure development ahead of World Cup 2022. The creation of institutional bodies such as Qatar Financial Center, Qatar Free Zones Authority and Qatar Science and Technology Park (QSTP) together with the amendment of its laws surrounding foreign ownership have created new routes for investment. These efforts have been reflected in the 2019 World Economic Forum Global Competitive Report wherein Qatar ranks second in the region and 29th globally for its overall competitiveness.

The Public Private Partnership Law, issued in May 2020, is expected to enhance opportunities in various sectors including education, healthcare, real estate, tourism, power and utilities. Public sector procurement initiatives will also contribute to private sector development, including Qatar Petroleum’s flagship Tawteen localisation program. This comes as the private sector has been boosting its self-reliance recently, with success stories such as Baladna and QDB’s work to develop small and medium enterprises.

Looking forward, as the economies in the region come out of the aftermath of the pandemic, there is little doubt that they will need to move swiftly to tackle the challenges that lie ahead. Qatar has already shown its resilience and the building blocks that have been put in place will undoubtedly help create sustainable growth in the future.

Fiscal Management and Innovation

Qatar does not need an extensive non-oil tax regime because its hydrocarbon revenue is sufficient to cover more public expenditure requirements. The IMF forecasts an oil price of just $40 by 2022 will be sufficient to balance the budget, far below the global marginal breakeven costs, let alone consensus forecasts. This breakeven level will fall even further when the North Field expansion comes onstream mid-decade. As a result, Qatar is able to have one of the world’s lowest tax environments, with only 5% custom duty and a 10% income tax on foreign companies, ranking third best globally in the World Bank’s Doing Business Report. This provides Qatar with an important competitive edge relative to its peers, not only as a result of the current tax environment, but also because investors can reasonably expect that this will remain the case over the long term, whereas other low tax jurisdictions in the region may be forced to hike in an era of lower oil prices, as their fiscal constraints become more evident.

Tax policy, therefore, largely has motives other than revenue generation. The special excise tax on items such as sugary drinks is about incentivising healthier behavior; and VAT if it is implemented, would largely be focused on regulatory harmonisation with GCC neighbours. There is scope for further tax policy innovation. For example, free zones are offering incentives for foreign investors that include tax holidays.

The biggest fiscal challenge is managing public expenditure, which is a major driver of the economy. The historic pulse of capital expenditure on infrastructure over the last two decades seems to be drawing to a close. Although there will be new projects ahead—such as building out the rail network, expanding airport and port capacity, and decarbonising energy generation with solar power—total spending is expected to fall sharply. However, spending by Qatar Petroleum on the North Field expansion is beginning to ramp up and will partly offset the decline in central government capex. Meanwhile, there is a growing focus on involving the private sector in public projects through public-private partnership (PPP) structures, to both improve efficiency of delivery and support private sector development.

Digitisation

The changes in work practices and consumer behaviour during the pandemic have reinforced the fact that digitisation is no longer optional. Organisations in Qatar therefore need to go digital or lose customers.

Surges and peaks in remote access and online service usage have triggered CXO’s to consider new scalable technologies, alternate support models and investment into cloud or innovative digital solutions. Given the evolving expectations of the new remote customers and employees, organisations identified the need to collaborate among each other for the exchange of information, integration of processes, and provision of cohesive integrated cross-organisational services.

Dependency on local workforce and availability of skills and resources have been challenged by the pandemic; and created an opportunity to digitise and automate repetitive or logistical processes using RPA or full digital transformation. Retention has been challenging, and organisations have a high interest in offering more digital training to keep their employees engaged and their skills up-to-date. Based on our March 2019 Workforce of the Future Survey, 78% of the business and HR leaders across nine countries in the Middle East have emphasised the importance of building the future skills created by the impact of technology. Digital upskilling is a hot subject now, and proficiency in areas such as data analytics, artificial intelligence and digital solutions is becoming a norm for the future workforce.

Qatar is well positioned to become a regional or global leader in cloud services, given the existence of a conducive ecosystem. This includes excellent infrastructure in technology and data centers with cost efficient power and a highly educated and skilled workforce ready to take on technology and cloud innovation.

Glocalisation and Talent Attraction

There is a critical need to establish a demographic balance between the white-collar expatriate talent required to grow the economy and a well-trained capable and motivated local workforce that is not limited to the public sector. Qatar’s youth constitutes a strategic pool of local talent with a high level of cultural fit compared to expatriates who are often unfamiliar with the local culture. This highly tech-savvy and boldly ambitious generation is capable of easily adapting to the ever- changing business environment if they are well-equipped and trained. Qatar has made significant progress in education, as we discussed in the 2020 edition of Qatar Economy Watch, and PISA’s upcoming 2021 report will likely reflect recent progress as a result of investment in primary and secondary level education. However, there is still some way to go to match the capabilities of world- leading knowledge economies.

Attracting local talent to new sectors is an activity that starts off with education at the university level as in STEM fields and beyond. Hence, business-to-education partnerships need to continue and expand to serve new sectors. Another balancing factor to take into account are public-private partnerships. While it is unsustainable in the long term for the government and the public sector to remain the largest employer of local talent, partnerships with the private sector can lead the way to a smoother transition.

In order to attract and retain talented expats, Qatar has made substantial progress in labour reforms. Recently, a three year technical cooperation was concluded with the ILO, in which Qatar made positive strides forward through efforts such as wage protections and minimum

wage, labour inspections, and occupational health safety systems. Additional amendments and reforms have continued, such as the removal of exit permits.

Value Creation

The “new normal” has led organisations to challenge many aspects of the conventional way of doing business, and as a result, value creation will be at the heart of ensuring an organisation’s success, particularly within Qatar. Qatar is currently witnessing four key themes within the value creation landscape.

Firstly, asset managers and family groups are reevaluating their portfolios and long-term investment strategies, refocusing on growing core assets and divesting non-strategic assets. Secondly, organisations are actively pursuing M&A strategies and also increasingly considering partnerships and alliances to diversity products, services and create value. Thirdly, there is a diverse range of funding options available to Qatari investors and businesses, both from the private and public sector, and in particular for strategic sectors and assets. Finally, ESG themes and societal values have led organisations to reassess their purpose and contribution to a more sustainable future.

Energy Transition and Sustainability

In recent years, the GCC governments have made significant commitments towards sustainable growth and ESG issues in their national strategies, in parallel with the growing global shift from linear “take, make, use, waste” to a more circular economy model, a trend which has been accelerated by the pandemic.

Qatar has set some ambitious sustainability targets in the energy sector, including cutting its greenhouse

emissions from LNG facilities by 25% by 2030, ending routine gas flaring and preventing methane leaks along the gas value chain, as highlighted in QP Sustainability Strategy in January 2021. QP also aims to capture more than seven million tons per annum of CO2. Building on its commitment to generate 20% of energy from renewable sources by 2030, construction is underway on an 800-MW solar power plant project in Al Kharsaah, which is set to supply a significant portion of the electricity needs of QP’s North Field Project.

Qatar’s additional efforts include embedding the sustainability agenda into its major initiatives and projects, including its commitment to hold the world’s first carbon-free World Cup in 2022, featuring solar- power stadiums with low energy cooling and lighting systems and clean energy transportation. We have also seen a growing number of green construction projects including Doha Metro, the Msheireb Downtown, and Lusail City Projects which adopt renewable energy solutions such as on-site renewable energy generation, optimised ventilation, LED lighting systems, and carbon dioxide monitors.

For Qatar to reach its potential of being one of the regional leaders in energy sustainability, it is crucial for the country to continue adopting a holistic approach towards renewable energy development.

Getting from 2022 to 2030

At the time of writing, Qatar’s COVID-19 cases have fallen to their lowest level since the start of the pandemic and focus is shifting to the next stages of development. The World Cup next year is an obvious focus and the startup of the new LNG trains from 2025 will be a major driver of the economy. But the longer-term trajectory, working towards the goals of a more diversified and sustainable society, as outlined in Vision 2030, will depend on making progress on the six themes above to drive economic transformation and respond not only to immediate challenges, like pandemics and volatile energy prices, but the broader challenges presented by the megatrends.