Asia the place to invest in Saturday, 04 February 2012 01:24

Finding a strategic balance between the east and the west will be a key challenge for Qatar

By Satish Kanady

With an estimated  (not less than) $100bn in its foreign investment portfolio and billed as the custodian of one of the world’s biggest corpus funds, Qatar seems to be shifting its investment focus from the west to the east. As the Emir H H Sheikh Hamad bin Khalifa Al Thani wrapped up his week-long Asian trip, the country committed multi-billion-dollar investment in the emerging Asian economies.

Qatar made its biggest deal of the year when Chinese Premier Wen Jaibao paid his maiden visit to the country last week. It signed a $10bn petrochemical joint venture with China’s CNPC and Royal Dutch Shell Plc, in addition to a slew of agreements in finance and trade sectors. The Chinese partnership comes close on the  heels of the country signing multi-billion dollar trade deals with other Asian economies like Japan, South Korea, Philippines, Vietnam and Sri Lanka.

Philippines Trade Under Secretary Cristino Panlilo believes Qatar is likely to formalise $1bn initial investment in Philippines. Though the amount involved in the bilateral agreement between Qatar and Sri Lanka was not disclosed, the countries signed nine key agreements during the Emir’s visit to the island nation.

Qatar Petroleum International (QPI) will pick up a 25 percent stake in the $4bn Long Son petrochemical project in Vietnam.

Qatar’s growing interest in the Asian economies indicates the country is acutely aware of the tectonic shift that is taking place in the global economy and the balance tilting towards the east.

Qatar’s Sovereign Wealth Fund, Qatar Investment Authority (QIA) is one of the richest corpuses in the world. QIA has been active in the western market over the last several years, spending more than $20bn on stakes in German carmakers Porsche and Volkswagen, and German builder Hotchtief. It has snapped up Britain’s luxury department store Harrods and other high-end London properties. The latest in the buying spree is a joint venture deal to purchase the London 2012 Olympic Village .

In June 2008, QIA paid about $208bn for stake in British bank Barclays. Al Sharq reported Qatar made investments worth a whopping $21bn in various avenues across the world in 2010. In August 2011, Qatar injected ¤500m in the merger deal of Greece’s Alpha Bank and Eurobank.

But with a worsening debt crisis and the real prospect of a recession, Qatar now seriously doubts whether European financial investments would serve its long-term, strategic investment goals; and Qatar is increasingly looking to Asia for growth and investment. It believes investing in energy and technology projects in the high-growth Asian economy might make more sense than buying into an apparent sunset western economy.

Qatar has a huge asset exposure to the eurozone banks. In October 2011, it urged European governments to resolve their sovereign debt woes and voiced caution on whether to help eurozone countries trying to enlarge their bailout facility for troubled banks. International media quoted the Prime Minister and Foreign Minister H E Sheikh Hamad bin Jassem bin Jabor Al Thani as saying at the Jordan World Economic Forum in October 2011: “If there is nothing positive then we will find a very difficult situation, not in Europe but in the world, that would take a decade to fix.”

The Prime Minister’s statement came as the country’s sovereign wealth fund bought into Greece’s crisis-hit banking sector and a mining business in recent months and is thought to be eyeing further investments in the beaten-down European assets.

A week ahead of his Jordan statement, the media reported Qatar was unlikely to be the white knight for European banks. They reported Gulf investors are likely to see many of the banks as too risky and out of the line with their investment strategies.

As Europe’s banking system has weakened over the last several months, financial markets have been abuzz with rumours and media reports about possible investments from the Gulf, particularly from Qatar which has been on an international acquisition spree, in the troubled eurozone. But Qatar didn’t take the bait, except in the Dexia bank deal.

The nervousness over eurozone economy is evident from the retreat of Asian and Mideast buyers in eurozone bailout bonds. Middle Eastern buyers, especially the sovereign wealth funds and central banks, have significantly cut their investment in Europe’s bailout fund bonds over the past year.

Global media reported the proportion of new European Financial Stability Facility (EFSF) bonds bought by central banks, foreign governments and sovereign wealth funds has fallen from 54 percent in June to just 17 percent in January’s sale. Over the same period, Asian and Middle Eastern buyers of new EFSF bonds have fallen from 50 percent of new issue demand to 12 percent.

New figures from the Bank of International Settlements released on January 2 showed that banks outside the eurozone have reduced their total holdings of the public and private debt of the troubled countries in the zone.

International experts from Asian region believe that in this changing global economic map, Asian economies are key for the Arab countries.

Dr Sahid Javed Burki, former vice president, World Bank said recently in Manama that the Arab world should begin to delink from the West and connect with other parts of the world for their economies to grow. This is important because it was in China and countries of South Asia that one can find skills the world need, he said. The Arab region has and will increasingly need people imports for their economies to grow and these imports will come from East and South Asia, he said.

Dr Burki, who is the former finance minister of Pakistan, and currently the chairman of Institute of Public Policy, Lahore, said a ‘grand bargain’ with the West, which had emerged after the discovery of oil in the Middle East, had lapsed.

Qatar’s shift to Asia is very much evident from its recent announcement in the trade partnership and investments in the emerging economies, including the economic power house China. “The shift in Qatar’s LNG trade volume itself is a strong indication of balance tilting,” a top banker told The Peninsula.

Weak economic performance has led to a lower gas demand in southern European nations. north-west Europe, especially Britain, depended on Qatar for nearly all of its liquefied natural gas (LNG) last year. But Qatari LNG exports to Europe fell 22 percent in 2011 due to higher demand in Asia.

A Waterborne Energy report said: “In total, 87 percent of the LNG imported into north-west Europe in 2011 came from Qatar’s two liquefaction plants. Britain is particularly threatened by the prospect of lower Qatari supply to Europe.”

Japan imported an extra 3.17m tones of LNG from Qatar between March and November 2011 compared with the same period in 2010. Other Asian countries also  saw increased appetite for LNG last year, importing 69 percent more, Waterborne figures showed.

According to market analysts, in the coming years oil demand will be an important factor in the shift in trade to emerging markets.

The Economist Intelligence forecast suggests that where as demand for oil will grow by only 0.1 percent over the next five years in the Organisation for Economic Cooperation and Development (OECD), demand growth in Asia will reach 4.4 percent. In emerging markets as a whole, demand for oil will rise by an average 3.9 percent per year.

In terms of the GDP, the projection is that 41 percent of the world’s GDP will come from countries that are currently defined as emerging markets. In 2011-2015, emerging markets are expected to generate just under two-thirds of global economic growth. Qatar is obviously going by these global cues, they believe.

So what does this shift mean to Qatar? Can Qatar write off its traditional western partners as complete ‘weak horse? A Doha-based financial industry expert says despite the economic gloom that has threatened the entire economic model, several western developed economies remain fundamentally strong. He believes the hegemony of these countries cannot be dismissed too quickly.

Despite the continued monetary squeeze in many countries, Europe has its own champions. Germany emerged strongest in the region from the economic meltdown. Now the world’s fourth largest economy boasts of not only industry-leading firms but also one of the world’s strongest small and medium-sized enterprise sectors.

“Qatar’s global opportunities are not just confined to West. It has been exploring to the emerging economies and Asian economies as well,” said Doha Bank Group CEO R Seetharaman. It’s true Qatar has ventured into Asian markets for various investment and other bilateral opportunities as well. This doesn’t mean Qatar has ignored the West. On the contrary Qatar continues to invest in the West and also has spread its investment into Asian economies.

In recent years Qatar has invested in J Sainsbury, Barclays Bank, the London Stock Exchange and Credit Suisse. Qatar has also invested in London’s Chelsea Barracks and Harrods in London.

So, while adopting a “Look East” policy to latch on to the emerging centres of growth and economic vitality, Qatar cannot write-off the West. Finding a strategic balance, and carving a strategic place for itself in this changing global economic geography, will be the key challenge for Qatar.

The Peninsula

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