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Market Diversification in Qatar and Saudi Arabia: What Does it Mean for Australian Exporters?

Market Diversification in Qatar and Saudi Arabia: What Does it Mean for Australian Exporters?

Part 1

In this two-part series, Hugh Dixson explores economic diversification in Qatar and Saudi Arabia and highlights the enormous opportunities on offer to Australian companies in a range of sectors.

The Arabian Gulf: On the road to diversification

The Gulf states have long been a prosperous economic zone, underpinned by vast natural resources. The export of oil and natural gas has seen the economies of countries like Qatar and Saudi Arabia expand rapidly, particularly over the last decade or two.

In the past decade, both Qatar and Saudi Arabia have implemented policies of economic diversification. Their aim has been to reduce reliance on natural resources – and therefore exposure to the fluctuations of the global oil market – and to stabilise economic performance.

This policy shift has helped to stimulate growth in other sectors such as construction, financial services, health, tourism and renewable energy. It has also created opportunities for Australian companies from all sectors to capitalise on growing markets in already wealthy economies.

Australian exports to Qatar and Saudi Arabia are currently relatively low, partially because many companies see these markets as ‘too hard’. However, as major diversification programs get underway, both markets offer numerous, lucrative options for market entry. Now, more than ever is the time for Australia to do business with Saudi Arabia and Qatar.

Qatar: Hydrocarbons no longer the golden child

Qatar has immense hydrocarbon resources, the production and export of which have given it the highest GDP per capita in the world. Oil and gas exports account for 89% of total export earnings from Qatar and account for approximately half of its GDP.

However, while oil & gas  has underpinned GDP growth levels in excess of 10% since the early 2000s, the Qatari government halted expansion in the hydrocarbons sector in 2005,  to conserve its natural resources and facilitate economic diversification. Notably, the government placed a moratorium on any further development projects in the North Field, an area in the Arabian Gulf just off Qatar’s coast that gives Qatar the world’s third largest natural gas reserves.

The reduction of development in the hydrocarbons sector saw Qatar’s GDP growth fall from 14.1% in 2011 to 6.2% in 2012. Nonetheless, the move has had the desired effect of spurring greater investment in and expansion of the non-hydrocarbon sectors. This gives Australian companies the opportunity to export both goods and services to this growing market in Qatar.

Qatar: Market diversification creates new opportunities

As part of the Qatar National Vision 2030, which outlines Qatar’s development objectives, the tiny state plans to transform into a high-wage private sector economy, with a particular emphasis on developing small and medium enterprise. This policy, which has created  a growing need for financial, management and business services is particularly exciting for Australian businesses, which exported professional services worth $27 million to Qatar in 2012-2013. Qatar’s desire to grow its non-hydrocarbon economy will also require it to significantly develop its education, research and health industries, presenting opportunities for Australian education providers and medical, technological, scientific and business research firms to enter the market.

Qatar’s economic future also depends on food security and construction. A lack of water resources and arable land make food security a salient issue for the Qatari government.  Bilateral agribusiness trade, which has been growing since 2008, will therefore continue to be a key foundation of our exports to Qatar.

Having won the right to hold the FIFA 2022 World Cup, increased demand for the construction of hotels and tourism infrastructure, stadia, transport and roads is expected in Doha and throughout Qatar. Many of the contracts for these construction projects are being awarded or will be awarded within the next few years, adding to the existing high demand for construction goods and services in Qatar. For example, Qatar was the 4th biggest importer of Australian aluminium in 2012-2013, the total export valuing $39.4 million.

Australian exports to Qatar have expanded rapidly over the last decade to a value of $502 million in 2013. This trend is being fuelled by Qatar’s move to rapidly diversify its economy away from reliance on hydrocarbons.

Part Two of this blog, which will be posted tomorrow, will address the diversification changes happening in Saudi Arabia and will make concluding remarks about both case studies of market diversification in the Middle East.

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