Relations with Europe Move Beyond Investment and Trade

01 Jan 03:19 AM

Sector : Economy & Int'l Relations Country : Qatar

 By Andrew Cunningham

For a country smaller than Belgium with a national population similar to that of a small European city, Qatar enjoys a remarkably high profile on the global stage. Whether it is the successful bid to host the 2022 FIFA World Cup, prominent support for the Libyan rebels who overthrew Muamar Qaddafi, and for those still trying to unseat Syria’s Bashar Assad, or its central role in the merger of mining giants Xtrata and Glencore, Qatari influence and interests can be seen throughout the globe and in a wide array of sectors.

 

But this diversity of interests and influences raises questions about where Qatar’s global priorities lie. Is the focus on Asia, the destination for nearly half of the country’s exports of Liquefied Natural Gas (LNG) or the US, which backed the current Emir from the start and remains the most influential foreign power in the Middle East, or is it Europe, the continent to which much of the country’s investments are directed?

“Qatar’s regional position as a small rich state implies that reaching out beyond its borders, regionally and internationally, is set to grow as a foreign policy stance,” said Dr. Florence Eid, Founder and Chief Economist of Arabia Monitor, a London-based consulting firm. “Europe is, and will remain, one of the pillars of such a stance.”

Europe is One of Qatar’s Biggest Trading Partners

In purely economic terms, the importance of Europe cannot be denied. The 27 countries of the European Union accounted for one third of Qatar’s imports in 2010, twice as much as the US, and more than twice as much as Japan, China and South Korea combined (see table).

As a recipient of Qatar’s exports, the EU-27 ranked third behind Japan and South Korea, although the most striking feature of Qatar’s export statistics is that six of the top seven countries are Asian, accounting for 70 percent of total exports.

Despite Qatar’s increasing focus on LNG exports to Asia – four new long-term supply deals to Asia were signed in 2012, including the first to a South East Asian country, Thailand – the energy relationship with Europe remains important.

“With Europe unlikely to become an aggressive explorer of shale gas, Qatari gas is likely to remain a significant import for Europe, and export for Qatar,” said Dr. Eid. Britain features particularly prominently in the calculation – it is the largest European customer for Qatari LNG and its reliance on Qatar is likely to increase as domestic production continues its long-term decline.

But the relationship with Europe is based on much more than the – admittedly crucial – energy supply contracts. The French connection is particularly close. The Qatari authorities developed a close relationship with former President Nicolas Sarkozy - the independent stance of both countries’ foreign policy was mutually attractive. More concretely, France supplies about 80 percent of Qatari defense equipment and French oil company Total has always enjoyed strong ties with Doha. Total holds equity stakes in Qatar’s LNG companies and refineries, and in November 2012, renewed an operating and exploration agreement with Qatar Petroleum relating to the al-Khaliji oil field.

The Relationship with the US Remains Strong

Walid Khadduri, a former editor of the Middle East Economic Survey and a seasoned observer of Arab politics, stresses the continuing importance of the US relationship. He points out that when the US had to withdraw its military facilities from Saudi Arabia in 2003, it was Qatar that filled the gap, making al-Udaid available for a vast new air base. Mobil oil company has always been strong in Qatar, and this position was strengthened following the merger with Exxon, for whom Qatar presented an ideal source of gas to replace declining production from the Natuna field in Indonesia. “I don’t see Europe as a priority for them now,” said Khadduri, citing not only low expectations of economic growth in Europe, but also Qatar’s increasing diplomatic work in the Middle East.

Nonetheless, the extent of Qatar’s investments in Europe are hard to ignore, and they are growing. Qatar is believed to have invested more than $30 billion in London in recent years with shareholdings in London’s iconic Shard building, the tallest building in Europe, Harrods, and the supermarket chain Sainsbury’s. Qatar also invested heavily in Barclays when the bank needed capital at the height of the global financial crisis.

Britain is not the only beneficiary of Qatari investment. In 2009, Qatar Investment Authority took stakes in German car makers Volkswagen and Porsche, and in 2012, Qatari investors bought the Italian fashion house Valentino. Qatari investors have also taken an interest in the European football scene. “Qatar Sports Investments” owns the French team Paris Saint Germain, and in late 2012, the Qatar Tourism Authority began a sponsorship deal with the team. A member of Qatar’s ruling family owns the Spanish side Malaga, and Qatar Foundation has a shirt-sponsorship deal with European champions, Barcelona.

Controversy in France

But Qatar’s European investment strategy has not always been straightforward. In September 2012, an announcement that Qatar would support small and medium sized enterprises in French suburbs had mixed responses from the public. But the Qatari ambassador in Paris, Mohammed al-Kuwari, put up a spirited defense of the move. He said that Qatar had been responding to a request for investment by a visiting French delegation and that Qatar was keen to invest in small projects, not just the large scale and iconic investments for which it has become known. And, significantly, the ambassador stressed his government’s desire to create partnerships in Europe that, in time, could lead to businesses and jobs being created in Qatar.

Building Two-Way Relationships

“The key point in Qatar’s national vision is the desire to move away from hydrocarbons,” said an official with the Qatar Development Bank, adding that sectors being targeted include aerospace, tourism, alternative energy, and manufacturing.

In the years ahead, it will be Europe’s ability to contribute to Qatar’s vision of its own future, just as much as its position as an investment market and trade partner, which will determine the quality of its relationship with Qatar. That will require imagination and commitment in the political sphere as well as economics and finance.

 
 
Andrew Cunningham
Founder, Darien Middle East
 
 
Andrew Cunningham is the founder of Darien Middle East, a London-based consultancy providing advice and analysis on Middle Eastern and global finance.
He spent nine years with ratings agency Moody’s.

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