Qatar - Overview of economy

Qatar's domestic economy is heavily dependent on the hydrocarbons sector. Oil accounts for about 40 percent of gross domestic product (GDP) and about 63 percent of government revenues. Qatar's oil reserves are small relative to its Persian Gulf neighbors, although its output has tripled in recent years with the exploration of new fields. Other non-oil industries exist, but they are heavily dependent on the oil sector, which means that Qatar's dependence on oil is likely to continue for a long time to come.

More importantly, Qatar has the third-largest reserves of natural gas in the world. Its reserves are expected to last for 250 years at the current rate of production. The government has increased emphasis on the natural gas sector since 1990 with the goal of replacing oil as the main

source of revenue. Several hydrocarbon-related industries, mainly petrochemicals, have also been set up since 1990. It is likely to take years before this diversification strategy begins to yield profit, however, largely because of the huge investments and heavy foreign borrowing that the government needed for the development of the natural gas sector. These loans would have to be paid before the government could show a profit.

Agriculture is not a major contributor to the economy. The state, which owns all agricultural land, has attempted to promote production by increasing the number of small farms. These efforts have been largely unsuccessful, mainly because of the lack of water for irrigation.

Qatar entered the 20th century as a tribal settlement on the peninsula nominally controlled by the al-Thani tribe, whose exact origins remain unknown. Real power, however, rested with the British, who effectively controlled the country's foreign relations. The al-Thani ruling family had signed a series of treaties with the British in the 19th century. In return the British promised protection against other powerful regional tribes, especially the Wahhabis from neighboring Saudi Arabia and against Bahrain, which claimed Qatar as its own. By the end of World War I, however, Qatar's importance had waned, largely due to the diversion of British trade routes to India after the opening of the Suez Canal. Unlike bigger oil producers in the Gulf region, oil was not discovered in Qatar until the 1950s. Until the 1970s, foreign companies, who owned and managed the oil industry in return for fees paid to the al-Thani family, dominated oil production. By the early 1990s, many of the foreign subsidiaries had become completely state-owned. After several Gulf sheikhdoms declared their independence from the British, Qatar followed suit on September 3, 1971, after securing continued support from the al-Saud tribe that ruled neighboring Saudi Arabia.

Since the early 1970s, increased oil revenue has allowed the government to embark on massive development projects that brought rapid material and social change. The state's role in the economy remains central, as the government controls the oil revenue. Income from oil fluctuates according to changes in world oil prices. The government's dependence on oil revenue and decades of government overspending have resulted in recurring budget deficits , especially during low oil prices, and a high external debt , which was estimated by the EIU to have reached US$12.2 billion in 1999.

Since 1997, at the recommendation of the International Monetary Fund (IMF), Qatar has embarked on a program to reduce subsidies on utilities, gasoline, wheat, and sugar and to introduce charges for health care and education for the purpose of stabilizing the exchange rate . As a result, the expatriate community in Qatar no longer enjoys free medical benefits. Services to Qataris, however, continue to be heavily subsidized by the state. In 1999, an official stock market was set up and the government issued 2 domestic bonds and 1 international bond as a means to develop alternative financing methods. In 2001, the government plans to privatize the generation, transmission, and distribution of utilities, and to continue its policy of encouraging locals to seek employment to reduce the country's dependence on foreign workers. The government is also expected to continue to encourage the private sector to play a bigger role in the economy.