Stocks to Soccer Add Up for Qatar Needing Funds Back Home

Photographer: Gabriela Maj/Bloomberg

With a domestic economy smaller than Missouri’s, Qatar used the windfall from energy to transform itself into a kingmaker in global finance and Middle East politics in less than a decade. Close

With a domestic economy smaller than Missouri’s, Qatar used the windfall from energy to... Read More

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Photographer: Gabriela Maj/Bloomberg

With a domestic economy smaller than Missouri’s, Qatar used the windfall from energy to transform itself into a kingmaker in global finance and Middle East politics in less than a decade.

After paying for stakes in European companies, landmarks in London, uprisings in the Middle East and a soccer title in France, Qatar may be getting ready to go home.

The $60 billion-a-year spree by the world’s richest country, dominated by holdings in companies such as British bank Barclays Plc (BARC) and German carmaker Volkswagen AG, is set to slow as energy revenue dips because of a drop in prices and stalling production. Qatar meanwhile plans to spend $200 billion on projects including roads, air-conditioned stadiums and a metro line before hosting the 2022 soccer World Cup.

The retreat might be timely. While the funds bought the Gulf emirate the regional leadership role long held by Saudi Arabia and Egypt, it’s also turned it into the lightning rod for rebellion against new governments. In recent weeks, protesters burned Qatari flags in countries whose revolts it helped fund. A Qatari plan to invest in some French suburbs last year spurred lawmaker Lionel Luca to seek an investigation into the motives.

“There is indeed a backlash occurring and it’s important for Qatar to maintain its energy focusing on its domestic development as opposed to supporting groups” in the Middle East and North Africa, said Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis in Dubai. “There is pressure on the leadership to focus on internal issues instead of grandiose foreign policy objectives.”

New Kingmaker

With a domestic economy smaller than Missouri’s, Qatar used the windfall from energy to transform itself into a kingmaker in global finance and Middle East politics in less than a decade.

Last year, it pushed Glencore International Plc (GLEN) to raise the offer for Swiss miner Xstrata Plc in a $31 billion acquisition. The government aided rebels from Libya to Syria and has pledged $8 billion in support to Egypt’s Islamist leadership. The emirate has spent as much as $3 billion backing Syrians fighting to overthrow President Bashar al-Assad, the Financial Times reported on May 17, and was the first Arab state to host a Syrian opposition embassy.

Qatar may give Egypt $4 billion more in aid, an Egyptian Finance Ministry official said last night, asking not to be named pending a public announcement.

Spending to support the groups helped Qatar compete for influence with long-time powerhouses in the Middle East, notably Saudi Arabia, the biggest Arab economy.

“The primary tool of diplomacy for Qatar is the money,” Michael Stephens, a researcher at the Royal United Services Institute in Doha, said by telephone. “There is a role right now for a state like Qatar; small, nimble, it’s not overtly threatening. It was the right country at the right time.”

Energy Revenue

Qatar’s $183 billion economy makes it the world’s richest based on gross domestic product per capita, according to the International Monetary Fund.

While still awash with cash, its economic growth is slowing as gas exports level off and oil yields decline in an economy that’s half based on petroleum, a government report in December said. Brent crude prices have fallen 5.8 percent this year after rising 18 percent in the five years ended 2012.

Citigroup Inc. (C) estimates the budget surplus in the country, the biggest liquefied natural gas exporter in the world, will turn to deficit by 2015, while the IMF predicts a current account shortfall in 2017.

The pending drop in Qatar’s spending also comes amid rising resentment of the emirate’s influence.

In Libya, where Qatari jets joined NATO in fighting forces loyal to former leader Muammar Qaddafi in 2011, the emirate’s flag and effigies of Sheikh Hamad Bin Khalifa Al Thani, the Qatari emir, were burned this month by protesters in Benghazi. They accused Qatar of funding the Muslim Brotherhood, which took 10 percent of the vote in elections last year.

Getting Burned

Qatari flags were also burned in Egypt a week after it extended $3 billion in aid, Al Ahram newspaper said on April 20. Those protesters accused Qatar of backing the Muslim Brotherhood government. Satirist Bassem Youssef poked fun at the issue in April when he led a rendition of “Qatar, My Beloved,” a spoof of an original song called “My Homeland, My Beloved.” The choir’s lines included “Oh Qatar, which is filling our pockets,” and the government is “selling Egypt wholesale.”

Anti-Qatar demonstrations in Tunisia prompted President Moncef Marzouki on April 11 to ask his countrymen to stop insulting the Gulf country, which pledged $1 billion in loans, Agence Tunis Afrique Presse reported.

“Qatar has made these financial commitments and not really thought through the long-term ramifications,” Stephens at the Royal United Services Institute said. “When you interfere in the Arab world, you are going to get burned.”

Shard, Harrods

Qatar’s money came from a surge in oil prices and natural gas output, helping the OPEC member run an average budget surplus of more than 8 percent of GDP between 2008 and 2012, according to IMF data. That compares with 2.5 percent for the United Arab Emirates, the second-biggest Arab economy.

Investment abroad averaged $60 billion a year in the same period, the IMF said in a January report, citing sovereign wealth fund staff estimates.

Qatar acquired 95 percent of the Shard in London, Europe’s tallest building, after the central bank bought into the project in 2009. Qatar Holding LLC, part of the Qatar Investment Authority, purchased Harrods department store in London for 1.5 billion pounds ($2.3 billion) a year later.

The country also bought stakes in companies including Barclays, the second-largest bank by assets in the U.K., Credit Suisse Group AG (CSGN), which has the same position in Switzerland, and Tiffany & Co. (TIF), the world’s No. 2 luxury jewelry retailer.

Barclays Support

Qatar Holding stepped in to support Barclays after the 2008 financial crisis and now holds 6.3 percent of the bank, worth about $4 billion, according to data compiled by Bloomberg. The fund invested in Volkswagen in 2009 as part of the carmaker’s planned merger with Porsche. Its current 17 percent stake is worth about $10 billion, the figures show.

In France, the Qataris bought soccer club Paris Saint-Germain in 2011 and funded purchases of players including England’s David Beckham and Zlatan Ibrahimovic from AC Milan. The team, known as PSG, secured its first French championship in 19 years this month.

A spokesman for the country’s sovereign wealth fund declined to comment when contacted for this story. An official at the prime minister’s office didn’t return a phone message.

With a population of 1.9 million people, the overseas investments were necessary to deploy financial resources too large for the domestic economy, according to George Abed, director of Africa and Middle East at the Institute of International Finance.

Deficit Prediction

The sovereign wealth fund is in talks to buy “iconic” hotels in London and Rome, Christopher Knable, chief operating officer at Katara Hospitality, a unit of the fund, said in an interview this month.

“Qatar is in a different situation; its wealth at this point far exceeds its needs for finance, therefore it has to diversify,” Abed said. Still, expansion “at this rate at some point will have to slow down,” he said in a Dubai interview.

Citigroup sees that moment coming earlier than others. A drop in oil output and a government moratorium on further natural gas production may lead to “modest” budget deficits between 2015 and 2017, Farouk Soussa, Dubai-based chief Middle East economist at Citigroup, wrote in a report in March.

Money from the government to the sovereign wealth fund “is going to start diminishing,” Soussa said on April 29. “What we might see is the flow to be reversed, for the sovereign wealth fund to finance possible government deficits.”

Local Boost

Roubini Global Economics expects Qatar to post a deficit within three to five years, according to Rachel Ziemba, director of emerging markets. Standard Chartered Plc (STAN) economist Philippe Dauba-Pantanacce doesn’t see a deficit except in the unlikely event of Qatar renegotiating gas delivery contracts.

As it prepares to host the World Cup, the most-watched sporting event, Qatar plans to build solar-powered stadiums, more than double hotel and apartment rooms as well as constructing a $35 billion rail and metro network.

Spending will help the non-oil economy expand as much as 16 percent a year from 2015 to 2018, Monica Malik, Dubai-based chief economist at EFG-Hermes, the biggest publicly traded Arab investment bank, wrote in a May 9 report.

The government will boost outlays by about 18 percent, while projected revenue may increase 6 percent, according to the approved budget for 2014. That would narrow the fiscal surplus to 6.6 percent of economic output, Malik said.

The risk is “overheating” its economy by spending too much “of its hydrocarbon proceeds in its own country rather than lacking money to do it,” said Dauba-Pantanacce. Still, while Qatar may swing into deficit later than other neighbors, the pace of overseas investment will likely slow, Ziemba said.

“We are probably reaching a point where for some of the big investments the question will become: when do they exit?” she said.

To contact the reporters on this story: Robert Tuttle in Doha at rtuttle@bloomberg.net; Alaa Shahine in Dubai at asalha@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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