The Islamic finance industry in Qatar has played a pivotal role in the development of the infrastructure which was key for FIFA World Cup Qatar 2022. It is estimated that over US$250 billion was spent by Qatar in the 12 years from the award of the right to host the World Cup to the closing ceremony of the event.
The World Cup has acted as a catalyst to fast-track the development of the country, its institutions, hard and soft infrastructure and, most importantly, its people. Qatar is now one of the leading economies in the region and among the largest exporters of liquefied natural gas (LNG) globally.
With the rapid growth of the economy over the last few decades, we have seen the creation, growth and maturity of a number of Islamic institutions. The development of local talent, improvements in the quality of life and the growth outlook of Qatar’s leadership have been key drivers in creating a vibrant banking sector which is set to continue to grow and expand within and outside of the State.
Review of 2022
Following the easing of restrictions around COVID-19, Qatar has witnessed an uptick in economic activity over the last year. Although much of this activity was anticipated, due to the remaining World Cup commitments of the State, the wider geopolitical situation in Europe has accelerated the pace of growth in the local economy and the speed of investment activities across the region and outside. The demand for Qatar’s LNG across the globe has led to a windfall in the short term and is likely to lead to a continued increase in revenue due to the medium-term increase in production capacity in the country.
Companies listed on the Qatar Stock Exchange reported a net profit of QAR39.41 billion (US$10.74 billion) for the first nine months of the year, which is an increase of 19.29% from the same time in 2021. A number of the Islamic banks made significant contributions to this outcome. Qatar Islamic Bank reported net profits of QAR2.85 billion (US$776.82 million), the net profit of Masraf Al Rayan (MAR) amounted to QAR1.36 billion (US$370.69 million) and Lesha Bank, formally known as Qatar First Bank, disclosed net profits of QAR63.6 million (US$17.34 million).
Islamic banks in Qatar have focused upon continuing to benefit from the digital transformation that was forced upon the sector as a result of the pandemic. Many of the Islamic banks in Qatar have been recognized for their digital offering in the region. For example, QIIB was awarded the ‘Best Islamic Digital Bank in the Year of 2022’ following the expansion of its presence in the digital sphere by being the first bank in Qatar to issue virtual debit cards through both online banking and mobile app platforms.
A global trend which has received greater attention this year in Qatar is a more focused approach to creating platforms for investors who are looking for higher levels of ESG. There are obvious synergies between Islamic banking and ESG principles and we are seeing Islamic banks now take advantage of these to attract a wider range of investors.
Earlier this year, MAR launched the first Shariah compliant green deposit and Islamic sustainable financing framework in Qatar. The initiative behind this framework aligns well with the Qatar National Vision 2030 as it presents ESG-related funding opportunities to investors and the proceeds generated would finance projects that fulfill ESG objectives, such as SME financing and renewable energy.
Preview of 2023
According to the World Bank, Qatar’s economy is expected to grow by 4.9% in 2023. This will, in large part, be propelled by the increased pricing for and demand in LNG, a commodity which Qatar will continue to produce for many years.
Given that the capex and opex costs associated with the World Cup are now in the rear view mirror, Qatar is likely to focus on the National Vision 2030 goals. These include creating a sustainable knowledge-based economy. To do so, Qatar will continue to drive forward initiatives that are aimed at diversifying the economy, promoting the SME sectors and increasing foreign direct investments.
Islamic banks in Qatar will continue to play a key role in financing the ongoing projects that are being planned for the country and in providing access to liquidity to foreign investors who come to town. The Free Zones Authority is working hard to increase the growth of the light industrial sector and this will require bank support.
Additionally, the Investment Promotion Agency of Qatar continues to provide a whole range of support across most sectors to investors who are looking to establish a presence in Qatar. Many financial institutions have already benefited from the incentives that are on offer. This trend is likely to continue in 2023.
Conclusion
Qatar has delivered upon its promise of hosting the World Cup and now enters into a phase where there will be greater focus on domestic needs and the National Vision 2030. This will see the acceleration of the diversification from hydrocarbons while attracting foreign investors. The Islamic banking benefit is likely to be a net beneficiary in the new world order of Qatar as financing procured on an Islamic and ESG-friendly basis continues to grow.
Amjad Hussain is a partner at K&L Gates. He can be contacted at [email protected].