2020 has been a challenging year for markets around the world as they continue to deal with the impact of COVID-19. During the second quarter of 2020, the economy of Qatar declined due to COVID-19 restrictions and preventative measures, but the market remained resilient despite the consequences of the pandemic on the economy. As the government eases lockdown restrictions, Qatar’s economy appears to be recovering. According to projections by Trading Economics, the GDP of Qatar is expected to reach US$160 billion by the end of 2020.
Review of 2020
On the 24th September 2020, Moody’s Investors Service announced its review of ratings in Qatar, affirming that the long-term issuer and foreign currency debt ratings on the government of Qatar are at ‘Aa3’, with a steady outlook. Moody’s explained that the strong ratings are a result of Qatar’s large hydrocarbon reserves, the high levels of per-capita income (which was US$132,886 in 2019), the government’s strong net asset position and Qatar’s effective macroeconomic policies.
A number of Islamic banks announced their results for the period ending September 2020. Masraf Al Rayan reported a net profit of QAR1.66 billion (US$448.04 million) for the period ending the 30th September 2020, which is a 0.53% increase compared with the same period in 2019. Qatar Islamic Bank (QIB) also announced its results for the period ending on the 30th September 2020. QIB’s net profit remains stable, amounting to QAR2.22 billion (US$599.19 million), which is in line with its net profit of 2019. QIB also reported a total income of QAR5.96 billion (US$1.61 billion), a 4.4% increase from the income reported in 2019. In addition, Al Ahli Bank announced a net profit of QAR500.78 million (US$135.16 million). Islamic banks in Qatar have been implementing strategies to mitigate the effects of the pandemic, and these results highlight the banks’ efforts over the last few months.
During 2020, the State of Qatar introduced a number of new regulations and notable regulatory reforms, including the public–private partnership (PPP) law, the executive regulations of the foreign investment law, the law on ownership of real estate by foreigners and amendments to the labor law in an effort to improve the economy and encourage foreign investment in the State. On the 1st September 2020, Qatar witnessed the first PPP agreement of its kind in the education sector as Barwa Real Estate Group and the Public Works Authority signed a PPP agreement to develop eight public schools in Qatar.
Technology and innovation have been an area of focus for Qatari banks for the last few years, and a move toward digitalization and innovation was further accelerated by COVID-19, which pushed financial institutions, including local Islamic banks, to invest in and offer new digital products and services to meet the needs of their customers. In February this year, Qatar International Islamic Bank (QIIB) launched the SWIFT gpi payment system, which facilitates international payments and offers full transparency to customers. QIIB announced the completion of the implementation of the third phase of the SWIFT gpi system in October 2020, making it the first bank in Qatar to complete the implementation of this program. The SWIFT gpi system provides instant information on the status of transactions, and allows customers to track their transfers in a quick and efficient manner. QIIB announced that the system also provides a number of other services, including high-tech features, which will be announced in the near future.
Preview of 2021
As we have seen this year, local Islamic banks in Qatar have been swift in adopting new technology and in launching their own digital programs, and we expect this momentum to continue in 2021 as part of Qatar’s fintech strategy. Qatar Central Bank (QCB) announced that it plans to launch sandbox technology to enhance computer security on a state level. The governor of QCB stated that the sandbox technology “will pave the way for a new era of financial services in the State of Qatar, as part of the financial inclusion strategy, which will be launched soon at [the] state level”.
As part of Qatar National Vision 2030, the government intends to invest nearly QAR60 billion (US$16.19 billion) in infrastructure and real estate projects over the next four years. GlobalData expects construction output to grow by 3.8% between 2021 and 2024. In addition, the ratification of the PPP law is expected to encourage private sector involvement and investment in the development of infrastructure in the State. We anticipate that these factors will boost the Islamic banking sector in Qatar, as banks will be eager to participate in financing infrastructure projects.
According to investment bank Societe Generale, Qatar’s GDP is expected to rise to more than US$200 billion in 2021. Societe Generale added that Qatar’s GDP per capita has been estimated to reach US$72,554 in 2021, compared with US$70,737 this year.
Conclusion
With COVID-19 cases around the world continuing to spread and countries starting to reinstate lockdown measures, the future of economies remains uncertain. Nevertheless, we expect that the support of the Qatari government, including the amount of subsidies offered to private and public institutions, the shift toward digitalization and the number of regulatory reforms, will assist the financial market and local Islamic banks through these uncertain times.
Amjad Hussain is a partner at K&L Gates. He can be contacted at [email protected]