Thursday, April 11, 2013

Implications of FIFA 2022 on the investment climate in Qatar and GCC

On December 2010, Qatar became the first Arab nation to host a FIFA World Cup. Hosting an international sports event has its own pros and cons. It requires huge capital investments, which will likely be rewarded by improving the investment climate in the region. Qatar will invest roughly $100 billion over the next decade in the preparations for FIFA 2022 World Cup. The event will spur economic activity, improve tourism, and attract foreign investments not only to Qatar but to the entire GCC region.

Qatar wins the bid to host 2022 FIFA World Cup
The bidding process for hosting Fédération Internationale de Football Association (FIFA) 2022 World Cup began in January 2009. A total of eleven countries (nine bids, as two were joint bids) participated in the process. Qatar, the only Middle East nation to participate in the bidding process, won the approval of the executive committee in December 2010. Extreme temperature in Qatar during summer (40oc) was the one of the main concerns for FIFA’s executive committee, as the event is usually conducted during June-July. Sheikh Mohammed bin Hamad bin Khalifa al-Thani, the 2022 Qatar bid chairman, removed the concern by promising to have the stadiums technologically capable (and uses solar energy) to reduce the temperatures by up to 20oC. Thus, Qatar became the first Arab nation to host the FIFA World Cup.

Why do countries bid for International events?
Countries compete on a global level to host major international sporting events, such as Olympics, Asian Games, and Commonwealth Games, as it brings a lot of benefits to the hosting nation, both near-term and long-term. Firstly, large-scale infrastructure investments for the preparation lead to a spur in economic activity, not only in the host nation but also in the surrounding region, who usually are major trading partners with one another. These investments also happen rapidly, as timely execution of infrastructure projects is essential for the conduct of the event. Secondly, the event attracts audience from all over the world, promoting tourism in the region. Finally, hosting such an event provides an opportunity for the nation to market itself to the international investing community, thus bringing in cash flows through Foreign Direct Investments (FDI) and Foreign Institutional Investments (FII).

London Olympics 2012 – A case in hand:

(The above headline from BBC puts the economic benefits from hosting London Olympics to the UK economy succinctly clear)

World Cup Preparations:
Hosting an international sports event is a costly affair. Estimates of the likely spend range from $65 billion to more than $100 billion. Qatar will build 84,000 hotel rooms, more than double the current capacity, and invest about $24 billion in rail and metro network. The 2022 World Cup final will be held in Lusail, a newly build city for 200,000 people on the outskirts of Doha. Lusail will be linked to the rest of the country by newly constructed roads and rails. Outside of the World Cup plan, Qatar is also building a new airport (New Doha International Airport), which can handle about 50 million passengers a year, and is also laying a 40-km bridge connecting it with the neighbouring nation, Bahrain.


So, what does Qatar and GCC gain out of it?
Recently, Qatar has been growing roughly at the rate of 14 percent per year. The huge investments for the monetization of its natural gas assets aided in the strong growth in recent years. As the LNG investments decline, the preparation for FIFA 2022 will act as a catalyst for the economy during the next decade. Although construction and hospitality will be the major beneficiary sectors, the FIFA 2022 preparation will provide a boost to other services sectors, such as banking, as well. The huge capital requirements will make many companies go public and raise money from capital markets, which will improve the depth of the country’s financial markets. Also, the resultant improvement in infrastructure will remove bottlenecks for other sectors, setting stage for long-term growth. Qatar economy depends heavily on hydrocarbons for its growth. Oil and gas industry accounts for more than 50 percent of its GDP, 85 percent of export earnings, and 70 percent of government revenues. FIFA 2022 preparation will lower hydrocarbon dependency and aid in the diversification of the economy. As the economy diversifies, investments from private sector will grow. FIFA 2022 will act as a growth catalyst for the GCC peers, but to a relatively lesser extent. Tourism will flourish in the entire Middle East region during the event. Tourists, who visit Qatar for the event, will also likely visit tourist destinations in Dubai. Organizations in GCC will compete for business opportunities in the investments by Qatar. Trade between GCC nations will improve. Finally, an event of such magnitude will gain the attraction of investors around the globe. The sporting event will be an opportunity for Qatar and the region to highlight its potential and infrastructure strength. Hosting an international event will prove that the government is open to foreign investments. Cash inflows, in the form of FDI and FII will flow into the region, boosting its economy. However, Qatar has to be mindful of certain caution areas. International sporting events, which require huge capital investments, may put near-term pressure on government finances, constraining spending in other areas. Also, some of the investments will be rendered less useful after the event. E.g., Occupancy rates will drop post the event. Nevertheless, a bulk of the spending will contribute to the future growth of the economy.

Major Sources:
1. Central Intelligence Agency. “The World Factbook: Qatar.” Last Updated on 7 January, 2013
2. FIFA. “2022 World Cup: Bid Evaluation Report-Qatar.” 30 September, 2010
3. Bloomberg. “Qatar Places $65 Billion Bet on Remaking Economy in World Cup Preparation.” 16 December 2010
4. Qatar Online. “The 2022 World Cup Countdown Begins.”
5. Morison Menon. “FIFA World Cup 2022 and its impact on Qatar economy.” March 2011

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