‘Best stimulus’: UAE-Qatar trade restart to boost regional investments

The Middle East’s geopolitics took an interesting turn recently, following the rapprochement between Qatar and other members of the GCC, including the UAE. This marks a peaceful resolution to a three-year-old dispute that hindered peace and prosperity in the Gulf. Following the removal of the Qatar embargo, there is a growing wave of optimism in business circles, over all the opportunities that lay ahead. This trend is particularly stark in the investment discourse surrounding UAE-Qatar relations.

Significance of UAE-Qatar trade relations

For starters, the UAE and Qatar are alike in many ways. Both nations are characterized by high expat populations (nearly 90 percent). They have the highest per-capita GDP growth in the Gulf, and both hold large sovereign wealth fund buffers relative to their fiscal deficits. As rating agency Moody’s points out, both Qatar and UAE have the strongest institutions and governance scores in the GCC region. Such competence enabled them to make the largest cuts in expenditure in 2020 and manage the pandemic-induced economic turmoil. Going forward, strong bilateral trade and mutual cooperation could not only aid economic revival in the short term, but also unlock long-term growth opportunities.

The give-and-take prospects

According to the IMF, since the embargo in 2017, Qatar is the only Gulf country to achieve fiscal surplus in the following three years. This enables deployment of sovereign wealth funds into investment opportunities in the UAE’s growth markets like real estate and hospitality. The UAE, on the other hand, can fortify its natural gas supply through Qatar’s reserves, which are third highest in the world and 14 percent of the global tally. Proximity to UAE also means that Qatar can stop fretting over supply-chain issues, and can instead shift its focus on diversifying into non-gas sectors.

Knee-jerk developments

Qatar has formally withdrawn its case against the UAE at the World Trade Organization. This was soon followed by UAE opening its port to Qatar. Needless to say, these developments have naturally sent ripples across the retail and logistics landscape. Many market players have initiated cross-border activities, with several others due to start soon. According to the Standard Chartered, Qatar’s economy could grow three percent due to new trade, tourism and logistics opportunities. And Qatari first movers are expected to keep the UAE stock market bullish in the first quarter. In fact, this effect is manifesting already in the service sector, particularly aviation.

Clearing the air

State-owned Qatar Airways, which was named the World’s Best Airline by SKYTRAX in 2019, announced resumption of service to Dubai from Jan 27th. In reciprocity, Etihad Airways—also state-owned—is set to resume services to Doha from Feb 5th. Besides, Qatar has been recently added to UAE’s “Green List” — a list of countries whose citizens are exempted from mandatory 10-day quarantine upon arrival in the UAE. These developments are consequential, taking into account the upcoming Dubai Expo and 2022 FIFA World Cup in Qatar. Both the mega events are expected to draw millions of visitors from across the globe, and Dubai, for its part, is the nearest feasible layover point and a travel hub. And this could invigorate the service sector, which is currently fraught with pandemic impact. But as far as long-term impact of UAE-Qatar relations is concerned, the focus invariably shifts on the real estate sector.

New market, old interest

As per figures from the Dubai Land Department, out of 55,928 investors who participated in real estate transactions in 2016, around 1,000 investors were Qataris. The following three years of blockade did not yield notable Qatari investments. In the meantime, the Dubai property market has witnessed steady decline in prices. This affordability could draw an onslaught of Qatari investors looking for under-priced assets. As Knight & Frank notes, Qatari investors were among the top-ten most active investors in Dubai’s residential market, before the embargo. Their appetite extends across property types, from affordable segments to luxury properties, which is consistent with Dubai’s current supply-side economics. Also, from a purely construction standpoint, the rapprochement will allow businesses from both sides to transport materials and components more freely across the border, which is to say, the contractors will be well positioned to deliver projects in a timely manner, at lesser costs.

The full extent of UAE-Qatar relations and the likely outcomes are expected to unfold in the coming days. However, if initial developments are anything to go by, the sky is the limit, in possibilities.

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