DOHA, (Reuters) – Qatar, one of the fastest growing economies in the Middle East, is stepping up efforts to attract foreign investment as neighbour and long-time business magnet Dubai struggles through a debt crisis. New laws to allow full foreign ownership in sectors such as consultancy services, information technology, entertainment and sport will relax restrictions that had limited non-Qatari ownership outside free zones to 49 percent.
The reforms highlight a debate about the merits of liberalising foreign residency and ownership rules to increase competitiveness as Gulf nations attempt to diversify their economies away from dependency on energy exports.
Qatar’s neighbour United Arab Emirates, of which Dubai is a member, proposed a draft law last year allowing foreigners 100 percent ownership outside the free zones that have long lured businesses with the promises of tax-free earnings.
Critics say only major players will benefit from a relaxation to Qatar’s ownership restrictions.
“You still need a massive load of share capital — about 500,000 Qatari riyals ($137,400) — to be approved. It’s for the big fish only,” said a financial services executive in Doha who asked not to be identified.
But Qatar has also taken steps to ease an already light fiscal burden, last month cutting its corporate tax rate to 10 percent. Tax on foreign companies there was previously as high as 35 per cent.
Despite investors’ increasing appetite for emerging markets, some believe Dubai’s troubles could lead to neighbouring Gulf states being judged guilty by association.
“This area will not be overweight by preference. Institutional investors abroad are so ticked off. They don’t see the levels of transparency and corporate governance. New York does not distinguish between Dubai and Qatar,” said one banker in Doha who asked not to be identified.
“I think we’re just in for a very hard time. You’ll see that in the volumes. Foreign investors will say, ‘I’ll come back to this market when they get their act together’.”
Qatar, the world’s top exporter of liquefied natural gas, was one of the few countries worldwide to have robust growth in 2009, expanding more than 11 per cent, and has been pouring billions of dollars into infrastructure, real estate, and education projects.
Many expect double-digit growth in the cash-rich Gulf state to continue as new energy projects come on stream.
“Qatar has yet to reach a plateau. We still have development in the hydrocarbon sector – some of these projects are halfway through. We’re talking about a few more years,” Sheikh Hamad bin Jabor bin Jassem al-Thani, director general of Qatar’s Secretariat for Development Planning, told reporters at a recent event in Doha.
Qatar’s gross domestic product could surge as much 17 percent in real terms in 2010, Central Bank Governor Sheikh Abdullah bin Saud al-Thani said at the same event.
According to a Reuters poll, Qatar will remain the region’s leader with a 16.1 percent jump in gross domestic product this year thanks to massive expansion of its natural gas facilities, while Saudi Arabia, the largest Arab economy, is expected to grow by 3.8 percent.
“Hydrocarbons will continue to be the engine of growth. The question is how to use the revenue,” said Ibrahim Ibrahim, advisor to Qatar’s Emir, also speaking in Doha.