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The Strategy and Role of Qatar Financial Centre in Economic Diversification

1. Introduction

Qatar has been one of the fastest growing countries not just in the Middle East region but also in the entire world. While the region has seen steep growth rates during the last decade, thanks to parabolic rise in crude oil prices, Qatar has managed to remain on top of the region through its strong oil and gas reserves. Already the largest supplier of liquid natural gas to the world, Qatar would account for one-third of the global supply by 2010. Qatar has grown at an average of over 15% during the last decade. However the country faces some critical risks to its ambitious growth projections. It is seen that the country draws most of its GDP from oil and gas sectors. The country also has not been able to compete with peers in attracting foreign investments. The government has undertaken a number of measures to address these issues. One such measure is the creation of independent finance centre called Qatar Financial Centre (QFC). QFC has been instituted as an on-shore finance free zone where international financial institutions can set up 100% owned businesses and transact with Qatari as well as off-shore entities. This model has been created imitating similar entities created by Dubai and Bahrain. However QFC distinguishes itself from others in some important ways. The government believes that QFC would act as a tool to stimulate finance sector growth in the country and in turn become an agent of diversification. At present, finance sector account for less than 10% of total GDP of the country. Besides some improvements over the other comparable finance centres, Qatari government also has an important agenda to unite the regulators and create a single regulatory system throughout the country. It is believed that these factors would push QFC to the front of the intense race for finance supremacy among Bahrain, Qatar and Dubai. While Bahrain has an advantage as the earliest starter of the on-shore finance centre model, Dubai has a reputation for highly diversified economy. Qatar is promoting its oil and gas reserves as the differentiator. QFC was created on 1 May 2005 and so is still at its earliest stages. The objective of this report is to analyse the crucial role of QFC, its importance and impact.

6. Conclusion

Qatar Financial Centre has been touted as an important development in the economy of Qatar due to a number of crucial roles that the centre is expected to perform - as an enabler of economic diversification and a launch pad for foreign financial institutions into the growing economy of Qatar and the greater region. It is believed that QFC would contribute to the growth of finance sector and the GDP of the country by attracting the interest of foreign financial institutions into the nascent domestic finance sector which contributes less than 10% to the GDP at present. QFC is also expected promote brand Qatar and attract FDI inflows into the finance sector and other sectors in the economy. Besides, it is expected that QFC would elevate the transparency and governance standards of Qatar. QFC is also expected to have a regulatory environment akin to the home regulatory environment in which the target institutions already operate in. So far QFC has attracted 115 members and the short history makes it difficult make any valid judgement on the expected success or failure of QFC. However it is seen that QFC would be required to compete hard for to attain its objective particularly amidst Dubai International Financial Centre and Bahrain Financial Harbour. In order to differentiate itself, QFC has learnt or has to learn a few important points from its peers. QFC has observed the problems associated with being a pure-breed off-shore finance centre and so has been created as an on-shore finance centre right from the beginning. However, being an on-shore centre, its present system of multiple regulators is expected to cause dichotomy and regulatory risk for institutions. Hence, the government is implementing a plan to unite the regulators under a single mandate with assistance from the IMF. QFC has to learn from the frictions seen in DIFC that over-regulation could become a problem considering the nascent nature of finance sector in the country.

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