Its natural gas reserves have drawn businesses and wealthy individuals to the country. They have also helped build its $85bn sovereign wealth fund – the Qatar Investment Authority – that sits just behind those of Saudi Arabia, Kuwait and the UAE in size. In theory, Qatar has all the building blocks for the development of a sound, enduring financial centre.
This is without the impact of the 2022 World Cup, widely expected to bring greater riches and a higher profile. The tournament should highlight the attractions of Qatar over its Middle Eastern financial centre rivals, such as the well-established Dubai.
Frontier status
Yet, at the end of 2011, MSCI confirmed that Qatar would continue to be rated as a frontier market, despite widespread expectation that it would be upgraded to “emerging” status. MSCI cited the “stringent foreign ownership limits, including on large companies” imposed by the Qatari authorities as a remaining obstacle to an upgrade.
In terms of international recognition, Qatar still has a hill to climb. As a result, its financial centre remains relatively immature.
David Russell, the chief executive officer at Guardian Wealth Management Qatar, points out that at present there are only three advisory companies regulated under the Qatar Financial Centre Regulatory Authority (QFCRA).
All are relatively recent additions – Nexus Financial Services was the first regulated advisory group in the country, receiving its authorisation in late 2008. Guardian Wealth Management received its authorisation in 2009, and IFS opened its office later the same year.
Industry momentum
Overall, 149 companies have been authorised by the QFCRA since its launch six years ago (though 21 licences have subsequently been withdrawn). Momentum appears to be building, however, with 23 licences granted in 2011, up from just nine in 2010.
The 2011 licences included JPMorgan Chase; legal firms Baker & Mackenzie, Clifford Chance and Herbert Smith; and Qatar Asset Management. The Qatari Central Bank also licenses companies, but the QFCRA is seen as the key financial services regulatory body.
The message from advisers who have set up in Qatar is universal; they are aiming to tap into the wealthy expatriate market, which might otherwise be served by unregulated financial advisers. They believe there is an advantage to being a regulated adviser in a country where the majority of advice is unregulated.
Mark Recardo, chief executive of IFS Qatar, says that he took the decision to expand into Qatar as a result of the growth of the expat community and the limited number of local providers.
Russell says there is increasing momentum for regulated advice in the country: “We believe more companies will seek to become regulated. Phillip Thorpe [the chairman and chief executive officer of the QFCRA] recently warned of the dangers of using unregulated advisers.”
Guardian is working with the QFCRA to highlight the importance of regulated advice. Russell believes it is about educating the public to ensure that they always use a regulated company.
“If they do not, and then become faced with problems, there will be no comeback for them,” he adds. “Some institutions will have the Central Bank regulation, but the level of protection may not be as high.”
Growing reputation
The QFCRA says it is doing what it can to improve the reputation of Qatar as a place to do business.
The most recent initiative was a co-operation agreement with the UK’s Financial Services Authority (FSA), which aims to establish a foundation for “the sharing of information, resources and technical knowledge between the QFC Regulatory Authority and the FSA, and represents an important arrangement to assist in the authorisation and supervision of firms conducting financial services in the UK and Qatar”.
But the financial services industry remains in its infancy and is still, to some extent, the poor relation to Dubai.
Stephen Carriere, the head of marketing and corporate communications for the Qatar Financial Centre Authority, the commercial arm of the QFC, says: “We are still quite new and an industry of this kind can take a long time to develop.”
The country’s strategy is to build expertise in niche sectors. “We looked at those areas where there was a domestic and regional need, plus some natural inherent strengths,” Carriere says.
“We want to become the pre-eminent hub in the region for three areas in particular – asset management, reinsurance and captive insurance.”
The group specifically avoided those parts of the financial services industry that were already well-represented, such as retail banking.
International hub
The strategy has been to work with the Central Bank and other Qatari authorities to build a regulatory environment conducive to international business.
“We wanted a legal environment where companies and individuals felt comfortable,” Carriere adds. “Our civil and common law works on English common law. The structure should provide enough clarity for people to feel that they are comfortable doing business.”
In 2011, the QFCRA announced a new captive insurance regime, defining prudential requirements and returns, plus minimum capital requirements, eligible capital and reporting requirements. A similar framework had already been devised for asset management.
Tax incentive
Carriere says Qatar has also sought to attract skilled personnel through its favourable tax regime – it has no income tax and low rates of corporation tax. Thorpe recently admitted that there is a skills shortage in the country, and the current pace of economic growth has not been matched by an expansion in its skills base.
However, steps are being taken to address this. The country is building its domestic skills base with the launch of a Finance and Business Academy, which means students will no longer have to travel abroad to gain accountancy and other business qualifications.
In a tacit admission that further development is needed to generate momentum for financial centre growth, the Qatar Investment Authority was reported to have put up around $2bn to invest in the financial services industry.
Infrastructure development – long a stumbling block for Middle Eastern countries – is ongoing, and in this, the World Cup is playing its part. The Government has infrastructure development as part of its “Qatar National Vision 2030”. It also recently established a Central Plan Bureau (CPB), which it promises will speed up planning and development.
The CPB is overseeing several infrastructure projects, including two new highways, a metro rail system, a new airport and a seaport in Mesaieed, and a Bay of Doha crossing – all of which are due for completion before the World Cup.
The opportunity for advisers is simply the level of wealth in the region. In addition to its high GDP per capita, the country is also seeing strong GDP growth – up 18.7% in 2011, the highest rate in the world.
Its strength is its reserves of natural gas. Natural gas was the key beneficiary of the energy crisis following the Japanese earthquake, and the problems at the Fukushima nuclear plant and resulting higher prices have given the Qatari economy a significant boost.
Expatriate focus
Russell says the majority of Guardian’s clients are high net worth expatriates, many on three-year assignments. As such, they require planning for lump sum investments, pensions, trust and tax planning, and critical illness. There is a moratorium on Qualifying Recognised Overseas Pension Schemes in Qatar while their suitability is assessed, so these are not part of the group’s offering.
The relatively slow pace of growth in the IFA sector suggests that many advisers still believe that Qatar-based clients can be efficiently served from other Middle Eastern countries, particularly Dubai. But as Qatar’s profile builds and its wealth continues to increase, the market for advice is likely to grow.
Providers and advisers alike may start to see the merits of having a presence on the ground.
