Qatar’s trade finance in focus

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Steve Troop, CEO of Barwa Bank, Qatar
Steve Troop, CEO of Barwa Bank, Qatar

In December 2013, the Gulf Cooperation Council (GCC) countries celebrated two special occasions – Dubai’s win of the World Expo 2020 and the third anniversary of the awarding, to Qatar, of the right to host the FIFA World Cup 2022. International events like these mean that the region’s expatriate population will continue to expand over the short to medium-term.

At the same time, the region’s local population continues to grow faster than international average rates, a function of higher birth rates and increasing life expectancy due to improved health care. For the financial sector in the GCC and Qatar, this means strong growth in the historically important project finance sector but also in trade finance.

From a global perspective, trade finance is expected to reach $38 billion by 2015 from $18 billion in 2008, having reached $28.9 billion in 2011. The MENA region is expected to capitalise on international trade dynamics with their trade funding needs to grow in proportion according to estimates by PricewaterhouseCoopers.

Qatar has a special story to tell when it comes to trade finance growth. The country’s population has reached the 2 million threshold and is expected to maintain an average growth of 7 per cent annually till 2015. This is almost double the GCC rate of 3.2 per cent CAGR and five times the international rate of 1.2 per cent.

The country’s exports come almost entirely from the hydrocarbon sector and were estimated at over $131.6 billion in 2012, up by 15 per cent compared to previous years with top export partners being Japan, South Korea, Singapore, India and the UK. Given an extreme climate and few natural resources (other than hydrocarbons) the country depends on imports, from foodstuffs to manufactured goods to raw materials to meet both the immediate needs of its population and its ambitious infrastructural project schedule with imports estimated at $26 billion in 2012 (up by 30 per cent) principally from Germany, the UK, the United Arab Emirates, China and Japan.

Whilst much of that import activity is on open account and offers limited opportunity for bank involvement, the majority is still under-pinned by traditional letters-of-credit that represents commission, foreign exchange and follow-on finance activity for the banks. Some of the largest Qatari exporters also want certainty around payment and seek Letter of Credit confirmations. It is worth noting that some of the largest project finance transactions also include a trade finance component in that they often involve mature-market export credit agency support.

Another important aspect to consider is the Qatari government’s strategy for the creation of a modern, sustainable knowledge-based economy. This will involve the expansion of the private sector and the promotion of small and medium enterprise business formation and many of those new enterprises will be engaged, in one form or another in international trading. Much has been done by the Qatari banks to support these initiatives and local banks are in a position to provide innovative trade finance solutions to this growing sector.

Driven by positive global trends, growing domestic markets, a major infrastructural development programme and a strong financial sector, the outlook for trade finance in Qatar is very positive in the short, medium and longer term.

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Reading Time: 2 minutes

Steve Troop, CEO of Barwa Bank, Qatar

In December 2013, the Gulf Cooperation Council (GCC) countries celebrated two special occasions – Dubai’s win of the World Expo 2020 and the third anniversary of the awarding, to Qatar, of the right to host the FIFA World Cup 2022. International events like these mean that the region’s expatriate population will continue to expand over the short to medium-term.

Reading Time: 2 minutes

Steve Troop, CEO of Barwa Bank, Qatar
Steve Troop, CEO of Barwa Bank, Qatar

In December 2013, the Gulf Cooperation Council (GCC) countries celebrated two special occasions – Dubai’s win of the World Expo 2020 and the third anniversary of the awarding, to Qatar, of the right to host the FIFA World Cup 2022. International events like these mean that the region’s expatriate population will continue to expand over the short to medium-term.

At the same time, the region’s local population continues to grow faster than international average rates, a function of higher birth rates and increasing life expectancy due to improved health care. For the financial sector in the GCC and Qatar, this means strong growth in the historically important project finance sector but also in trade finance.

From a global perspective, trade finance is expected to reach $38 billion by 2015 from $18 billion in 2008, having reached $28.9 billion in 2011. The MENA region is expected to capitalise on international trade dynamics with their trade funding needs to grow in proportion according to estimates by PricewaterhouseCoopers.

Qatar has a special story to tell when it comes to trade finance growth. The country’s population has reached the 2 million threshold and is expected to maintain an average growth of 7 per cent annually till 2015. This is almost double the GCC rate of 3.2 per cent CAGR and five times the international rate of 1.2 per cent.

The country’s exports come almost entirely from the hydrocarbon sector and were estimated at over $131.6 billion in 2012, up by 15 per cent compared to previous years with top export partners being Japan, South Korea, Singapore, India and the UK. Given an extreme climate and few natural resources (other than hydrocarbons) the country depends on imports, from foodstuffs to manufactured goods to raw materials to meet both the immediate needs of its population and its ambitious infrastructural project schedule with imports estimated at $26 billion in 2012 (up by 30 per cent) principally from Germany, the UK, the United Arab Emirates, China and Japan.

Whilst much of that import activity is on open account and offers limited opportunity for bank involvement, the majority is still under-pinned by traditional letters-of-credit that represents commission, foreign exchange and follow-on finance activity for the banks. Some of the largest Qatari exporters also want certainty around payment and seek Letter of Credit confirmations. It is worth noting that some of the largest project finance transactions also include a trade finance component in that they often involve mature-market export credit agency support.

Another important aspect to consider is the Qatari government’s strategy for the creation of a modern, sustainable knowledge-based economy. This will involve the expansion of the private sector and the promotion of small and medium enterprise business formation and many of those new enterprises will be engaged, in one form or another in international trading. Much has been done by the Qatari banks to support these initiatives and local banks are in a position to provide innovative trade finance solutions to this growing sector.

Driven by positive global trends, growing domestic markets, a major infrastructural development programme and a strong financial sector, the outlook for trade finance in Qatar is very positive in the short, medium and longer term.

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