The impact of Foreign Direct Investment on the Financial Market of Qatar

Foreign direct investment (FDI) refers to any form of investment made by a company or other entities to another company or entity in another country. Foreign direct investment differs sharply from indirect investment in terms of such forms of investment as portfolio flows whereby overseas institutions invest through equities listed in the other nation’s stock exchange market. The entities establishing FDI typically have considerable influence and control over the counterpart companies in which the investments are being made. In open economies, skilled labour force and proficient growth prospects tend to lure larger amounts of foreign direct investments than closed ones with highly regulated economies (Schwab & Cornelius 2003). Qatar is one of the most lucrative foreign direct investments in the world.

The investing companies often make overseas investments in different ways either by setting up an associate company within the foreign location, through the acquisition of shares in the overseas company market or via a merger or even joint venture setting. The level of accepted threshold for the undertaking of FDI relationship as posited in the OECD definition is 10 percent. This implies that the foreign investors must be proprietors of at least 10 percent of the voting stock or else the ordinary shares of investing company. One of the basic examples of FDI would be an ideal company investing in the majority of stakes transferred from America to the Chinese market. As mentioned earlier many companies globally have expressed concerns and showed interest in the Qatar market (Qatar 2014).

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Background

The Qatar’s FDI data may be accessed through the CEIC’s world database besides being able to provide essential information concerning the foreign direct investments into the Qatar market which is a highly dynamic market. In December 2014, the FDI figure that was reported in the CEIC’s platform in the world trend database was rated at 0.37 which represented a decline from about 0.49 in September of the same year. By means of the CEIC’s World trend database it is possible to compare the FDI statistics components of Qatar and the statistics of Asia using the popular and unique normalised data. Indeed, the CEIC database comprises of mote detailed FDI from Qatar dataset such as the breakdowns of Foreign direct investments by a country and respective industry (Qatar Financial Centre 2009).

Within the same context where inflows of FDI have been shown to increase from a global perspective according to the global report of 2013, the macroeconomic fragility coupled with the political uncertainties which aggregately make up conditions that keep investors extremely cautious about making investments in certain geographical locations as opposed to others. The information that appertains to the 2013 FDI influx into Qatar and the region has become known owing the Global Investment Trade Monitor which was published in 2014 after the United Nations Conference on Trade and Development (UNCTAD). The main goal of Qatar is to be established as the global leader by virtue of business environment and the foreign investment attraction. These two components did not stop increasing in the previous years, owing the good business environment created by political stability, high profile infrastructure and perhaps the lowest level of corporate tax globally. Besides, other critical appeals created by the market are the laws that were enacted particularly in 2010 regarding the investments that allow foreigners to have total ownership of companies in certain sectors including the information technology, counselling, sports and the cultural sector (Ramady 2014).
Nevertheless, one of the main elements that form Qatar FDI flows pertains to the policies that are conducted within the private sectors. In particular, the long period of time taken for the establishment of privatisation program is one of the market setbacks in the country. Besides, the small size of the domestic market segment and lack of highly skilled manpower coupled with the high costs of living hinders FDI in the local Qatar market. Indeed, Qatar indicatively lost three placements within the classification of the Doing Business report of 2014 which was issued by the World Bank. It was ranked 48 out of 189 countries. The main sector of the country’s economy attracting high FDI is the oil and gas sector as well as the financial services sector while the main investing countries include Japan, the United States, Singapore and South Korea among others (UN Economic and Social Council 2002).

Problem statement

FDI is a factor that is considered to have various advantages in terms of economy. However, it also entails a number of challenges in enhancing a country’s economy. This study seeks to understand the advantages and disadvantages that FDI has brought about to the economy of Qatar with a special focus on the financial market.

Research Objectives

  • To understand the advantages and disadvantages of the FDI in Qatar financial market
  • To analyse the challenges in terms of investing in Qatar

Research Questions

  • What are the advantages and disadvantages of FDI in Qatar financial market?
  • What are the challenges of investing in Qatar?

Literature Review

The World Bank provides a layout of the Qatar’s FDI for the period from 1970 to 2013. The average level of the Qatar’s FDI during the period was rated at about 1.64% with at least 0.42% in 2013 and the highest level of 8.31% as per the 2009, FDI. Foreign Direct Investment in the Qatar market and other economies reflects foreign ownership in regard to the country’s ownership of the production capital and facilities. In order to be classified as FDI, the total share of the foreign ownership must be at least 10% of the total value of the business enterprise for the establishment of a local company. This form of investment may be reflected in the service industry, manufacturing or other productive sectors of the economy. Besides, it may be sourced from the green field investments which imply the establishment of new products or properties, acquisitions or even joint ventures (Ramady 2014).

The size of FDI of a country is mainly reported annually which implies that the quantity of new investment is defined from the analytical perspective during the current financial year. FDI usually runs for approximately 3% of the total size of the country’s economy which is measured by virtue of the gross GDP. In case a country routinely receives FDI more than 6% of its GDP per annum, this is considered significant success in terms of its economic performance. FDI, the percent of ranking by GDP around the world, is often incorporated into the definition (United Nations: General Assembly 2004).

Qatar Economic Structure

The success of the economy of Qatar highly contradicts the physical size of the country. Indeed, Qatar is mainly the smallest member country of the OPEC group by virtue of land area as well as the population. Qatar is also established as the third smallest state of all states within Middle East just behind Lebanon and Bahrain.
Qatar is located on the Persian Gulf and a Peninsula which share border with its Saudi Arabia. The country’s capital is mainly located in Doha to the East from the Persian Gulf. The country’s capital city is inhabited by approximately 80% of the Qatar’s population. The city is linked to the Saudi Arabia by the Salwa International Highway which is also a major incentive for the foreign investors to make investments in Qatar. Indeed, there has also been an upcoming Friendship Cause aimed at facilitating transport between the biggest dual financial centres located in the Middle East (Moran 2002).

As part of the economic planning, the Qatar’s biggest industrial and urban development is evident in the surrounding of big oil refineries and major sea ports. For instance, the principality of Mesaieed contains the Mesaieed City Industry which is a home for many families as well as major offices for the Qatar Petroleum, Qatar Steel, The Petrochemical Company of Qatar and Qatar Aluminum among others. It has been estimated that out of the total quantity of 1.7 million persons residing in Qatar in 2014, 75% of people are foreign nations with a temporary residential status (Economy of Qatar 2010).

Besides, the foreign nationals also represent the country’s biggest population of labour force that stands at about 1.202 million persons. A 2008 report that was generated by the General Secretariat for Development Planning of Qatar, about 93% of the total labour force in Qatar were foreigners. In a bid to leverage huge influx of expatriate workers, Qatar has indicatively produced the ‘Qatarization’ program in 2000 whereby the government and other joint ventures within the industry were encouraged to fill up most of the high-level positions in the organisations of Qatar with the majority of the Qatari citizens (McCoy 2004).

Consequently, the increasing number of foreign-educated citizens of Qatar eventually returned to their country in order to assume most of the positions that had been initially occupied by the expatriate groups. These issues however resulted in considerable tension between the expatriate communities and the locals who had been working in the public sector where the expatriates were not only pushed out of their jobs but also provided with very few opportunities of secure employment within the country’s public sector of the available jobs. This promises three times the salaries offered by the private sector job placements. This issue has therefore led to increasing segregation between the private and public sectors (Mintel Group n.d.). The 2007 data produced by the Qatar Statistics Authority indicated that 89% of the labour force of Qatar had been working in the public or the government sectors relative to only 6% of persons working within the private sector of Qatar. This creates a lucrative scenario for the undertaking of foreign direct investment in the private sector in order to tap a high flow of labour force. The remaining 5% of the labour force works in the mixed sectors which consist of corporations with both private and government ownership. The situation regarding the Qatar-based foreigners is purely opposite with about 88% located in the private sector, 9% in public sector while another 3% exist in other or mixed sectors (Economy of Qatar 2010).

Qatar Economic Forecast

In the contemporary case, the Qatar enjoys indicatively one of the lowest levels of unemployment in the world comprising of 0.5% of the unemployed. Indeed, there has been forecasted the future state of unemployment. However, from the past analysis, Qatar is highly unlikely to experience any higher level of unemployment than it has been witnessed in the past in terms of the current case. However, Qatar has made a clear focus on the influx regarding the foreigner’s flow into Qatar which is expected to rise and a probable increase in foreign direct investment. However, the population growth of Qatar is also expected in the following few years. The population pressure coupled with the foreign influx was rated 4% between 2010 and 2014. The residents of Qatar are also considered to be the wealthiest population globally. The GDP of Qatar per capita is also the largest in the world indicated at $88,232.51. However, this level of GDP is also expected to rise to about $116,996.84 in 2015.

The current account of Qatar is also expected to increase more rapidly. In 2010, the current account of Qatar was indicated to be $19.714 billion with the rate of 40.22 compared to the 2009 level. However, this growth is more likely to be overshadowed by the 2011 growth rate which gives Qatar one of the biggest current account balances globally while the country expects a current account balance of $42.21 billion in 2015. Qatar is characterised with numerous positive features that lure foreign investors particularly in the financial markets. In particular, it has a high number of international schools providing French Curricula, American schools and other international baccalaureates. Besides, the country also boasts of easy access to major international universities such as North-Western University, VCU-Q and the Weill Cornell (United Nations: General Assembly 2004).

The telecommunication sector of the Qatar is also highly endowed thus being very strong. Besides, the economy of Qatar is also associated with an extensive and continuously increasing air links to major international destinations via the Qatar Airways. Above all, the main aspect that lures the majority of foreign investments is the opportunity given to the foreign investors towards owning 100% of companies established in Qatar. The economy’s financial centre located in Qatar Science and Technology Park and particularly certain industries in any given specified zones is highly promising. The country also provides for the absence of income tax for its salaried workers or any foreign exchange controls and restriction in the disbursement of funds across borders all of which become lucrative measures to lure more investors into the country’s economy. As of 2009, the country saw a total FDI inflows rise by 112% to a tune of $8.7 billion as indicated by the World Investment Report by the UNCTAD (HSBC 2010).

Advantages of FDI on Qatar Market

To sum up, the FDI inflows into the country have a number of advantages apart from creating some challenges. For instance, the FDI has been a major target of the Qatar government as the main element to fuel its long-run economic growth and development strategy. FDI is perceived to have an impact on foreign loans which have been indicated to have a long-term negative effect on the economy. Additionally, FDI for Qatar has been responsible for enhancing the rate at which technology transfer is carried out. Besides, it also significantly better integrates Qatar into the global economy and creates a pathway to the global markets. The FDI inflows to the developing countries have also shifted from the resource-seeking and market seeking FDI categories to relatively more efficient category of FDI. This shift is mainly created by the consequent high level of competition within the global market which has had an impact in terms of the decrease of prices (Budhwar & Mellahi 2006).

Disadvantages of FDI in Qatar

Overall, although FDI has been well known to spur economic growth of the economy, economists argue that its impact is unclear as it may be perceived. It is argued that FDI exerts negative impact on economic growth of Qatar as the recipient country since it replaces domestic savings instead of enhancing them. Besides, another party posits that FDI enhances efficiency and stimulates economic growth of the recipient country from a sparing or unclear perspective. FDI is also assumed to be the main source of both capital and technology in most of the developing countries. These conflicting ideas make it supremely necessary to carry out causal direction checks between FDI and the Country’s GDP (Al-Kuwari 2001).
Chapter 3 Research Methodology

This study will aim at providing the insight and recommendations as for the impacts of foreign direct investments on the Qatar economy and the financial market in particular. Essentially, the study will create an understanding of the positive and negative impacts of FDI on the market. The study observes the relationship between foreign direct investment and locally generated investments in the economy Qatar. The investment strategies are mainly based on risk assessment and intervention systematic reporting of the investments. The institution of regulating FDI on the Qatar market has been in the forefront in the manifestation of FDI in the economy which is a very lucrative market. The approaches used were mainly descriptive. Despite having plausible results, further investigations of the effectiveness of FDI experimental or quasi-experimental design are needed.

Research Design

To collect data, various data collection methods will be used in order to capture different angles of the study. Ethnography will be a primary tool as it will be realistic to understand nurses’ perceptions, seeing what the staff are doing and getting to know their views as observed. It enables a descriptive ethnographic approach in regard to the FDI basis in the Qatar market. Also, interviews will be handy; this will require the participation of regulatory administrators, unit managers and others that are involved in implementing FDI. This will be subjected prior to the ethnographic method so as to act as the background and basis for the study. To prevent loss of data, interviews will be recorded or noted, depending on the willingness of the interviewee.

Data Collection

Gathering data through secondary forms may be cumbersome as the studies and other types of literature are spread out to general falls. This is because falls in a hospital setting have different meanings in the medical sphere. In this case, individual foreign investors could fall in work or Qatar environment. Secondary data will provide a better understanding of the problem at hand and will give a better picture of the past years or months. The Qatar authority for the regulation of the FDI will be a major source of secondary data in this study. This will be acquired from existing documentation and presentations from the hourly rounds and incidence reports by the business administration and the implementers.

Informal interviews are of great importance. This will involve the individual investment, because of the fragile state they are in, and tendering questionnaires for this group will be considered cumbersome. The informal interviews will be taken with the consent of the caregivers and patients of the said population. One-to-one interviews will be a key as they will be done first to collect data on various aspects of the usual hourly rounds compared to the fall prevention based hourly rounds. Questionnaires will supplement this.

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Data Analysis

To resolve the research problem, quantitative methods would be better placed to give insight. This is because the research deals with showing actual incidence of falls and the effects of implementation of FDI in Qatar market. In addition, data will be required to show the rates of FDI in the current and past Qatar market and the support related to the Qatar financial market. The methods used will be ethnographic research, one-to-one interviews, questionnaires and secondary resources. Ethnographic data collection will be best placed to report and collect new incidences in the place of study. Also it will provide an in-depth insight in the hourly rounds effect on prevention as it will require a participatory mode.
Secondary data will be the most important form of data collection as it will provide a wider basis to fulfil the objectives of the research, coupled with incidence report during the period of data collection that will create a holistic and realistic impression of the matter in question.

Sample Selection

Since one-to-one interviews will be performed first, the best target audience to collect data will be the investors’ in-charge, foreign investment individuals and corporate entities themselves. The patients who have experienced falls will be interviewed but this will be limited in the cases where a patient’s health is too critical. Questionnaires will be distributed to the same population except the patients to further find out information that might have been missed during the one-to-one interview. This will delve in past incidences and also input on how hourly rounds would help in alleviating disadvantages of FDI in the local Qatar market. Secondary data will be collected from incidence report books, authority documentaries in the public domain such as tax data among other sources of information. The sample group will be among all foreign investors that will consent to the study.