October 23, 2018 / 1:21 AM / a month ago

Breakingviews - One alternative to tainted Saudi cash: Qatar

Emir of Qatar Sheikh Tamim bin Hamad al-Thani speaks during a news conference in Doha, Qatar December 7, 2017. REUTERS/Naseem Zeitoon

ABU DHABI (Reuters Breakingviews) - Epic natural-resource wealth, a ruling family becoming more progressive, and a pot of cash to invest in diversifying the economy. Until recently, asset managers looking for all that, plus Gulf exposure, would think first of Saudi Arabia. Ditto start-ups and governments attracted by the $45 billion pumped into SoftBank’s Vision Fund or $20 billion destined for a Blackstone infrastructure fund from the kingdom. With Riyadh’s reputation now crushed following the murder of journalist Jamal Khashoggi, Qatar may be their best alternative.

Pivoting to Doha is less weird than it sounds. True, in June 2017 the tiny desert peninsula was blockaded by Bahrain, Egypt, the United Arab Emirates and Saudi for a litany of alleged sins, precipitating a $30 billion non-resident funding exodus from its banking system. But Qatar switched trading partners and plonked $40 billion of reserves and overseas deposits from its central bank and $300 billion sovereign wealth fund into its lenders. Already $16 billion of that has been refinanced by Asian and European banks and investors, Fitch reckons.

Assuming Qatar can refinance the rest – which should be easier given a potential 4.7 percent budget surplus in 2018 over last year’s 2.9 percent deficit – it would have $40 billion of spare cash. If it was feeling racy, it could leverage that and turn it into a Vision Fund-scale investor. But it doesn’t matter that the Qatar Investment Authority tends to be rather more conservative. Doha’s hike of liquefied natural gas production from 77 million tonnes to 110 million tonnes by 2024 could create an extra $40 billion of revenue. With annual capital investment due to halve from around $27 billion as the 2022 soccer World Cup nears, the QIA could be packing serious firepower.

Rather than splash out on Saudi-style adventures like mega-city NEOM, Qatar could invest in steady infrastructure assets – around Africa, for example, maybe partnering with Chinese entities. Or it could look to turn itself into a hub for gas and energy technology. But a Vision Fund-style tech investor is at least feasible. And Qatar’s more enlightened social policies and approach to press freedoms might endear it to more discerning American and European startups or municipalities seeking capital. Maybe next year investors will head to Doha instead. 

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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