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Sat 18 Dec 2010 11:24 AM

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Qatar makes $65bn bet to transform economy for World Cup

Gulf state must plan how to benefit from its investment once games are over

Qatar makes $65bn bet to transform economy for World Cup
(Getty Images)
Qatar makes $65bn bet to transform economy for World Cup
In this handout image supplied by Qatar 2022 The Doha Port stadium is pictured in this artists impression as Qatar 2022 World Cup bid unveils its stadiums on September 16, 2010 in Doha, Qatar. (Getty Images)

The stadium where Qatar will host the 2022 World Cup final isn’t built yet. Neither is the city.

Getting the Arabian Gulf sheikdom ready for the world’s most-watched sporting event will cost as much as $65bn, Merrill Lynch estimates. That’s about $41,000 per person in Qatar, and only 20 percent of them are citizens.

Qatar, holder of the world’s third largest natural gas reserves, aims to transform itself into a global hub to compete with destinations like Dubai and Istanbul. While the preparation will keep growth above 10 percent in the next five to seven years, the country of 1.6 million still has to figure out how it can continue to benefit from the investment after the games are over, said Robin McCall, acting chief executive officer of Al Khalij Commercial Bank in the capital, Doha.

“Qatar would have to make a decision to become a tourist destination and they’ll have to come up with a plan on what to do with the hotels afterwards,” said Marios Maratheftis, a Dubai based economist at Standard Chartered. He added: “Do they need to convert them into something else and what would that be?”

Qatar will build nine stadiums and refurbish three more and plans to equip each with solar-powered air conditioning to fight temperatures that approach 50 degrees Celsius (122 Fahrenheit) in the summer. The sheikdom promised FIFA, world soccer’s governing body, to more than double hotel and apartment rooms to 84,000 and build a $25bn rail and metro network. South Africa said it spent about $11.4bn preparing for the 2010 World Cup, or about $232 per person.

“The event is a catalyst for the development and the expansion of the economy and population overall,” said Mark Proudly, associate director at property adviser DTZ Research in Doha. He added: “It will put Qatar on the map and that helps to raise its profile and make it into a major international city.”

Qatar aims to become a knowledge-based economy focused on areas like research and education, so the most complimentary industry for investment would be manufacturing, said Maratheftis of Standard Chartered. More than 50 percent of Qatar’s revenue comes from natural gas exports, making the country vulnerable to fluctuating energy prices.

Al Khaliji’s McCall asked: “Post World Cup, will you need 60,000 to 90,000 rooms and will it be sustainable?” And added: “That’s a concern, having this legacy infrastructure that will hardly be used.”

The site of the 2022 World Cup final is now mostly empty desert dotted with a few cranes and piles of gravel on the northern outskirts of Doha. Qatar plans to build Lusail, a city of 200,000 hosting the final that will be linked to the rest of the country by new roads and railways. It’s also building an airport, a seaport and a 40-kilometer (25-mile) bridge linking the country to neighbouring Bahrain.

Most of the work will be completed in seven years, Prime Minister Sheikh Hamad Bin Jasim Bin Jaber Al-Thani said on December 14. The government plans to pay 70 percent to 80 percent of all the costs, he said.

“It’s unlikely in the extreme that productive use will be made of the facilities that are built,” said Andrew Zimbalist, professor of economics at Smith College and an author of books on the sports industry. He added: “Tourism estimates are not likely to produce any substantial benefit, at least with regard to a return on the investment.”

Construction and real estate companies gained in Dubai on December 6, the first trading day after the winning bid was announced, on speculation that they will win contracts in Qatar. Arabtec Holding, the biggest builder in the UAE, surged the most since March. Emaar Properties rose 1.6 percent after saying a day earlier it will pursue contracts in the country.

Barwa Real Estate , Qatar’s biggest publicly traded property developer by assets, has advanced 8.1 percent in the nine days since the FIFA announcement. Qatar’s sovereign wealth fund agreed to buy a 9.1 percent stake in Hochtief of Germany on December 6, investing almost $534m.

To be sure, most of the infrastructure projects had been planned before Qatar was chosen by FIFA over the US, Australia, South Korea and Japan. A number of those that were stalled may be re-started and others may be accelerated, said Shahzad Shabaz, chief executive officer of QInvest, a Qatari Islamic investment bank. An example is the $3bn bridge to Bahrain, which was supposed to be started in February 2009 and hasn’t begun yet.

The deepest financial crisis since the great depression has stalled billions of dollars worth of projects in the Gulf. A construction drive that has left Qatar with an oversupply of both residential and commercial properties led rents to drop by as much as 30 percent. Vacancies now range from 15 percent to 20 percent, DTZ’s Proudly said.

Qatar’s QE Index of the country’s 20 leading publicly listed companies has gained 7.2 percent since the World Cup announcement on December 2.

Dubai, in the nearby UAE, will be the second biggest beneficiary of the World Cup as some visitors take the chance to see attractions such as the world’s tallest tower, said Chet Riley, a Nomura Holdings analyst based in the emirate.

He said: “There will be an overflow effect.” And added: “Some people will stay in Dubai and travel to Qatar to watch certain games.”

A sharing arrangement that accommodates spectators in places like Dubai “makes economic sense” and could reduce the need to build hotels Qatar will have no use for later, said Mark McFarland, an economist at Dubai based Emirates NBD.

The World Cup may help shift lending from the public sector, where it has been concentrated over the past year, to the private sector, said McCall of Al Khaliji Bank. Moody’s Investors Service, which estimated Qatar’s spending at $57bn over the next decade, also said the event “will create new lending activity for all banks.”

The country’s World Cup bid includes plans to limit the amount of construction left over after the event. The stadiums can be partly or fully dismantled after the tournament, with about half the seats shipped to developing countries.

In addition to hotels, guest apartments and compounds will be used to accommodate visitors and a cruise ship is to provide accommodation of about 6,000 football fans, according to the FIFA report.

The sheikhdom’s gas reserves have made it the second richest country per capita behind Lichtenstein. Its economy has grown at an average annual rate of 17 percent over the past five years amid rising liquefied gas production, International Monetary Fund data show.

Abdul Hakeem Mostafawi, chief executive officer of HSBC Qatar said: “Qatar has been active through this financial crises without it having a significant impact.” He added: “Having the World Cup will improve things even further.”

The tournament may push rental rates for homes by as much as 15 percent in the next one to two years, Proudly said. “That won’t have anything to do with supply and demand. It will be solely on the back of landlords being optimistic and more bullish in their predictions.”

Zimbalist of Smith College pointed out that South Africa attracted fewer foreign visitors than expected in 2010 and tourism estimates for Qatar don’t indicate a good return on its investment.

He said: “It’s a lot of money for not very much productive results.” And added: “If I had been advising the government, I would have said ‘don’t do it.'”

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