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Waste not, want not

5 November 2015 By Andy Critchlow

Qatar has had the feast – now comes the self-imposed famine. The country’s absolute ruler Sheikh Tamim bin Hamad al-Thani on Nov. 3 told his subjects that they should prepare for harder times. After the decade-long splurge that saw Qatar buy significant stakes in companies such as Volkswagen AG, Barclays and Glencore, the belt-tightening won’t just pinch in Doha.

Oil wealth has made Qataris among the world’s richest people, with a GDP per capita close to $100,000, according to the World Bank. But, Sheikh Tamim said, it has encouraged Qataris to be wasteful. Arguably the biggest example is its sovereign wealth fund, which is thought to hold $334 billion in assets. Next year might see Qatar fall to a budget deficit, its first in 15 years.

Holdings in big companies look increasingly unnecessary. Although the fund bought into carmaker Volkswagen, UK lender Barclays and Swiss trader Glencore in unusual circumstances, it arguably has held on too long. On paper it has lost $8 billion on these three holdings over the last year. Gains on other investments may offset that, but lack of disclosure makes it impossible to know the real position.

Managers within the fund are “livid” about these losses, according to a person who deals with them directly. Given that Sheikh Tamim – who ultimately is their boss – is encouraging greater financial caution within his sheikdom, the same presumably extends to his investment empire overseas.

Pricked by its recent experience in Europe the fund is now looking for more stability in the United States, where the economy at least is more predictable. In September, the fund opened its first office in New York and Qatar still plans to allocate $35 billion to the market over the next five years.

Whether it has enough cash to do so depends on energy prices. Qatar shares access to the world’s single-largest proven natural gas field in the Persian Gulf and accounts for just under a third of global liquefied natural gas (LNG) shipments. Spot price declines for LNG in Asia have outstripped falls in crude this year. Qataris are being told to expect fewer handouts. Companies and funds who have benefitted from the country’s largesse should do the same.

 

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