Qatar could soon take over from Dubai as the region’s financial centre

During a period of recession it makes sense to pay more attention to areas of the world still enjoying strong growth. In the general global economic gloom, the Gulf region stands out as a ray of light.

In the fourth quarter of last year, gross domestic product (GDP) declined by a frightening 6% in the United States and the eurozone. Japan was even worse (down 13%). This year, the USA, Europe and Japan will suffer negative GDP growth. The Gulf region, in contrast, will show strong growth, although not as much as last year.

The region is not uniform. Dubai, whose oil reserves have run down, has until now pursued economic growth aggressively, particularly through property. But the bubble has burst. On 22 February the central bank for the United Arab Emirates came to Dubai’s aid by purchasing $10bn (£7bn) of its bonds, enabling the emirate to meet its obligations.

Dubai’s strategy contrasts with the more conservative strategy of Qatar. Qatar’s capital Doha (“Dull Doha” as it is sometimes called) is sitting on vast hydrocarbon wealth. Its relative financial conservatism now looks decidedly canny. It has more than 5% of the world total reserves of natural gas, the third largest after Russia and Iran. It earns huge sums in foreign currency and, with a relatively small population, is one of the richest countries in the world in terms of GDP per head.

The Qatari government is applying this wealth to development in other areas, including finance. In 2005, it set up the Qatar Financial Centre (QFC), a business centre to attract foreign companies and develop the market for financial services, and has plans to become a regional hub for insurance. One investment is Qatar Insurance Services, a technology-based insurance system, currently being tested by companies such as Aon, Robert Fleming, AIG and AXA. It has also opened a Qatar Finance and Business Academy and is investing in its regulatory and supervisory infrastructure.

But the emirate is not immune from the financial crisis. The Qatar Investment Authority has recently been buying equity in local banks to support them. A planned unification of its three financial regulators – the Qatar Financial Centre Regulatory Authority, the Qatar Central Bank and the Qatar Financial Markets Authority – has been delayed. With a currency pegged to the dollar, inflation has also been a problem.

Qatar is surprisingly culturally diverse. Visitors are often struck by the international outlook and sophistication of its people. The media is free by Middle Eastern standards and links with the UK are strong. The emir, Sheikh Hamad bin Khalifa Al-Thani, attended Sandhurst military academy. Many key positions are held by British expats.

Lloyd’s of London is currently looking for somewhere to site an office in the Gulf region. It was rumoured to have been considering Dubai, but the decision has been delayed, and some think Qatar’s strong showing, as well as the recent economic troubles in Dubai, may be tempting Lloyd’s to reconsider.

Key points

• In contrast to the USA and Europe, the Gulf is enjoying strong, though tempered, growth

• Qatar, with vast natural resources wealth, is investing heavily in the financial sector

• Qatar plans to become a regional hub for insurance