'Brand Qatar' Facing Its First Crisis

BMI View: Qatar has faced international opprobrium over the last few months, as the spotlight has turned towards its problematic sponsorship ('kafala') system and the poor labour conditions faced by migrant workers. We warn that any permanent damage to the country's reputation could undermine the regime's ambitions to present the country as a regional hub of culture and education, and thus have tangible economic implications.

The last few months of 2013 have been a difficult time for Qatari policymakers, with the country facing intense international controversy over its labour practices and lacklustre enforcement standards. The opprobrium has largely overshadowed Qatar's successful leadership transition in June 2013, which saw 33-year Sheikh Tamim bin Hamad Al Thani ascend to the position of Emir. It also comes at a turbulent time for Qatari foreign policy, which has struggled to respond to recent developments in the region (see 'Increasing Backlash From Assertive Foreign Policy', May 20).

A Barrage Of Criticism

Under The Global Spotlight
Qatar - Regional Map

BMI View: Qatar has faced international opprobrium over the last few months, as the spotlight has turned towards its problematic sponsorship ('kafala') system and the poor labour conditions faced by migrant workers. We warn that any permanent damage to the country's reputation could undermine the regime's ambitions to present the country as a regional hub of culture and education, and thus have tangible economic implications.

The last few months of 2013 have been a difficult time for Qatari policymakers, with the country facing intense international controversy over its labour practices and lacklustre enforcement standards. The opprobrium has largely overshadowed Qatar's successful leadership transition in June 2013, which saw 33-year Sheikh Tamim bin Hamad Al Thani ascend to the position of Emir. It also comes at a turbulent time for Qatari foreign policy, which has struggled to respond to recent developments in the region (see 'Increasing Backlash From Assertive Foreign Policy', May 20).

Under The Global Spotlight
Qatar - Regional Map

A Barrage Of Criticism

Qatar's labour sponsorship system and the poor conditions faced by migrant workers in the country have long been considered problematic by most informed observers. Under the 'kafala' (Islamic jurisprudence) system, nationals and companies can hire migrant workers who are dependent on their employers for food and shelter - conditions of which are often inadequate, particularly in the construction and household services sectors. Migrants' passports are typically retained by the employer (who can withdraw his sponsorship at any time) and residents are required to obtain an exit permit before leaving the country, severely limiting workers' mobility rights and bargaining power. While neighbouring Bahrain has scrapped its sponsorship system and Kuwait is in the process of reforming these laws, Qatar has done little to deal with the matter - even as the total population has surpassed 2.0mn on the back of a large influx in foreign workers (see chart below).

A Never-Ending Influx Of New Migrants
Qatar - Total Population, mn

This complacency has now resulted in a salvo of critical reports and investigations, coming as the government attempts to make progress on its infrastructure development plans in preparation for the FIFA 2022 World Cup, which Qatar is set to host. A report by the UK's Guardian newspaper published on September 25 revealed the deaths of at least 44 Nepalese migrant workers during the summer of 2013. Two days later, the United Nations' International Labour Organisation warned that Qatar was failing to implement an international convention banning the use of forced labour, despite having ratified it in 2007. An even more high-profile condemnation came in November, with the release of a report by Amnesty International calling Qatar's construction sector "rife with abuse" and characterised by "an alarming level of exploitation". The case of Zahir Belounis, a French footballer trapped in Qatar since June 2012 under the 'kafala' system over a wage dispute with his employer, has also attracted widespread attention.

International support towards Qatar's hosting of the World Cup had already begun to wane since the start of 2013, as doubts re-emerged over the country's ability to hold the tournament during the hot summer season. FIFA's head Sepp Blatter stated in September that awarding the World Cup to Qatar might have been a "mistake", and the organisation has set up a taskforce to look at alternative dates in the winter season. FIFA is also conducting an ethics investigation over the bidding for the 2018 and 2022 tournament, over allegations of corruption and vote-buying.

Reputational Damage Risks Having Long-Term Economic Implications

We have long taken the view that Qatar's sponsorship system represents a liability for the government, and note in our long-term political forecasts that "Qatar's inadequate protection of expatriates is likely to remain a key point of concern for many states around the world, and could see increased external criticism of the regime over the long term" ('Limited Challenges For The Coming Decade', September 12). In a small consolation for Qatar, the country is in little danger of losing the rights to the World Cup: Blatter has ruled out any possibility of moving the tournament to other countries, while FIFA's ethics committee has no power to change the site of the event even if any wrongdoing were to be uncovered. Although several human rights groups have called for a boycott of the World Cup, such an outcome remains highly unlikely at this stage.

Yet the blows to Qatar's international reputation nevertheless pose a direct threat to the regime's ambitions to present the country as a regional hub of culture, sports, education, and finance. As with Dubai, the regime has invested heavily to turn Qatar into a brand, with the aim of diversifying the economy away from hydrocarbon production and into new 'knowledge-based' sectors. This strategy, outlined in the National Vision 2030, has involved the construction of multiple museums and an 'Education City' on the outskirts of Doha, hosting local branches of world-renowned universities; the hosting of the Asian Games in 2006; and the successful bid for the World Cup itself. Qatar has also become a large-scale collector of art, spending an estimated US$1bn a year on new acquisitions. Sheikha Mayassa Al Thani, the Emir's sister and chairwoman of the Qatar Museums Authority, was named the art world's most powerful person in October 2013.

This emphasis on soft power and reputation-dependent industries means that any damage to Qatar's image could have long-term implications on the success of the government's economic diversification strategy. Negative publicity could easily turn into lower hotel occupancy rates, limited foreign interest for Qatar's universities, cynicism towards the country's brands (most notably television network Al Jazeera and national carrier Qatar Airways), or reluctance to offer Doha the opportunity to host further international events. These risks are all the greater given that Doha competes directly with Dubai in most fields, as underscored by the latter's bid for the 2020 World Expo.

It also remains unclear how much support the Qatari government's push towards a 'knowledge-based' economy enjoys from a predominantly conservative native population. Some cultural exchanges have been controversial: in April 2013, Greek authorities requested the return of two nude statues from Doha after finding them veiled to avoid offending female visitors. A sculpture depicting a footballer's head butt was taken down from a prominent location in Doha less than a month after being erected. While alcohol consumption is in theory legal, the authorities have clamped down on sales in hotels and other outlets several times, leading to the closure of several high-profile restaurants. Such factors risk undermining Doha's attractiveness for foreign visitors going forward, to the benefit of relatively liberal Dubai. In HSBC's recently released 2013 Expat Explorer league table, which measures countries' attractiveness for expats, the UAE came in 9 th position worldwide, compared to 13 th for Qatar.

Labour Reform To Come, But Costly Delays Are Likely

Given the large costs of inaction, comprehensive labour reform is inevitable for Qatar over the longer term, in our view. The government has attempted to address the recent criticism by announcing a high-level review of labour standards and the sponsorship system in October, while pledging to crack down on alleged abuses. The Qatar 2022 Supreme Committee, in charge of the World Cup preparations, arguably has the most to gain from reform, and could exert influence over policy. The Committee's secretary-general Hassan Al Thawadi recently declared in an interview that the cabinet is considering easing restrictions on exit permits.

That said, we caution that reform could struggle to gather pace in the near term. An abolition of the 'kafala' system has been mooted several times in the past: Qatar's then-Prime Minister Sheikh Hamad bin Jassim Al Thani called for change in 2007, and declared in 2010 that the government was "studying very carefully the issue". Yet there has so far been little domestic pressure for reform: in a study by the Qatar University's Social and Economic Survey Research, 86% of native Qataris sampled did not want the sponsorship system removed, while 30% wanted it strengthened. Business groups, who fear that an overhaul of the system would raise wage costs, have sometimes openly spoken out against reform. In June 2012, the Qatar Chamber, which represents the private sector, expressed strong support for retaining both the sponsorship and exit permit systems - reiterating the same position on November 6, 2013.

Read the full article

This article is tagged to:
Sector: Country Risk
Geography: Qatar
×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.