Asia sharing pieces of Qatar

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Worker at Pearl GTL, Qatar flickr/royaldutchshell

Worker at Pearl GTL, Qatar flickr/royaldutchshell

Among the greater macro-economic shifts which we can expect for this new century, is the disappearance of major business channels as we have known them, and the appearance of new ones. The next one may well be Chinese countries establishing an industrial business stronghold in Gulf countries, namely Qatar. Unencumbered by governments, be it their own or the ones in client countries, Asian countries are reaping the spoils. This trend seems to be setting in, and will therefore investor choices heavily, for years to come.

Since the 1990s, Asian firms started slowly turning away from their initial markets, to address emerging countries, in the hope to stabilize and find new growth areas. The jackpot turned out to be Qatar. Here is a non-comprehensive list of large industrial deals performed in Qatar over the past few years, by Asian firms.

10 km away from Doha, a new high-tech desalination plant is to be built, “RAF A2” (1), to bring an additional 36 million gallons of fresh water to the capital, daily. The 500 million-dollar project is just the start. Not only will maintenance and upgrades pad the envelope for the engineering companies, but as Qatar’s population expands, the total fresh water production level is to be brought to 350 million gallons per day (from a current 328) in 2018. Of the three firms selected to build the plant, one is Spanish (Acciona), and two are Asian (Mitsubishi – Japan, and TCL – Thailand). These firms owe their success to their state-of-the-art water technology (reverse osmosis (2)), which Qatar simply doesn’t master – nor will they anytime soon, given the state of their technology.

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In 2011, the Hyundai engineering corporation (3) was handed three-quarters of a billion dollars, to build the giant Hamad hospital complex (4). In view of the FIFA world cup, Doha knows it will be under international spotlights in 2022, and scrutinized both on its industrial development and on its human rights observance. It therefore chose to build a giant hospital complex, with special attention brought to women (gynecology and obstetrics) and children, so as to be able to process the increased attendance and improve its international image. Again, being utterly enable to build such a complex (or even draft requirement specifications), it called upon the Korean engineering firm which, 2 years before, had won the Gold Medal for “top civil engineering structure”, thanks to the Ma-chang great bridge.

In the lower (yet not less lucrative) B2C segment, Samsung backlashed at business analysts recently, who had predicted record losses in smartphone sales on all emerging markets, Qatar included, by posting record profits (5) unexpectedly.

Samsung is the most telling examples: in 2012, Samsung landed a deal (6) which was considered “unusual”, to say the least. The Qatari Lusai Real Estate Development company tasked Samsung with building a new city. This mega-project included the construction of power plants, highways (some buried), bridges, and utilities networks. The amounts associated to the deal were left undisclosed, but one can guess an order of magnitude, given the scale of the order and Qatar’s financial reserves. Samsung knows it can rely on this market in the long term, because Qatar may be sitting pretty for the moment, but it is at the dawn of a national challenge. Doha knows oil and gas reserve will not last forever, and needs to diversify its economy. In 2015, Qatar’s revenues still depend almost exclusively on fossil fuel. In short: Qatar needs to build a country, and it doesn’t have the first engineer to do it. Luckily for Korea, Samsung has them all.

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How does Samsung do it? It reined in Qatari officials. As one of the most commercially voracious companies in the field, Samsung is one of the few businesses which remains unimpressed with Qatari money. In fact, the Samsung Corporation is worth more than all of Qatar. And Qatar needs Samsung a lot more than Samsung needs Qatar. Over the years, the Korean firm has built a solid credibility base and influence network. With these weapons at hand, Qatari decision-makers are afraid to displease Samsung, which would be well able to pull the rug under anyone’s feet, something that scares Qatari officials.

Although it may be hard for some readers to believe, these truths are supported by the fact Samsung even reined it its own government. In 2012, in an article named “South Korea, the Republic of Samsung” in the Washington Post, Woo Suk-Hoon wrote “You can even say the Samsung chairman is more powerful than the President of South Korea. [South] Korean people have come to think of Samsung as invincible and above the law”. In the following presidential debate, Lee Jung-Hee, one of the candidates, added: “Samsung has the government in its hands. Samsung manages the legal world, the press, the academics and bureaucracy”. The Korean success story has arrived to the ears of enough people for everyone to know that no one contradicts Samsung and walks away.

Asian countries, namely Samsung, built their empire on peddling goods to the western world, namely North America and Europe. Now that these markets have reached maturity, Asian industrial firms have turned to new ones to consolidate and further expand. They still have the technical know-how which gave them their initial success. Except now, they have deep pockets and the authority that comes with it. In the next major industrial deal, Qatar’s public works authority, Ashghal, is due to select its engineering firm to expand and upgrade the capital’s water network (the so-called Idris project). Given the influence Asian companies have developed to coax Qatari officials (including Nasser bin Ali Al Mawlawi, Ashghal’s president) into handing over their national industry deals, it is very likely that and Asian firm will once again be selected. This is something investors about to choose their engineering vehicles should keep in mind.

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References

(1) http://www.water-technology.net/projects/ras-abu-fontas-raf-a2-seawater-desalination-plant/
(2) https://www.espwaterproducts.com/about-reverse-osmosis/
(3) https://eng.hec.co.kr/
(4) https://www.hamad.qa/EN/Pages/default.aspx
(5) http://www.thepeninsulaqatar.com/business/international-business/359273/samsung-electronics-tops-q3-smartphone-sales-in-emerging-markets
(6) http://www.constructionweekonline.com/article-16336-samsung-inks-major-infra-deals-for-lusail-city/

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