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Qatar today F E B R U A R Y 2 0 1 232

cover story

Howfullis yourbasket?

B y s i n d h u n a i r

t h e c o s t o l i v i n g d e B a t e



F E B R U A R Y 2 0 1 2 Qatar today 33

how ull isyour Basket?

when we started working on the story o cost

o living, we heard only murmurs o assent. But

as the month passed, the verdict was loud andclear. the cost o living in Qatar has certainly

gone up, and there are statistics to prove it. Butin a country that shows such high growth rates,isn’t inlation unavoidaBle? who controls the

costs, and what are the actors that control thecost o living? while housing is a major actor inthe rising o cost o living, Qt poll results and

market interviews zero in on the rising oodprices as the trigger or the rise.

according to the monthly consumer price index(cpi) igures puBlished By the Qatar statisticsauthority (Qsa), over the past two years, cpi has

increased By 3%, which would imply that cost oliving in Qatar has increased By a similar igure.




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cost o living depicts the nancial resources re-

quired to maintain a certain standard o living.

CPI is a theoretical price index which measures

the relative cost o living over a period o time

with reerence to the price o a set basket o goods and services. In the absence o taxes, and

all other conditions being equal, an increase

in the price o the basket o goods and servic-

es would mean that at least an equal increase in income would be

required to maintain the same standard o living.

Head o Valuation Services at Deloitte, Milhan Baig explains

that the largest constituent o the CPI is rent, utilities and housing,

which accounts or 32% o the index. This is ollowed by transport

and communication, which constitutes 20% o the CPI. This sug-

gests that the cost o living is most sensitive to changes in these two

constituents, as they make up more than hal o the CPI.

And this explains why the CPI index went to record highs in

2008 and then stabilised the next year, to again increase slightly in

the year just ended.“According to the International Monetary Fund (IMF), Qatar’s

highest ination rate o 15% in 2008 was driven by a surge in rental

prices, coupled with an increase in government expenditure to uel

economic growth. Control measures to decrease rentals were in-

troduced in 2009, which led to a sharp drop in the ination rate,

so much so that in 2009 there was deation (negative ination) o

-4.9%,” says Baig.

Dr Alexis Antoniades, Assistant Proessor at Georgetown Uni-

versity, explains the eect ination has on our lives. He says:

“Ination, which is dened as a continuous rise in the price o most

goods and services, can have adverse eects on the economy. Rising

prices hurt the consumers, they make rms less competitive as the

cost o production rises, and they slow down the growth rate o the

economy.“Supply bottlenecks contributed to the rising prices experienced

in 2008. Due to Qatar’s high growth rate, the country’s population

doubled between 2004 and 2008, while housing supply was limited.

The excess demand in housing, along with a rise in the cost o con-

struction material, resulted in a signicant jump in rental prices.

At the same time prices, supply bottlenecks in other sectors (such

as schooling), rising ood prices and commodity prices worldwide

were the main actors that caused the high ination rate that the

country experienced in 2008.”

The ollowing year the world economy went into a recession and

as a result, ood prices and commodity prices deated rom the

2008 peak levels.

“In Qatar, many o the construction projects were completed,

adding substantial amounts o residential and commercial space ina market that had already experienced a sotening in demand. The

excess demand or housing experienced in the previous years be-

came an excess supply in 2009, rental prices collapsed by 40-50%,

and ination declined substantially,” he adds.

At a more macro level, GDP growth allows or more government

expenditure which in turn acilitates urther economic growth and

the availability o higher disposable income.

However, GDP growth may not necessarily be a good thing or

the cost o living.

cpi index graphSource: Qatar StatiSticS authority (QSa)





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“More disposable income would mean that, i the supply o goods

and services does not increase relative to demand, more money is

being spent to buy too ew goods. A comparison o GDP growth and

ination provided in the graph corroborates this,” says Baig.

In other words, the availability o more disposable income in thehands o consumers could mean more spending which increases

the demand or goods and services.

This is what economists call ‘demand pull ination’.

“In the past, we have seen the eect o this coupled with rental

hikes when ination increased to rates as high as 13.7% in 2007 and

15% in 2008,” he says.

the housing actor While all this explains the 2008 and 2009 crisis, why does the CPI

index still indicate high gures in 2011?

As housing and rents constitute a major portion o CPI, let’s rst

explore what variations are shown in this sector.

We have gures rom a real estate agecy to prove that rents have

stabilised since last year and 2012 rent projections say that therewill not be too much o a variation in the gures or prices. Real es-

tate agency and analysts DTZ’s Associate Director, Mark Proudley,

says, “In general, rental rates across most real estate sectors have

remained reasonably stable over the whole o 2011, though we have

witnessed some increases on good-quality stock in areas which

are limited in supply, such as one-bed apartments or smaller ofce

suites.

“We believe the trends recorded over the latter hal o 2011 will

prevail during 2012, with rental rates remaining comparatively

stable as new developments reaching completion increase the lev-

els o supply in parallel with new demand driven by economic ac-

tivity creating employment opportunities and population growth,”

he says.

experts

high on oodthat Brings us to the other major component oa rising cpi, ood prices.

according to Qatar Today’s Cost o Living opin-

ion poll, 81.8% o our respondents said that the

cost o living had spiralled. About 70% o the

respondents believed that the increase in cost

was due to rising ood prices.To understand how prices have risen over

the years, Qatar Today approached leading

grocery retailers in the country to understand

the situation.

Carreour City Centre's General Manager, David Zamagna, says:

“The cost o grocery items has increased tremendously, not only

in the last two years, but over the course o the last 10 years.”(The

majority o respondents (54.1%) in the QT Cost o Living survey

shop at Carreour.

Another ofcial rom one o the other prominent department

stores says: “Food price increases over the past ew years have been

a global phenomenon, and no country is exempt rom it. In coun-

tries like Qatar, where the vast majority o ood items are imported,

the impact will be higher than in other countries.”

Mohamed Altha, Regional Director, Lulu Hypermarkets and De-

partment Stores, doubts the authenticity o the reports that show a

higher CPI index in the ood category. (31.8% o our respondents

shop at Lulu.)He says: “Last year Qatar had a growth rate o around 15%. None

o the other countries around the globe has shown such remarkable

gures, and some countries which have had high GDP rates have

had equally high ination rates. In Qatar, i ination has been con-

trolled in the ace o such high GDP rates then it is a commendable

eort by the Qatari government.”

Altha does agree that prices have gone up in some commodi-

ties, but then he dismisses it as a natural phenomenon that every

country aces.

But what about pulses, which used to cost QR4 per kg in 2006

and now cost close to QR12 per kg ? What does this imply?

“Well, there have been increases in some items. But i you look at

other items, like vegetables, they were more expensive than what




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they are now. Meat is also much cheaper,” says Altha.

Spinneys Head o Business Unit Elias Tabet says there has not

been an increase in ood prices. “We have not increased prices, as

we are not dependent only on the import market. There has been

no major price increase rom the local market, either. Moreover, wetarget the high-end customer,” says Tabet.

Tabet does agree that a price rise has been seen in some com-

modities, but he believes this is a global phenomenon and not

particular to Qatar.

Qatar has a bigger concern as it depends on imports rom all

countries or its supply.

“Even the basic availability o ood items has become a matter

o concern, especially in countries like Qatar, which plans or the

long term. And that explains why Qatar is investing in arms in A-

rica, Philippines and other places to ensure they will have priority

access to some basic items. The increase in prices is attributed to

everything rom the growth o China and India as major consum-

er nations to changes in weather due to global warming, a rise in

transportation costs, global population growth, and so on,” saysan ofcial o a prominent hypermarket, who preers to remain

anonymous.

Qatar has very limited production acilities and arms. It imports

almost everything, and anything that aects the exporting coun-

tries (like natural disasters or even hikes in uel costs) will aect

ood prices here.

Does that mean that ood prices are entirely dependent on the

import market?

“Everything except a limited supply o vegetables and somewhat

adequate supply o sh is imported. This includes basic items like

our, sugar, dairy products and oil, and price variations on these

items lead to price variations in items produced using these basic

items," adds the anonymous ofcial.“There have not been particular shortages o specic items, but

we need to remember that global crises like Bird Flu have been able

to cut o poultry availability, and other incidents like India’s ban

on rice exports led to 'temporary availability issues' on these items.

This resulted in additional price increases or an indenite period.

But when the restrictions were lited, price increases eased, and

they are now market driven.”

Since most commodities are imported, where do the retailers

source the commodities rom?

“Brazil is the biggest source or poultry not only or Qatar but

or the entire world. We have vegetables coming rom Europe,

India, Philippines and Sri Lanka. Oil comes rom the UAE, and so

on. Basically, we look at how to deliver the best value or the cus-

tomer and identiy such sources as can help us do the same. We arealso constantly on the lookout or alternatives that appeal to the

customers,” says the ofcial.

Lulu employs multiple sourcing, and that is how they keep a

check on the prices and availability, says Altha.

“We source rom the local market, but our main supply is sourced

rom Thailand, Sri Lanka, Holland, Belgium, some rom the US and

Lebanon.”

But when one depends on imports, prices and availability will

depend on the market conditions or even the climatic conditions o

these source countries.

“Not i you have multiple sourcing. When we encounter such

shortalls we make it up and go to other sources. Like last year,

when there was ooding in Thailand and production was aected,

has the cost o living in Qatargone up in the past year?

Qt poll

yes81.8%

no4.5%

not sure13.6%

“Q’ us

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2012,

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“Qatar is a small nationwith the world’s highest gdpper head. ater winning the2022 world cup, the stateearmarked $200 Billion to Bespent within ten years.The scale o the enterprise is so huge that it will need

nearly 200 million workers to complete the inrastruc-

ture works, but the country doesn’t have the capacity to

cope with such a vast workorce. Demand has naturally

outstripped supply, because availability is so low and de-

mand is so high. This is the main reason why Qatar has

become one o the most expensive countries in the world.

Recent price rises will be nothing compared to what liesahead. Figures will be astronomical within the next ew

years.

The cost o doing business is not as high as some peo-

ple think. The recent inationary ripple is not a healthy

phenomenon, but a reection o the country’s lack o

readiness and advanced preparation. The main reason

or this is a lack o planning and a paucity o strategies

in the country, especially in respect o arrangements or

the 2022 World Cup. No schedule has been drawn up yet

or the works to be carried out. No committees to moni-

tor tenders have been ormed. I there is no timetable in

place by the end o 2012 the country won’t be ready to

host the World Cup, and prices will go even higher as a

result o the mess. Right now Qatar doesn’t even have theplaces to accommodate all the expatriate labour that will

inevitably be needed in order to bring supply in line with

demand.”

ab a-sB

the consumers

experts

we immediately took action and got our supply rom Indonesia. In

2010, India put up a moratorium or exporting non-basmati rice —

we are not talking o huge quantities, only 250,000 tons — this was

immediately purchased rom Thailand instead. This year we expect

a shortall rom Thailand, but then India has had bumper growth. We work efciently to overcome such shortalls,” says a condent

Altha.

This brings in the question o quality, which Altha claries,

saying the Qatari market is very strict on what it imports and has

quality assurance at dierent levels to help control that issue.

price controlZamagna agrees that there has been a global price increase in ood

items and adds another interesting actor.

“To protect the consumer, the Qatari government has put pres-

sure on us as the retailer to maintain or monitor price increases,”

he says.

“The Ministry o Business and Trade has created a commod-

ity list, which is the list o around 250 items on which the priceis blocked and monitored by the ministry. We have to supply the

prices o these commodities to the ministry every week.

“Any price increase rom our supplier should be validated and

upheld by the Ministry o Business and Trade. In our case, our

prot margin is not increasing—it is decreasing because we don’t




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want to put the ull impact o the increase in cost price in our mar-

gin. We know that the pricing issue is a very serious one in terms o

the purchasing power o the people, so we are also ghting against

that,” says Zamagna.

Altha explains: “You cannot have a unilateral price increase. Weare not allowed to increase the prices on our own. I we want to in-

crease the price o any commodity it comes under strict scrutiny,

and you have to validate the reason or the rise in price, which then

needs to be approved. It is a scientic process that they have ad-

opted and it is almost ool-proo.”

This new rule was introduced during Ramadan to control price

rises o around 250 essentials beore they extended the period. It is

still being practised.

“More than imposing any laws, they have opened up

competition,” eels Altha. “To make sure that the items are also

available on the racks, the ofcials also make spot checks.”

Zamagna talks about another action put in place a year ago by the

government.

“We also have to work on a daily price list rom the government.This covers the main ruit and vegetable prices. The prices are xed

and we cannot play with them. We receive this list between 9 and 11

o’ clock in the morning. As soon as we receive this price we have to

apply it in the aisles. The price they are imposing is very low, some-

times below our costs.”

Zamagna says that cigarette prices have just gone up rom QR8 to

QR9, but they cannot impose it i they do not get approval rom the

Ministry o Business and Trade.

A step to help the consumer, no doubt, but one that is aecting

giants like Carreour and Lulu.

But Altha is quite positive even in the ace o such impositions.

“Prots have come down, but we have to increase our operational

efciencies and try to get even. We are also working with the Min-istry to look at actors like duties that add to our overheads. Ten

percent o the cost is due to logistics inefciencies which have to be

worked on. For this we are working in tandem with the ministry to

remove the border inefciencies and congestion at the port. They

are implementing this price control all over, and it is not restricted

just to groceries but also or automobiles, etc. This is not a one-way

restriction; the ministry is trying to make it easier by reducing cer-

tain logistical overheads and costs, so in the end all this should be

benecial to the consumer and the retailer.”

Carreour is also dealing with the imposition by beeng up its

operational efciencies.

“We are nding other ways to combat this price increase. We

manage our costs and the energy we consume to maintain our

protability.”

economics that worksDr Antoniades tells us that overall ination is low, currently.

“Yet many people eel the impact o rising prices. This happens

because the consumer price index, which is used to calculate ina-

tion, measures only the price o a representative basket o goods. It

does not measure the true cost o living or each household.

“For many goods prices are rising ast, but in the CPI this rise

is oset by alling rental prices. Since households allocate dier-

ent shares o their income across goods such as housing, ood,

education, entertainment, and health, changes in prices aect

dierent households in dierent ways,” he says.

Moving orward, ination remains a threat to Qatar,

where do you preer to do yourshopping?

Qt poll

“i , f . i b ’

. w

, f .”

d zg m, c c c

lulu31.8% carreour

54.5%

spinneys4.5%

amily oodcenter & otherretailers27.3%

all22.7%

retailer





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“the recent price rises have

not Been Big; in act theyhave Been modest. 2011 wasa relatively calm and tosome extent staBle year, assupply exceeded demand inresidential Buildings.

Qatar charges some o the lowest rates anywhere or

electricity and water services to ofces, warehouses and

management suites, and also doesn’t charge housing ees

or nationals. All o this made 2011 relatively quiet on all

ronts, and although there were some price rises, thesewere trivial when compared with neighbouring states.

Business costs are relatively high, which is due to high

rental costs because o the shortage o ofces, shops and

warehouses, and also the taxes imposed by the state,

which are high in comparison with neighbouring states.

The salary increase or public sector workers and labour-

ers also did a great deal to worsen the problem o ina-

tion. Higher shipping costs have led to an increase in

the cost o importing oodstus and a rise in charges or

health and education services, as well as an increase in

the price o building materials, leading to higher build-

ing costs. However, it’s a airly slight increase given the

growth in construction and inrastructure activity in the

country.”

k a-ao a-k g

retailer

the consumers

which o these actors havecontriButed most to the cost o

living?

Qt poll

ood70%

housingrents25%

school ees20%

electricity& water10%

all20%




cover story

according to Dr Antoniades, especially when rental prices begin

to stabilise and then rise. Global ood prices are on the rise again,

and spending or the World Cup 2022 will cause supply-side bottle-

necks again.

“The state does pay a lot o attention to the issue o ination, andserious work is under way to improve measures o ination. Break-

ing up the domestic monopolies will be a step orward, as it will

open up the market to healthy competition that will bring prices

down and benet the consumers.

“Communicating the causes o ination to the public and mak-

ing an eort to maintain ination at low levels will help manage

expectations about ination. Oten just the expectation o ination

creates ination, as workers ask or a raise in salaries and rms re-

adjust prices in anticipation."

Controlling prices o some goods will not help as wholesalers

and retailers will adjust the prices o goods without price control so

that their average prot across all goods remains the same, eels Dr

Antoniades. According to Baig, ination can be controlled by either

scal or monetary policies.“Qatar’s decision to maintain its currency peg to the US dollar is

likely to restrict the use o conventional monetary policies to mod-

erate ination, although increasing interest rates could encourage

consumers to save more and borrow less. This could help reduce

spending levels, but in a country which has one o the highest GDPs

in the world, high disposable income levels could circumvent its

eectiveness.”

Thereore, in the absence o eective conventional monetary

policies, the government may look to apply certain scal policies to

moderate ination levels.

“For instance, the use o specic government subsidies (as op-

posed to direct government expenditure) can help maintain local

commodity and ood prices within a desired range.”

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retailer

consumer price ination in the GCC picked up to 3.3% in 2011, up

rom 2.8% in 2010, according to analysis rom QNB Capital.

Despite this small rise in ination, price growth in the region is

below the global average o around 4.5% and well below the 13.8%

average that QNB capital estimates or the rest o the MENA region.

Part o the reason or the relatively subdued ination relative to other

countries is uel subsidies. These subsidies have insulated the region rom

the direct impact o the sharp increase in oil prices, which has seen the

benchmark Brent crude rising by 39% on average in 2011, even more thanthe 34% increase in 2008.

Instead, the strongest contribution to ination in the GCC last year

came rom rising ood prices, driven by shortages in the rst hal o the year

which saw a 23% average rise in the UN Food & Agriculture Organization’s

benchmark index o basic ood prices. Rents saw declines in three o the

countries, but increases in the others. In most other price categories, such

as communications, there were only mild rises across most o the region.

QNB Capital’s assessment utilises the ull year consumer price index

(CPI) data or ve countries and an estimate or Oman, based on its data

until November 2011. The regional ination gures have been calculated

by weighing ination in each country against their estimated shares o

regional GDP.

tHe regional picture

Source: NatioNal StatiStical ageNcieS aNd QNB capital

eStimateS

(continued on pg 42)





“a numBer o actors coulddictate whether the costo doing Business will

increase or decrease,including But not limitedto cost o oice space,employee housing, salaries,marketing, etc. rom amarketing perspective, iBelieve that costs are goingdown as Business ownersare starting to market more

creatively and eectively,especially online.

Salaries will inevitably go up with ination, but an essen-

tial cost that plays a role in salary packages is the cost o

housing. We’ve seen real estate prices generally drop and

stagnate over the past couple o years, so there’s really no

evidence that salaries and associated real estate costs are

going up any time soon. Furthermore, Qatar has devel-

oped an international name or itsel and has become an

appealing place to live, so hety salary premiums to incen-

tivise people to move to Qatar are no longer needed, espe-

cially in light o the global economy. Add the act that the

government has shown support in instituting initiativessuch as Enterprise Qatar or the Qatar Development Bank

to assist SMEs rom the regulatory and nancial stand-

points, I would nd it hard to argue that the cost o doing

business is going up, in the short-to-medium term.”

k a mo c -

the consumers

do you consider Qatar to have ahigh cost o living versus your

native country?

Qt poll

yes63.6%

no18.2%

on par18.2%

has your house rent increased inthe past year?

Qt poll

yes31.8%

no68.2%




cover story

“the Business environmenthas not changed since lastyear. it will take anotheryear or so or the dierent

initiatives and regulationsto Be implemented.However, the cost o business went down due to rents

going down, allowing the overall operations expenses o

any business to drop.”

s c & m d,r c e i

the consumers

have you cut Back on any luxury

items?

Qt poll

yes72.7%

no27.3%

This is already in place, and the Ministry o Business and Trade is

trying to put a cap on rising ood prices.

“Another example would be the government mandating more

gas dollars to its sovereign wealth und to make oreign direct in-

vestments, in an eort to reduce the amount o cash circulating

in the local market. With less cash circulating in the market, con-

sumer spending — and hence ination — can be controlled to some

extent,” says Baig.

Baig also eels that new business development initiatives en-

couraged by the government, the Qatar Exchange SME Market,

Enterprise Qatar and ictQATAR, will over time stimulate new

business entrants and thereby increase competition in the market,which is likely to result in price reductions or goods and services.

These initiatives may also have the eect o balancing supply with

demand to ease the eect o any 'demand pull ination'.

“Overall, there is no doubt that a delicate balancing act is required

between employing certain economic policies and how those poli-

cies translate into changes in ination and cost o living.”

Or, as Tabet puts it: “We just need more people in the country or

the sales to go up.” And hopeully or prices and the cost o living to

come down, too

(With inputs from Peter Larson and Ezdhar Ibrahim)

have car insurance ratesincreased or decreased?

Qt poll

increased52.4%

same47.6%

decreased0%

(continued rom page 40)

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