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Abu Dhabi, UAETuesday 25 September 2018

Sheer scale of Qatar's challenges apparent with London's Shard half-empty

UK's tallest tower symbolic of economic pain growing amid boycott by Gulf neighbours

Qatar-owned Shard building in UK capital, home to UK unit of  Doha's state-operated Al Jazeera broadcaster, is emblematic of the country's woes of late. Getty
Qatar-owned Shard building in UK capital, home to UK unit of  Doha's state-operated Al Jazeera broadcaster, is emblematic of the country's woes of late. Getty

While no one can miss London's The Shard tower, standing at 309 metres tall and visible from 80 kilometres away, what is less easy to see from street level is the fact that much of it remains unoccupied.

When the building opened in 2012, its developers famously boasted that they could sell the 10 luxury apartments at the top of the tower with no more than “20 phone calls”. But six years later, the flats, which occupy the 53rd to the 65th floors and carry a price tag of up to $65 million each, still appear to be vacant.

When Qatar backed the project to build Britain’s tallest tower back in 2007, it was the highlight of a swathe of investment by Doha in Britain, as the state accumulated trophy assets around the world. Qatar owns more property in London than even Queen Elizabeth II.

“The Shard itself wasn’t a good investment…it was the wrong project in the wrong location. It’s a nice building but location wise it just doesn’t make sense,” Ghanem Nuseibeh, founder of London-based management consultancy Cornerstone Global, said. The building is designed to appear like a spire emerging from the Thames river, but critics claimed it would be "a shard of glass through the heart of historic London", which provided the inspiration for its name.

“The Shard could end up being like Centre Point,” Mr Nuseibeh says, naming another London tower that stood empty for more than a decade after completion.

But the bigger problem for Qatar, Mr Nuseibeh says, is the impact of an economic and political boycott by its Arabian Gulf neighbours and other countries. Saudi Arabia and the UAE together with Bahrain and Egypt cut ties with the country last June, accusing Doha of supporting terrorism.

“Prices are going up in Qatar because of the sanctions, and of course there are cash flow issues, so that’s why they have to repatriate as much cash as possible,” Mr Nuseibeh says.

“Even before the boycott, things weren’t going well, but the actions by the Arab quartet obviously hastened things.”

The list of divestitures made by the Qatar Investment Authority (QIA) sovereign wealth fund since last June is growing rapidly.

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The QIA did not respond to The National’s comment request about its recent activity. But Ali Shareef Al Emadi, the country’s finance minister, told the Financial Times last October that the fund, whose assets under management are estimated to stand at about $300 billion, had brought back more than $20bn (Dh73.46bn) into the country since the boycott began in June.

“Qatar’s economy for sure is under pressure with this [boycott] situation,” Professor Javier Capapé, director of the Sovereign Wealth Lab at Madrid’s IE Business School, told The National. “Sovereign wealth funds like the Qatar Investment Authority are designed for purposes like this, they are vehicles to balance the whole economy. So the government can draw on them when the economy needs additional support.”

Qatar has sought to explain its recent offloading and asset sales as natural portfolio adjustments, coupled with a desire to refocus on the US and emerging markets.

Yet industry experts say the selling spree could also be due to mounting financial pressures.

“Is the reduction of interests in some assets, such as Credit Suisse or Rosneft, driven by liquidity needs, or rather by the desire to rebalance the portfolio? Could be both,” Sven Behrendt, managing director of GeoEconomica in Geneva, told The National.

No one knows for sure if the Qataris are rebalancing their portfolio, or whether they are taking their assets back home, Professor Capapé added.

“If it’s true that they’re rebalancing to the US, it would make sense,” he said. “But the other theory clearly is that they are pulling as much money back into the domestic economy, due on one hand to the lower oil prices, and on the other hand, of course, because of this situation they have with [their neighbours].”

Since the boycott began, liquidity in Qatar’s banking system has come under increasing strain. Ratings agency Moody’s Investors Service estimated last September that the country had burnt through $38.5bn (Dh141bn) of its financial reserves in June and July alone.

Other projects have seemingly been delayed, such as Chelsea Barracks, a luxury residential project near London’s Sloane Square.

Staff on site insist all is going to plan, pointing to a countdown clock in the office which says there are 43 weeks to go until it is ready.

Local residents are less convinced. “It’s an eyesore,” said one, who asked not to be named, at the plush Daylesford organic café that sits opposite the project. “It’s been dragging on years and years.”

Qatari Diar, the QIA’s real estate company, declined to comment when asked by The National whether the project remains on track.

Employees at Qatar-owned Al Jazeera English had planned a 24-hour strike on May 9 at the broadcaster’s office in The Shard before it was suspended at the 11th hour. The protesters were to oppose the channel being starved of resources by its owner, arguing that pay and conditions for its employees have suffered as a result.

Trade union officials said staff at Al Jazeera in London have not received a pay rise in four years.

Staff who planned to walk out of the London bureau “haven’t had pay increases year after year, so their salaries have been overtaken by the market,” said Gerry Carr, assistant national secretary for the UK's media and entertainment union, Bectu.

The strike was touted as a last resort as efforts to meet with Al Jazeera’s management and explore a way for the company to increase their salaries proved unsuccessful.

“Our members are at the end of their tethers, really,” said Mr Carr. “We have very hard working and dedicated staff. I have no idea why management don’t think they deserve a pay award…but we know Doha is where the key decisions are made in the company.”

With strike action stalled for now, Al Jazeera staff will be briefed at a meeting on Tuesday with union representatives. “We can't say any more before then, I'm afraid,” said the union representative.

Al Jazeera has around 130 staff in London. According to trade union officials, a substantial amount of the office was to take part in the walkout, including presenters, reporters, producers, studio technical staff and camera operators. Programmes broadcast from the London office were also to be affected by any industrial action.

Even though it was called off at the last minute, experts say the dispute is telling of a wider slowdown as the country fights fires on multiple fronts.

“I’m not surprised,” Mr Nuseibeh told The National of the planned strike. “Can they [Qatar] not even afford to pay their staff now? That’s hardly a good sign.”

All of this spells bad news for Britain. With Brexit looming, Prime Minister Theresa May is desperate to retain stable investment and hold on to trade partners outside of Europe.

Qatar currently has around £35bn (Dh173bn) of investments in Britain and, last March, Doha pledged to invest another £5bn (Dh24.85bn) in the UK over the next three to five years as the country leaves the European Union.

At the time, the promise was hailed by ministers as a vote of confidence in post-Brexit Britain. But the boycott on Qatar has called this commitment into question, according to Prof Capapé.

“It’s hard to see now whether they will fulfil their commitment,” he said. “It completely depends on the duration of the embargo. If the embargo ends in two months, for sure, they may look to restart the investment spree again.

“On the other hand, it depends on oil prices. Sadly, I don’t have a crystal ball…but I wouldn’t be surprised if they’re more cautious on their investment decisions in future, based on those two risks.”

If Qatar finds itself forced to liquidate some or all of its British assets to sustain its own economy, this would deal a body blow to Mrs May’s hopes of keeping a flow of foreign funding into the domestic economy in post-Brexit Britain.

So, like the Shard and its developers when they first launched in London, the Qataris now have the tall task of maintaining their relevance in London, Britain and the wider world as the boycott continues to bite.

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