1. Banner Banner Qatar Development Bank June 2013 Contact: Economics@qdb.qa Qatars plastic clusterwhich includes plastic raw materials, plates/sheets/film, plastic pipes and fittings, builders plastics, bags/packing products, fiberglass products and other minor plastic productshas come of age over the last five years. In effect, Qatars construction boom has expanded demand for plastics inputs allowing the sector to grow beyond its historic product lines dating back almost thirty years. Further preparations for the 2022 World Cup bode well for sector as demand for plastic-based products is expected to increase further until 2016 to level off after that. This will allow the cluster to consolidate its presence in Qatar, as well as expand its footing in regional markets. Qatars plastics value-chain originates in its raw materials sector (ISIC code 201300) which, in turn, uses downstream inputs from the local refinery sector. The sub- sector is, by far, the biggest component throughout the value chain with investments of QR 11.1 bn as at 2012 and 3,570 employees (98 and 47 per cent of the clusters overall figures respectively). The industry, however, is not entirely self- sufficient as many inputs still need to be imported from Saudi Arabia, UAE and the U.S., accounting for 61.6% of total imported inputs in 2011. Total investments, which reached QR 11.3 bn in 2012more than doubling since 2008are even more skewed towards raw materials with an average of 98.2 per cent during this time. The surge in investment is directly related to the spike in construction activities that has taken place since 2008 although overall investments have remained flat since 2010. 97.5%0.4% 1.2% 0.1% 0.3% 0.0% 0.5% 0% 20% 40% 60% 80% 100% Raw Matrials Plats, sheets, film Plastic pipes & pipe fittings Builders' plastics Bags & packing products Other plastic products Fiberglass products The Impact of Raw Materials Cannot Be Underestimated Investment Distribution by Sub-Sectors, 2012

2. Sector Review The Plastics Industry in Qatar Qatar Development Bank 2 Sector growth came to a near halt in 2010 in response to the slowdown in construction at the time. Since then, basic raw materialsthe biggest recipient of new investment into the sectorhas shown remarkably little dynamism. Last year, investment growth shifted towards sectors further down the value-chain such as bags (110%) and construction-related materials (125%), as construction in Qatar turned the corner. Investment growth during 2008-2010, which was also dominated by raw materials, came to a near stop in 2011. Overall sector investment almost doubled in 2009 as raw materials supported 98 per cent of the increase with a similar performance in 2010. Since then, however, investment growth slowed down dramatically in response to the decline in construction activities. During 2011-2012, investment growth remained at near zero per cent. The construction slowdown of 2010-2011 also revealed the sectors maturity curve. Heavy initial investments in the raw materials sector posited the value-chain to develop downstream sectors (building materials, packaging, etc.) that by now are linked to construction and final consumption activities. As a result the recent construction cycle had a direct and immediate impact on plastic manufacturing, which, in turn created a cycle in the plastics sector. The raw materials subsector also dominates trade flows. Total plastic exports captured 2.2 per cent of overall Qatari exports in 2011 (0.04 per cent when raw materials are excluded) with imports showing a similar trend (2.3 per cent of total imports, 1.4 per cent when raw materials are excluded). 46.5 % 18.7 % 15.6 % 13.6 % 5.1 % .4 % % 10 % 20 % 30 % 40 % 50 % Plastic pipes & pipe fittings Fiberglass products Plates, sheets, film Bags & packing products Builders' plastics Other plastic products Source: QDB Staff calculations based on QSA and GOIC data Investment's Distribution by Sub-Sector, 2012 (Excluding Raw Materials) -100% -50% 0% 50% 100% 150% 200% 2009 2010 2011 2012 Raw Materials Plats, sheets, film Plastic pipes & pipe fittings Builders' plastics Bags & packing products Fiberglass products The Construction Slowdown Had a Big Impact on Plastics Investment Growth by Sub-Sectors -0.20% -0.10% 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 2009 2010 2011 2012 Plates, sheets, film Plastic pipes & pipe fittings Builders' plastics Bags & packing products Fiberglass products Source: QDB calculations based on QSA and GOIC data Contribution to Overall Investment Growth (Excluding Raw Materials), 2009-2012 The Industry is Maturing 98.1% 96.3% 96.8% 95.6% 98.2% 94.0% 95.0% 96.0% 97.0% 98.0% 99.0% 0% 1% 2% 3% 2007 2008 2009 2010 2011 Plates, sheets & films Pipes and pipes fittings Bags and packing products Fiberglass products Primary forms Source: QDB Staff calculations based on QSA and GOIC data Structure of Plastic Exports , 2007-2011 Export Share (%) Raw Materials Dominate Plastics Exports 3. Sector Review The Plastics Industry in Qatar Qatar Development Bank 3 Indeed, overall plastics exports in 2011 totaled QAR 8.8 billion, 98 per cent of which were raw material. With so little exports besides raw materials, the plastics clusters development continues to be directly linked to domestic demand for construction inputs, packaging material and some retailing products. Imports, on the other hand, totaled QAR 1.8 billion during 2011, 37.2 per cent of them in the form of raw materials. The fiber-glass subsector, in particular, shows an interesting pattern of import- substitution. As can be seen, its share of imports declined consistently from 18.9 per cent in 2008 to around half of that in 2011. This was accompanied by a more than seven-fold increase in investment during the last five years (totaling US$ 54.3 million in 2012). As a result, the number of operating plants increased from 10 in 2007 to 16 in 2012. Clearly, the fiber-glass subsector expanded to supply domestic demand, most of it supported by the boost in construction activities during 2007-2010. Overall plastics exports significantly outweighed imports during 2007-2011 due to the size of (low value-added) raw material exports (especially in 2011, which saw a 61.2 per cent increase compared to 2010). In 2011, most of these exports headed to China (19 per cent), India (10.9 per cent), UAE (6 per cent), Saudi Arabia (5.2 per cent), Thailand, Turkey and France (all of them with less than 4 per cent). It should be noted that, notwithstanding the impact of raw materials, plastics imports outweighed non-raw plastics materials, suggesting that the industry is far from being self-sufficient. In 2011, the main export markets of final plastic products to Qatar were China, Saudi Arabia, UAE and the U.S. (in that order). Accordingly, the trade balance is largely impacted by activity in the raw materials subsector. In fact, the overall trade balance averaged QAR 3,885 million during 2007- 2012 but, when raw materials were excluded, the balance turned negative (an average of QAR 1,149 million). That is, a QAR 5,034 million average swing. 0% 5% 10% 15% 20% 25% 30% 35% 2007 2008 2009 2010 2011 Primary forms Plates, sheets & films Pipes and pipes fittings Builders' plastics Bags and packing products Fiberglass products Other plastic products Source: QDB calculations based on QSA and GOIC data Structure of Plastic Imports , 2007-2011 Import Share (%) ...But Not So Much Amongst Imports 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 2007 2008 2009 2010 2011 Millions Import Export Source: QDB calculations based on QSA and GOIC data Qatar's Overall Plastics Trade, 2007-2011 QAR mn. QAR mn. The Impact of Raw Material Exports on the Trade Balance is Significant 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2007 2008 2009 2010 2011 Import Export Source: QDB calculations based on QSA and GOIC data Qatar's Overall Plastics Trade (Excluding Raw Materials), 2007-2011 QAR mn. Downstream Sub-Sectors Still Rely on Imports 4. Sector Review The Plastics Industry in Qatar Qatar Development Bank 4 There will be two overriding factors as we move forward. On the one hand, construction will continue to support the industrys development (thus creating demand-pulled sector development). On the other, bags/packaging activities will basically respond to overall population growth alone. Qatars construction pipeline in coming yearsestimated at around US $300 billionwill continue to support the sectors grow and diversification (total investment is expected to reach US$13.3 bn. by 2015 as employment expands by 14 per cent compared to 2012). Expectations of above- normal profits should increase the number of firms coming into sector, thus increasing competition, but this will create downward pressure on prices. The end result will be that the sector will mature and settle on a more or less sustainable expansion path, probably during the second half of the decade. -1,600 -600 400 1,400 2,400 3,400 4,400 5,400 6,400 7,400 - 1,600 - 600 400 1,400 2,400 3,400 4,400 5,400 6,400 7,400 2007 2008 2009 2010 2011 Overall Trade Balance Trade Balance exc. Raw Materials Average, Overall Average, exc. Raw Materials Source: QDB calculations based on QSA and GOIC data Trade Balance in Plastics Products, 2007-2011 QAR mn. QAR mn. Impact of raw materials on the trade balance Copyright (all rights reserved) QDB The entire content of this newsletter is subject to copyright and intellectual property rights. All rights are reserved and the information contained in it is for personal use only. 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