Inflation spikes as Qatar gears up for spending spree

Updated 02 May 2013
0

Inflation spikes as Qatar gears up for spending spree

DOHA: Five years ago, inflation in Qatar soared into the double digits after it spent heavily on hosting the 2006 Asian Games. Now, with another government spending spree and an even bigger sports event looming, inflation is on the rise again.
The country of just 1.9 million people plans to spend about $ 140 billion to build stadiums, roads, railways, a new airport, a seaport and other infrastructure before it hosts the 2022 soccer World Cup.
Spending on that scale could destabilize a much bigger economy. So recent data showing a sharp rise in inflation is unwelcome — and might, if it becomes a trend, threaten the smooth completion of some of the construction projects.
Government officials and company executives insist they have learned from the last inflation debacle and will be able to avoid another one, partly because they have given themselves more time to carry out the construction.
“In 2006, we saw a very different situation compared to what we have now. We had to execute all the projects within a tight time frame, and were faced with a very sudden inflow of people into the country,” R. Seetharaman, chief executive of Doha Bank, Qatar’s fifth-largest bank by market value, said.
“Now, we have enough time to execute these projects; it will be done gradually over the next five years. The time frame will help in acting as a stabilizer in preventing inflationary issues.”
Qatar’s inflation rate skyrocketed to a record 15.2 percent in 2008, partly because of a building boom for the Asian Games; logistical problems and bottlenecks, including difficulties in bringing enough building materials into the country, caused costs in the economy to spiral.
In a sense, the global financial crisis came to Qatar’s rescue. Inflation fell rapidly as housing rental prices plummeted in response to the global turmoil, and Qatar actually experienced deflation — falling consumer prices — in 2009 and 2010, underlining how vulnerable the wealthy gas-exporting economy is to global trends.
In the last few months, however, the specter of high inflation has reappeared. The year-on-year rate jumped to 3.6 percent in March, from 3.2 percent in February and 2.6 percent in December. A major reason for the rise was a rebound in housing rents, which account for about a third of consumer expenses; they gained 5.5 percent in March.
One factor behind the inflation surge appears to be increased government spending on social welfare in the wake of the Arab Spring uprisings elsewhere in the region. In September 2011 the Qatari government boosted basic salaries and social benefits for state civilian employees by 60 percent.
Inflation would be higher at present if Qatar had been quicker to get its infrastructure projects into gear after winning the right to host the World Cup nearly 2-1/2 years ago. Partly because of bureaucratic delays, the government has been slower to award contracts than many companies had expected — disappointing many foreign businessmen, but limiting upward pressure on prices.
“The two-year delay has had the effect of controlling inflation,” said Abdulaziz Al-Ghorairi, senior vice president and chief economist at Commercialbank Capital in Doha.
This year, however, infrastructure spending looks set to ramp up in earnest. Plans call for state expenditure to increase 18 percent to SR 210.6 billion ($ 57.8 billion) in the 2013/14 fiscal year that started on April 1, and to stay at about this year’s level until 2017, Finance and Economy Minister Youssef Kamal said this month.
One of the government’s defenses against inflation is its ability to regulate prices. In a statement in December, the government said it would use regulatory powers to prevent traders from imposing “unjustified” price hikes on consumers.
Another weapon against inflation is monetary policy. In March, the central bank introduced quarterly issues of riyal-denominated bonds, giving it a tool to manage excess funds in the banking sector.
The central bank governor said recently that these issues could be adjusted flexibly. Officials and some analysts say such tools will be sufficient to avoid another burst of double-digit inflation in the next few years. “We do foresee inflation going up, but we expect it to remain in the single digits,” Ghorairi said.
Others are less sure, given Qatar’s heavy dependence on imports — except for energy, most of the basic goods which it consumes are imported — and the fact that the Qatari riyal is pegged to the US dollar.
The peg constrains Qatar’s ability to raise interest rates to fight inflation, and prevents it from appreciating its currency to offset any rise in import costs.
“I don’t there is much the central bank can do about the kind of inflation Qatar faces from population growth and project spending,” said a Doha-based economist at a major financial institution.
“Also, it can’t influence imported inflation because of the dollar peg. If you have a dollar-pegged currency, you’ve effectively abdicated all monetary control to the host country. Effectively we have US monetary policy in Qatar now.”
A burst of inflation could disrupt the infrastructure program by raising the costs and crimping the profit margins of companies building the projects.
However, the impact would probably be bearable for Qatar’s affluent population of local citizens, who number only about 250,000 of the total population of 1.9 million.
“Who is really damaged by single-digit inflation? Most corporates have cost-of-living adjustments, and people who own assets see the benefit of it,” said Steve Troop, chief executive of Doha-based Barwa Bank, adding “3.6 percent isn’t the end of the world in a place where people don’t pay tax.”


Power-sucking Bitcoin ‘mines’ spark backlash

Updated 31 min ago
0

Power-sucking Bitcoin ‘mines’ spark backlash

  • Local US authorities pushing back against bitcoin miners as power prices rise
  • Firms insist they bring revenue, investment and talent to mining locations

NEW YORK: Bitcoin “miners” who use rows of computers whirring at the same time to produce virtual currencies began taking root along New York’s northern border a couple of years ago to tap into some of the nation’s cheapest hydroelectric power, offering an air of Silicon Valley sophistication to this often-snowy region.
But as the once-high-flying bitcoin market has waned, so too has the enthusiasm for bitcoin miners. Mining operations with stacks of servers suck up so much electricity that they are in some cases causing power rates to spike for ordinary customers. And some officials question whether it’s all worth it for the relatively few jobs created.
“We don’t want someone coming in, taking our resources, not creating the jobs they professed to create and then disappear,” said Tim Currier, mayor of Massena, a village just south of the Canadian border, where bitcoin operator Coinmint recently announced plans to use the old aluminum plant site for a mining operation that would require 400 megawatts — roughly enough to power 300,000 homes at once.
In Plattsburgh, where two cryptocurrency operations have been blamed for spiking electricity rates, the prospect of more cryptocurrency miners plugging in spooked officials enough in March to enact an 18-month moratorium on new operations. The small border village of Rouses Point also is holding off on approving new server farms and Lake Placid is considering a moratorium.
For local officials, the power struggle has been a crash course in the esoteric bitcoin mining business in which miners earn bitcoins by making complex calculations that verify transactions on the digital currency’s public ledger.
Since it often uses hundreds of computers that throw off tremendous heat and burn a lot of power, it has tended to gravitate toward cooler places with cheap electricity, such as geothermal-rich Iceland or along the Columbia River region of Washington state.
The stretch of New York near the Canadian border similarly fits the bill. Cheap hydropower from a dam spanning the St. Lawrence River is doled out by a state authority to local businesses that promise to create jobs. Additionally, some municipalities such as Massena and Plattsburgh receive cheap electricity from a separate hydropower project near Niagara Falls.

 

In Plattsburgh, electricity is so cheap most residents use it instead of oil or wood to heat their homes. The couple of commercial cryptocurrency mines here can get an industrial rate of about 3 cents per kilowatt hour — less than half the national average.
But Plattsburgh Mayor Colin Read said its largest operator, Coinmint, which has two plants employing 20 or fewer people, can consume about 10 percent of Plattsburgh’s 104 megawatt cheap electricity quota. When the city exceeded its allocation like it did this winter, customers ended up paying $10 to $30 more a month for the extra electricity. For a major employer like Mold-Rite Plastics plant, it cost them at least $15,000 in February.
State regulators have since given municipal utilities the ability to charge higher rates to cryptocurrency miners. At least one bitcoin miner in Plattsburgh says he’s working with the city on solutions to the power worries.
Ryan Brienza, founder and CEO of the hosting company Zafra, said those could include mining on behalf of the city for an hour a day or harnessing the heat from mining computers to warm up large spaces.
While the direct number of jobs associated with mines can be small, Brienza said they can bring revenue, investments and talent to the city while employing local contractors.
“It can start snowballing,” Brienza said.
Coinmint’s plans for a new plant in Massena, for example, come with a promise of 150 jobs. That’s welcome in an area that in the past decade has suffered though the loss of aluminum-making jobs and the closure of a General Motors powertrain plant.
“J-O-Bs. Yup. What we need up here,” said Steve O’Shaughnessy, Massena town supervisor.
Coinmint had asked for a cheap power allocation from the New York Power Authority for Massena for part of its energy needs, but that request was deferred.
The power authority has separately enacted its own moratorium on allocating hydropower to cryptocurrency operations — mirroring municipalities that have effectively pushed the “pause” button on a rush of miners coming in.
Coinmint representatives said this month they hope to begin the Massena operation in the second part of this year. The company stressed that mines can be a good fit for this job-hungry area.
“They’re also going to get substantially more efficient over time,” said Coinmint spokesman Kyle Carlton. “So to the extent that Plattsburgh or Massena or anybody else can get in on that and establish themselves on the ground floor, I think that’s going to help those cities to be successful.”

Decoder

Bitcoin mining is the process used to verify transactions and add them to the currency's public ledger (blockchain). It involves compiling pending transactions and turning them into a computationally difficult, mathematical puzzle. The first computer to solve the puzzle claims a transaction fee and a newly-released bitcoin.