Foreign What's up guys, and welcome back to Wall Street Millennial Perhaps the single biggest cultural event of 2022 is the FIFA World Cup hosted in Qatar. Operating since the 1930s, the World Cup has been an event watched by billions of people around the world. Every country sends its best athletes to compete against each other in an event which strengthens national pride for people in all countries as they root for their national team. It also provides a format for people to meet people from other countries, helping overcome cultural and linguistic differences as they all understand the same language of soccer. For decades, it's become a huge International Prestige to host the World Cup. Almost every country wants to host it, both because of the prestige factor and the tourism revenue generated by the millions of fans that come to watch the games in person. Because the perceived benefits of hosting the World Cup are so great. Countries are willing to spend billions of dollars to build stadiums, hotels, transport infrastructure, and other amenities to accommodate the influx of foreign visitors. But Qatar took the World Cup to a whole different level. Since they were selected to host the World Cup in 2010, they have spent an estimated 220 billion dollars in preparation. This is orders of magnitude greater than what any other country has spent on the World Cup. The previous World Cup in 2018 was hosted by Russia which spent 14 billion dollars. Qatar spent 15 times more than this on a per capita basis. Qatar is one of the richest countries in the world thanks to their large oil and natural gas deposits, but it is a tiny country with a population of just 3 million. The 220 billion that they spent on this World Cup is 1.2 times greater than their annual GDP When you look at it this way, Qatar's World Cup spending looks even more ridiculous. So what is happening? 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Qatar Is a tiny nation in the Arabian Desert It lies on a peninsula bordering Saudi Arabia For most of its history, the population only sat at a few hundred thousand and its Economic Development Opportunities were limited due to the harsh desert climate where summer temperatures often exceed 110 degrees Fahrenheit or 45 degrees Celsius This all changed in the late 1900s when they discovered massive crude oil and natural gas deposits. Over the past 50 years, oil natural gas exports have formed the basis of the nation's economic growth, accounting for more than half of GDP. Qatar's oil and gas reserves are far smaller than other oil-rich nations like Saudi Arabia, the UAE and Russia. However, the oil wealth is divided amongst the tiny population of Less Than 3 million, making Qatar one of the richest nations in the world with GDP per capita of sixty one thousand dollars, almost all the oil rich Middle Eastern countries have the same basic economic problem to solve. At some point, their oil reserves will run dry even before then, the rise of electric vehicles and renewable technology May greatly decrease demand for fossil fuels. Because of this, almost all the oil-rich Arab countries have been trying to diversify their economies and create jobs that are not dependent on fossil fuel extraction. About 10 years ago, the Qatari government decided they would go all in on tourism as their main economic sector besides Energy, but this would not be an easy task. While Qatar does have some natural beauty and a rich cultural history, the extreme desert climate does not naturally lend itself to tourism. If they wanted millions of paying guests to come to the country, they needed to create world-class Resorts and other amenities to convince people to come. Despite the weather and the good news was that they had hundreds of billions of dollars from their oil exports to make this dream a reality. As part of this plan, they applied to host a FIFA World Cup and they won the bid in 2010. they allegedly bribed FIFA officials to secure the nomination, but regardless, now they have a massive event that gave them the opportunity to prove themselves as an international tourist destination. As the World Cup date Drew near in 2022, we started to see a deluge of media articles talking about the country spending 220 billion dollars in preparation. With some media Outlets even reporting numbers as high as 300 billion either number would make it the most expensive World Cup by far, but these claims are highly misleading. It is true that Qatar is incurring massive costs to build massive stadiums which will become almost worthless after the World Cup is over, but these stadiums and related facilities only cost about 10 billion dollars, So what accounts for the remaining 290 billion? This figure includes all the tourism and travel infrastructure developed by the Qatari government. over the past 10 years. Most of this development would have happened anyway as part of their plan to increase tourism whether they were hosting the World Cup or not. So it's not fair to say that Qatar is wasting 300 billion dollars on just the World Cup because they're not. but it is fair to ask whether they are. Entire tourism investment strategy makes sense. 300 billion dollars is a lot of money, even for an oil rich country. Like a guitar, Qatar's annual GDP is 180 billion dollars. so the tourism Investments represent almost double their GDP. They were able to afford such massive expenses because they have been accumulating a massive Sovereign wealth fund over the past 30 years with their oil money. But just because you can buy something doesn't mean you should. It's like your Rich neighbor who buys a Tesla every single year he has the money to buy them, but maybe it would be better spent on other purposes. Guitar's Tourism Investments broadly fall into two categories: Firstly, their direct public infrastructure Investments such as the massive 17 billion airport in the capital city of Doha. These infrastructure projects are necessary to accommodate the millions of foreign tourists that they hope to Welcome to the country. But the bigger part of the investment is government funding of state-owned Enterprises involved in the tourism sector. For example, the largest hotel operator in Qatar is a state-owned Katara Hospitality Group which owns dozens of massive luxury hotels across the country. Qatar Airways The largest airline in the country with more than 40 000 employees is also owned and financed by the government. The benefit of state-owned Enterprises is that they can set their investment budgets to directly align with the government's economic objectives, in this case, making Qatar a tourist destination. But the fact that they have to use state-owned Enterprises means that private businesses would not be willing to take on these projects as they don't make Financial sense. Because of this, state-owned Enterprises are often loss making and Qatar is no exception. For example, Us-based Airlines including Delta and American Airlines have accused Qatar Airways of taking roughly 25 billion dollars of subsidies from the Qatari government. This allows them to undercut private Airlines on price to gain greater market share. But why would Qatar want to burn billions of dollars on loss making Airline rounds? The idea is that if people use Qatar Airways they'll have layovers in Qatar. This might incentivize them to spend a few days in the country and spend money at the hotels and resorts. Hopefully, this tourism Revenue will make up for the airline's losses and Qatar has undoubtedly made significant gains on tourism over the past 10 years. Tourism Revenue has more than tripled from less than 5 billion in 2011 to almost 16 billion dollars in 2019.. in 2022, they're likely to make well over 20 billion dollars thanks to the World Cup. On the surface, this might look like a success. They invested 300 billion dollars and now they're making 20 billion dollars per year in Revenue. This represents a 7 return on investment, which, while not great, is also not horrible. But it's important to remember that this seven percent return is revenue, not profit. In addition to The Upfront construction costs, there were also billions of dollars of ongoing operational costs to keep the hotels, airports, and everything else operational. The state-owned Enterprises that control these do not publicly disclose their financial statements, but the fact that Qatar Airways has allegedly lost 25 billion dollars over the past 10 years strongly suggests that these Ventures are almost all loss making. So while the returns in terms of Revenue are seven percent, the returns in terms of profit are likely close to zero. if not negative. you might say. Okay, maybe the return on investment for these tourism projects isn't great, but Qatar doesn't have any other choice. Eventually, their oil reserves will run out. While their tourism Investments might be inefficient, at least it's better than nothing, right? While this might be true, investing in tourism is not the only option. Norway is a country very different from Qatar in terms of climate, but very similar in terms of economics like Qatar They're a small country that became extremely rich in the late 1900s thanks to large deposits of oil and natural gas within their territorial. Waters The extreme weather conditions of Norway make it less than ideal for international tourists. Knowing this, the Norwegian government did not invest in the tourism sector. They instead invested their oil wealth into a diversified portfolio of stocks and bonds, achieving a conservative but respectable return of six percent per year for the past 20 years. Today, Norway's Sovereign Wealth Fund owns 1.2 trillion dollars of assets, representing 250 000 per Norwegian citizen at a six percent return per year. This translates to roughly fifteen thousand dollars per year for each. Citizen And this is per citizen, not per family. If they just distributed the investment returns of the Sovereign Wealth Fund directly to the people, a family of four would get sixty thousand dollars per year. While this is not enough to be rich, it's certainly enough to get by. So even if Norway ran out of oil tomorrow, they still have the means to provide a decent lifestyle to their 5 million citizens through welfare payments. Given that Norway has been able to manage their oil wealth so well, why hasn't the Qatari government done the same thing? The short answer is because they already have. In 2005, the Emir of Qatar, who is basically the supreme leader, established the Qatar Investment Authority which invests their Surplus oil Revenue into Financial assets around the world. The Qatar investment Authority follows a conservative investment philosophy, mostly investing in well-established value stocks. For example, they're the largest shareholder in Sainsbury's the second largest grocery store chain in the UK. They've also invested heavily in residential and Commercial properties around the world, mostly in Europe and the United States. As of 2021, their total Investment Portfolio is valued at 445 billion dollars. This is far smaller than Norway's 1.2 trillion dollar investment fund, but Qatar is also a much smaller country than Norway. Qatar has a population of 3 million people. However, the vast majority of these residents are expatriates from poor countries who come to Qatar to work on construction projects. In fact, Qatar's population has increased substantially over the past decade as they brought in migrant workers to build the luxury hotels and resorts. These migrant workers who generally come from India and Southeast Asia generally work for low pay under horrific conditions. Since Qatar was awarded The World Cup in 2010, an estimated 6 500 workers have died due to construction accidents and other health conditions. Until 2018, migrant workers were not allowed to leave the country without permission from their employers. This was compared by many human rights activists to a modern day equivalent of indentured servitude. Regardless of any humanitarian concerns, When you exclude the migrant workers and other expats, there are only about 300 000 Qatari citizens. The 445 billion dollar Sovereign Wealth Fund represents almost 1.5 million dollars per Qatari citizen. This is six times greater than Norway's Sovereign Wealth fund, Assuming the same six percent annual return that Norway generates, They could distribute 90 000 per year to every citizen indefinitely. The tiny population of Qatar in conjunction with their large natural resource wealth puts the country in a league of its own. It is orders of magnitude richer, even the Norway. They are so obscenely rich that even if their oil ran out tomorrow and their tourism Investments end up as a complete flop, they can still afford to provide their citizens with a lifestyle of 99 of the world's population can only dream of. When you put it, in this perspective, the World Cup Investments start to make a little bit more sense. Is the 300 billion dollar investment in the tourism industry in the World Cup of waste? Probably Yes, but when you're already set for life, you can afford to waste a few hundred billion dollars on a vanity project to increase your prestige on the world stage. It's like a billionaire who spends one hundred thousand dollars on a Rolex. Is it a waste of money? Probably. But if you already have enough resources to cover your basic needs indefinitely, you can afford to waste some money. That's a situation that Qatar finds itself in and on the national scale. The equivalent of buying a Rolex is buying the World Cup. All right guys, that wraps it up for this video. What do you think about the Guitar World Cup. Do you think this was a prudent use of funds? Or would you advise the Qatari government to do something differently? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one. Wall Street Millennial Signing out.