Executive Summary
The report presents three elements of PESTEL for Chick-fil-A to use in its decision to expand to Qatar. These include political, economic, and legal. The country is politically stable for investment. Economically, the impacts of low global oil prices have led to a decline in economic growth, but the outlook remains favourable and the government is ready to intervene to ensure liquidity. Finally, the legal environment could be complex for foreign entities. Chick-fil-A must find a local Qatari agent to invest in the country and insist on 100% ownership. It is therefore recommended that Chick-fil-A should consider expanding to Qatar to exploit new opportunities in the Middle East.
Introduction
This report provides three components of PESTEL that Chick-fil-A will consider when making a decision to expand in the Qatari fast food industry (Chick-fil-A, Inc. 2017; Peterson 2016). Components of PESTEL chosen for analysis are political, economic, and legal to justify the decision to either expand or not to expand in Qatar.
Analysis of PESTLE as a Tool
PESTLE is a tool or framework applied in strategic management technique by marketers to evaluate and monitor external marketing environment (macro-environmental) factors that influence business operations of an organisation (Rastogi & Trivedi 2016). These external risks are analysed under different categories, including Political, Economic, Social, Technological, Legal, and Environmental (PESTLE). The PESTLE tool can be used to supplement the SWOT analysis used for internal assessment.
Political Forces
In this context, the focus is on political stability of Qatar, and the Qatari government attitudes toward foreign investors.
Political environment
Qatar, the former British colony, is a stable country led by Emir. No significant political uprising or Arab Spring influences have been noted in Qatar.
Qatari government attitudes toward foreign investors
In the recent past, the government has allowed extensive foreign investment in many sectors, such as energy, information technology, tourism, business consulting, sports, and leisure.
Tax policies
Qatar has been listed as having the least demanding tax regime globally, alongside the UAE (PwC 2016). However, it has no system of personal income tax, no value-added or sales taxes and capital or wealth tax. The only taxes levied are corporation tax (10% flat rate), import duties (4%), service tax (10%), and government levy (5% applicable to restaurant and hotel bills) (Expat Focus n.d).
Salaries, interests, depreciation, and others are considered as allowable deductions.
It is important to note that Qatar will introduce taxes on soft drinks this year (2017) and a 5-percent value-added tax (VAT) in 2018 (Khatri 2017).
Government involvement in trading agreements
The Qatari government is much more concerned with investors in the oil and gas industry compared to the fast food industry.
Overall, it is observed that Qatar offers a relative stable political environment for investors because of a centralised political system where no stiff political opposition and competition are expected. Hence, political risks to business establishments are generally low. This stable political factor has led to growth of many businesses.
Economic Factors
Various elements reflect economic factors. Notably, oil and gas are responsible for about 85% of the country’s export revenues and more than 50% of the gross domestic product (GDP) (Heritage Foundation 2016).
Economic growth rates
A growth rate of 3.9% was recorded in 2016 (Ministry of Development Planning and Statistics 2016). The nominal GDP was expected to decline by 2.9 percent, which was mainly attributed to a decline in the global oil prices. It was noted that the real GDP in the year 2015 grew by 3.7%, but it dropped following the decline in oil prices, leading to a decline by 20.6 percent in the nominal GDP (Ministry of Development Planning and Statistics 2016).
A further decline is expected in 2018 due to relatively low oil prices in the global market. It is expected that hydrocarbon production in 2017 to 2018 will mostly like remain flat, but economic activities from non-hydrocarbon sectors are expected to sustain the growth rate. Services and construction are anticipated to make massive contributions to the economy. The government now focuses on completing ongoing projects rather than initiating new ones. It was noted that the real GDP in the year 2015 grew by 3.7%, but it dropped following the decline in oil prices, leading to a decline by 20.6 percent in the nominal GDP.
Rate of employment and unemployment
The rate of unemployment is relatively low, 0.2%.
Costs of oil and gas
Oil and gas prices declined in the past two years, leading to a withdrawal of the government subsidy. This implies that businesses and consumers had to meet extra costs of oil and gas.
Interest rate
The standard interest rate in Qatar was 5%. Between 2004 and 2017, the mean rate has been 4.77 percent.
Monetary policies: the government acts to maintain liquidity when needed and controls flow of currency in and outside the country.
Exchange rate
Historically, the Qatari Riyal reached an all-time high of 3.67 against the US dollar in December of 2008 and a record low of 3.34 in December of 2013. The current exchange rate is 3.6396 against $1.
Inflation rate
The inflation rate is estimated at 1.7% (Heritage Foundation 2016).
Consumer price index
Since January 2016, the rate of inflation has risen steadily following the elimination of subsidies for water and electricity in 2015. In fact, the last quarter of 2016 was characterised by a rapid rate of inflation noted averagely as 3.1%. Furthermore, the government also introduced a wide of range of taxes coupled with the elimination of subsidies. These factors are most likely to drive high prices of commodities in the near future. The US dollar has generally remained strong, and it continues to do so as global commodity prices remain unstable.
Fiscal balance
Qatari fiscal balance is in deficit and expected to stay so beyond 2018. The most recent data show that, for the first time in over a decade, the country will experience fiscal deficit beyond 2018. In 2016, the fiscal deficit was about 7.8% of the GDP, and it is projected to remain nearly unchanged in 2017, but will improve to about 4.8% in 2018 (Ministry of Development Planning and Statistics 2016).
External balance
While external balance is currently in surplus, it is slowly reducing. In 2016, the deficit was estimated as 0.4% of the GDP. Further declines are expected between 2017 and 2018. The notable factors are reliance on hydrocarbon exports and the subsequent low oil prices in the international market. The forecast demonstrates that the global oil prices are most likely to increase in 2017 and 2018, which will support Qatari export. Conversely, import demands will further decline owing to a reduction in capital-equipment requirements. However, the need for materials and growing consumption will sustain import demands.
Economic risks outlook
Economic risks are generally related to the global oil price fluctuations. If the global oil prices increase faster than projected, there would be favourable economic outcomes for Qatari fiscal growth and other indicators of growth. However, if oil prices stay low for a longer period, economic challenges in the country would be more elaborated, putting more pressure on businesses for funds. The negative impacts of sustained volatility in the world financial markets have spread to Qatar.
Low liquidity is noted, which implies higher costs for businesses. For the government, it may not deliver some projects as scheduled, leading cost overruns and slower rates of fiscal recovery and reforms. In the recent years, however, Qatar has recorded a growth in the number of restaurants and fast food franchises (John 2013). These businesses mainly target expatriates as their primary customers and few locals. Foreign restaurants must recognise that Qatari women do not like to eat in public places, but they prefer drive-through and delivery services offered by fast food restaurants. Qatari men tend to socialise and use public restaurants and coffee retail outlets to do business.
It is imperative to recognise that the economic assessment has been done following a decline in the oil revenues and market volatility, which have resulted in uncertainty across major sectors of the economy. According to information obtain from the Qatar Economic Outlook 2016–2018, economic growth remains stable due to significant contributions from other non-hydrocarbon sectors and other gas projects (Ministry of Development Planning and Statistics 2016).
Legal Factors
National employment laws
Most workers are expatriates in Qatar. Work permits and visa arrangements are important to avoid deportation.
International trade regulations and restrictions
Monopolies
The Qatari government has recently allowed investments in different sectors of the economy without much interference. However, it still influences investments in the energy sector, specifically, oil and gas.
Consumer protection
There are no strong laws to protect consumers.
Business ownership
The past laws only allowed non-Qataris to own only 49% of the company (PwC & HSBC 2013). However, further adjustment and enactment of these laws have allowed foreign investments to own up to 100% in some sectors of the economy (Toumi n.d). More recently, the government reviewed its law and allowed 100% investment in all sectors of the economy provided a foreign investor has a Qatari agent (Townsend 2016). This law is meant to open up Qatar for enhanced foreign investments. Foreign investors in Qatar prefer limited liability company (LLC) structure. This structure requires about $54,820 as minimum share capital, which determines liability of shareholders (Oxford Business Group 2017).
Land and property ownership
Only Qataris have the right to freehold estates while non-Qataris have no such right (Barber 2012). More recently, however, the Qatari government has enacted laws that facilitate land ownership, usufruct, and investment by foreigners in designated investment areas, including West Bay and the Pearl. Hence, Chick-fil-A must assess such arrangements thoroughly before investments.
Intellectual property rights
Weak laws, which are rarely applied, are available. Any foreign firm must therefore draw a clear agency contract to protect their intellectual property.
Kickbacks and gifts
They are considered normal to facilitate paper works. Foreign firms bound by anti-bribery acts must understand how they operate in Qatar and purposes of fees they pay to government officials.
The judicial system
Critics have expressed their frustration due to a lack of transparency and the use of personal connections to influence government tenders. Notwithstanding constitutional provisions, the Qatari judiciary is significantly under the influence of the ruling elite (Heritage Foundation 2016). Additionally, most judges are non-Qataris who are hired and dismissed when required, and corruption is a major issue within the system. Nevertheless, the new laws aim to reinforce trust and protect intellectual property. Most importantly, foreign firms may not get favourable ruling in case of a dispute with an agent, for instance, even if the content of the contract are followed.
In summary, this report has covered political, economic, and legal aspects PESTEL related to Qatar. Chick-fil-A will therefore make the decision to expand into the country based on these findings. Notably, the political condition is generally stable, and the current regime is focused on promoting foreign investments. Thus, new laws have been introduced to open up the country for such opportunities. Qatari economy is generally dependent on oil and gas, and the current low global oil prices have affected economic growth negatively. While corporate tax is low, consumers now face rising commodity prices and additional expenses following the removal of subsidies, which have affected their spending power. Legally, Chick-fil-A requires a local agent to comply with the law. Additionally, it must understand myriad potential legal issues associated with property ownership, investments, and residency of foreign workers.
Recommendations
Overall, it is recommended that Chick-fil-A should consider investing in Qatar. The recommendation is based on the following observations:
- Qatar is politically stable for investment, and the ruling class has focused on attracting foreign investments in the recent past.
- Although the economic factors have been negatively impacted by the low global oil prices, the country has a low rate of inflation, unemployment, and a comparatively good growth rate.
- From a legal dimension, Chick-fil-A will have to work with a local agent and legal experts who understand domestic laws of Qatar, particularly in relations with a local agency contract, labor laws, gifts, and taxation.
Nonetheless, Chick-fil-A must understand the impending changes in the tax regime, monetary policies, gifts, and new developments under economic factors brought about by the globally oil prices.
Reference List
Barber, SM 2012, Qatar law Q&A: Property law overview. Web.
Chick-fil-A, Inc. 2017, About: History. Web.
Expat Focus n.d., Qatar – Taxation. Web.
Heritage Foundation, 2016, 2016 index of economic freedom: Qatar.
John, P 2013, ‘Qatar’s food industry ‘to grow fastest in GCC‘, Gulf Times.
Khatri, SS, 2017, ‘IMF: new sin taxes in Qatar to fuel growth this year’, Doha News. Web.
Ministry of Development Planning and Statistics, 2016, Qatar economic outlook 2016-2018, General Secretariat for Development Planning, Doha, Qatar.
Oxford Business Group 2017, Qatar’s legal framework governs company ownership and registration.
Peterson, H 2016, ‘Why Chick-fil-A is beating every other fast-food chain in the US‘, Business Insider.
PwC & HSBC 2013, Doing business in Qatar.
PwC 2016, Doing business in Qatar: a tax and legal guide. Web.
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Toumi, H n.d., Qatar to allow 100% foreign ownership in some sectors. Web.
Townsend, S 2016, ‘Qatar passes law approving 100% foreign investment‘, Arabian Business. Web.