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Al-Habtoor Leighton analysts visit, Dubai
The Middle East construction sector
Angus Hindley, Research Director, MEED19 November, 2011
MEED Insight
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Agenda
The impact of the Arab spring
The economic outlook
The drivers for capital investment
The opportunities and challenges
An assessment of the key markets
Closing remarks
2011, the year of the Arab spring
Morocco
Political reforms announced
Tunisia
Revolution and regime change
Egypt
Revolution and regime change
Syria
Serious civil unrest
Kuwait
Minor demonstrations
Bahrain
Serious civil unrest
Jordan
Political reforms announced
Libya
Revolution and regime change
Yemen
Serious civil unrest
Saudi Arabia
Minor demonstrations
Oman
Minor demonstrations
In the GCC, serious political unrest has been confined to, and contained in, Bahrain. In the rest of the Middle East and North Africa, regime change has taken place in three
states and civil war in two more
The carrot and stick approach in the GCC
GCC troops sent into Bahrain in March 2011 to effectively seal the island state, in
a move accompanied by a $10bn aid package
Massive pay increases announced for government employees across most of the
GCC
Major spending programmes announced to remove any potential flashpoints
- Saudi Arabia launches 500,000 unit housing programme and new
employment rules to create 1.1 million jobs by 2014
- Oman unveils anti-corruption drive and pledges to create 40,000 jobs a year
- the UAE pledges to improve infrastructure in the northern emirates, which is
well below the standards in Abu Dhabi and Dubai
Can the GCC afford the measures?
Despite record capital expenditure, the region has been enjoying rising budget surpluses which in turn have
been used to build up reserves
Source: MEED Insight
The budget surpluses in selected GCC states, 2010-11
0
5
10
15
20
25
30
35
Kuwait Qatar Oman Saudi Arabia
2010 2011
The key will be the oil price
Despite downward revisions, oil prices are expected to remain
above the GCC breakeven point of $80-85 a barrel
Source: Deutsche Bank
90
95
100
105
110
115
120
2010 2011 2012
$ a
barr
el
The oil price, 2010-12
The economic impact of the Arab spring
Outside the regime change states of Egypt, Tunisia and Libya, economic growth will rise in 2011 due to increased public spending and higher oil
prices
Source: IMF
GDP growth in selected MENA countries, 2010-12
0
2
4
6
8
10
12
14
16
18
20
Egypt Iraq Jordan Kuwait Oman Qatar SaudiArabia
Tunisia UAE
%
2010 2011 2012
The drivers for increased public expenditure
All MENA states have high demographic rates, most
notably in Qatar where the population doubled in the five
years to 2009
Source: IMF
Population growth in selected MENA states, 2010
0
2
4
6
8
10
12
Iraq Kuwait Libya Oman Qatar SaudiArabia
UAE
%
The drivers for increased public expenditure
In addition to meet increasing demand from expanding
populations and economies, there is a growing need to
decommission infrastructure which is now at the end of its life having been built in the 1970s and 1980s. This particularly
applies to the power, water, and transportation, sectors across
the region
Source: MEED Insight
Installed and required power capacity in selected MENA states, 2010-19
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Bah
rain
Kuw
ait
Om
an
Qat
ar
Sau
di A
rabi
a
Abu
Dha
bi
Dub
ai
Iraq
MW
Installed capacity, 2010 Required total capacity, 2019
The recent performance of the Gulf projects market
Major contract awards in the Gulf, 2010-11*
2010* 2011*
Bahrain 2.4 1.3
Iraq 8.4 24.2
Kuwait 10.1 7.8
Oman 4.4 4.7
Qatar 10.5 10.9
Saudi Arabia 35.7 47.1
UAE 30.1 16.8
* first nine months
Source: MEED Projects
Saudi Arabia has maintained its position as the largest projects market in the MENA region in 2011 while Iraq has seen the biggest growth
The opportunities on offer in the Gulf
An estimated $1.1tn of project work is at the planning, design or tendering stage in the Gulf
Source: MEED Projects
Planned and unawarded projects in the Gulf, November 2011 ($bn)
0
50
100
150
200
250
300
Bah
rain
Iraq
Kuw
ait
Om
an
Qat
ar
Sau
di A
rabi
a
UA
E
$bn
The opportunities on offer
Infrastructure and construction projects will account for the majority of future work in the Gulf followed by oil and gas
Planned and unawarded projects in the Gulf by sector, November 2011 ($bn)
Source: MEED Projects
467
330
217
130
Oil & gas Construction Infrastructure Others
The challenges facing the market
Intense competition for new work, driven by the downturn in the UAE and
companies entering the region for the first time
Lower margins and potentially rising subcontractor and equipment costs in
selected markets
Slow decision-making in some markets particularly in Abu Dhabi
Increased risk being placed on the shoulders of contractors
Growing pressure to be local, especially in Oman and Saudi Arabia
Kuwait – the sleeping giant
Kuwait has promised much but delivered little over the past decade as a result
of politics, bureaucracy and a very slow decision making apparatus
It has drawn up a five-year, $100bn investment programme with a strong focus
on transportation projects
Despite having record surpluses and rising reserves, the government is looking
to the private sector to deliver over 30 large-scale infrastructure projects
This will provide greater opportunities for international contractors in the market,
which has traditionally been dominated by local companies outside the oil and
gas sector
Qatar – in the world cup spotlight
Winning the right to host the 2022 World Cup will ensure that over $100bn
of infrastructure work will go ahead
Investment in the direct World Cup infrastructure (stadia/accommodation)
will be small compared to the rail programme ($35bn) and the road
programme ($20bn)
Contract awards on the World Cup programme will begin in earnest in late
2012, with the majority awarded by 2016/17
Competition for new work is already intense and will intensify
Saudi Arabia – the undisputed leader
The kingdom will remain the biggest construction market with significant
opportunities in housing, rail, airports, education, healthcare power and
water
Local contractors will continue to dominate, but will seek foreign expertise
for technically challenging schemes and project management
Foreign contractors will have to overcome manpower, Saudiisation and visa
challenges
Given the kingdom’s rising unemployment, there will be a growing need for
international contractors to maintain a substantial local presence
UAE – contracting opportunities
Despite three-year high oil production, contract awards have slumped in the
UAE this year as a result of a spending review in Abu Dhabi
A series of high profile schemes, taking in museums, hospitals, and highways,
have all been affected, although strategic projects such as the UAE rail network,
power and water schemes and major gas developments have gone ahead
New project activity in Dubai has edged up this year but is less than 10 per cent
of what was being recorded in the boom years of 2005-07
The UAE and Abu Dhabi in particular has a healthy pipeline of new projects, but
only priority schemes are likely to go ahead over the medium term
The others
Iraq – considerable potential but much will depend on how the international
oil companies perform on the crude increment programme
Libya – a long road ahead, but substantial opportunities, if political stability
can be achieved, especially in infrastructure, which even before the civil war
was in a poor state
Oman – will remain a small but steady market with the best prospects in the
road, rail and tourism sectors
Closing Remarks
The outlook for the Middle East construction sector is reasonable,
considering the Arab spring, the global economic downturn and the
European financial crisis
The engine of growth will be infrastructure, which will be largely
government-financed, provided oil prices remain above the critical $80
threshold
Saudi Arabia will be the most important market, with Iraq, Kuwait and longer
term Libya having potential for strong growth
Competition for new work will remain intense and bureaucratic, localisation
and security/political issues will have to be overcome in some markets
Keys to contractor success will be an established presence, a long-term
commitment to the region, competitive pricing and a willingness to go
increasingly local
For more information on this presentation or any
MEED services, please contact:
Angus Hindley, Research Director, MEED
Mob: +44 7918 166446
