Mega projects in the GCC
According to estimates, construction projects in the GCC region attracted an investment of $87 billion last year alone. According to Abu Dhabi’s Department of Municipal Affairs, the construction industry contributed 11 percent to the GDP of the region. Therefore, it is an important sector, since out of the $4trn worth of construction projects (planned and under development) in the Middle East region, an estimated $1.8trn worth of projects are based in the GCC.
Conflicts leading to the Arab Spring, and what followed and still continues in some countries have not affected the stable economies of the Arabian Gulf. With crude oil prices hovering at approximately $100 per barrel, the fossil fuel-rich countries have more than enough liquidity to finance mega power, infrastructure and housing projects.
In terms of the value of all GCC infrastructure projects, Saudi Arabia leads the way, with $629bn worth of ventures, while the UAE comes second with $623bn, followed by Qatar ($226bn), Kuwait ($168bn), Oman ($103bn) and Bahrain ($52bn).
Moreover, most of these nations have long-term development strategies and planned events, such as the Expo 2020 in Dubai and the FIFA World Cup 2022 in Qatar, which are acting as catalysts in boosting the region’s construction sector.
Qatar, for one, is spending $17.5bn on the new Doha International Airport and $45bn on the Lusail gas pipeline project, among others.
As per the data compiled by business intelligence firm Zawya last year, the real estate sector leads the GCC region’s construction activity, followed by the infrastructure industry with $804bn, the oil and gas sector with $445bn, and power and water industry with $182bn worth of on-going projects.
Deloitte’s 2013 GCC Powers of Construction Report puts together all available data in the market and makes a successful effort in gauging the direction of the sector. In the UAE, it reveals, transport amounts to 13 percent of the overall construction spend. Within the country, road and bridge projects that are currently under way or in the planning phase amount to $58bn. Phase two of the Etihad Railway Network is also under construction since early 2013. The whole project, worth nearly $11bn and is part of the wider GCC Railway Network valued at more than $100bn, will provide a significant boost to the local construction industry.
Abu Dhabi International Airport has also launched a mega project to increase the capacity of the airport, from 11 million passengers to 30 million passengers annually. The cost of the project is $6.8bn and is slated to be completed in the first quarter of 2017.
The UAE’s energy and resources account for 19 percent of the total construction spend. The nuclear power project in the capital, meanwhile, has been plagued by delays and inflation, increasing the cost estimate by a staggering $10bn since its initial announcement, taking the total to $30bn.
On the other hand, Dubai has an ambitious plan to build a $3bn, 1,000 megawatt combined solar park. If implemented, it would become the largest in the world, according to the Deloitte report.
Another market research firm Business Monitor International reveals that the UAE market’s value would rise by 36 percent from 2013 to 2016. One of its weaknesses include an increase in unemployment, as a result of the sector’s contraction, which occurred following the 2008 global recession.
Looking at Saudi Arabia, the most exciting and dynamic market in the region, Deloitte reveals that, under the Ninth Development Plan, the government has a target to invest $385bn in social and economic infrastructure between 2010 and 2014. Its energy and resources account for 47 percent of the overall construction spend.
In addition, as part of a diversification strategy, the Kingdom plans to use solar energy to generate ten percent of its electricity by 2020.
Transportation makes up 20 percent of the total construction spend in Saudi Arabia and that includes the expansion of King Abdulaziz International Airport (Jeddah International Airport). The project, which will increase the annual passenger capacity from 17 million to 30 million, is likely to cost $7.2bn. Moreover, with approximately $25bn at bidding stage or under development in the rail sector, it is looking to improve its rail network, adding 3,900km of track through three major railway projects.
However, the most ambitious and valuable Saudi project is the building of 16 nuclear reactors for civilian power use at an estimated cost of $100bn. Besides this, the Kingdom plans to improve its oil refining capabilities, with investments ranging from $20bn and $30bn for building a refinery in Jubail.
Increasing private investment is likely to provide opportunities for large foreign contractors to increase their involvement in the Kingdom, as it remains a ‘construction safe haven’, amid both wider political and financial turmoil.
However, one of the main challenges in the Saudi construction market is that it is heavily reliant on government contracts, rather than a free market driven by the private sector.
Small, but vibrant Qatar has witnessed increased activity in its construction sector, after it won the bid to host the FIFA World Cup in 2022. Its 2030 Vision entails investments of $150bn. However, Business Monitor International adds that the long lead times experienced by the majority of the awarded projects will only make a considerable impact by 2016 and beyond. Additionally, a series of infrastructure projects are in the pipeline in Qatar – a $20bn investment in roads and $25bn in railways, among others.
Transport accounts for 58 percent of the total construction spend. The $20bn Doha Metro project attracted more than 60 bids from international consortia competing for the $7bn first phase of the contract.
Even in Kuwait, the transport segment takes the construction sector cake. It accounts for 76 percent of the total construction spend. Kuwait City’s $7bn metro project has been subject to delays, although there are signs of progress. While it is expected to be complete by 2020, the $3.3bn Kuwait International Airport (KIA) terminal will open in September 2016.
Energy and resource in Kuwait account for 20 percent of the total construction spend. The Kuwait National Petroleum Company is set to construct the largest oil refinery in the Middle East region, which will cost $14.5bn. It will have a daily processing capacity of 615,000 barrels from 2018.
Oman, the southern most GCC state, has embarked on an infrastructure expansion drive. Transport accounts for 66 per cent of the total construction spend. New road ventures have a spending allocation of approximately $4.4bn. One of the biggest road projects is the second phase construction of the 240km Al Batinah Coastal Road.
Oman is carrying out plans for the construction of six new airports and expansion of the existing airports at both Muscat and Salalah. It has also launched the $12bn Port of Sohar investment venture, which will make it one of the largest port development projects in the world.
Even in Bahrain, transport dominates the construction sector, which accounts for 32 percent of the total construction spend. Nearly $4.8bn has been committed for the Bahrain International Airport’s expansion to triple its capacity to 27 million passengers per annum. Also, $4.2bn has been marked for the building of the 40km Bahrain-Qatar Friendship Bridge.