Private sector to help region bridge funding gap
Public-private alliances help governments cut their cost of funding and project risks
Gulf nations face an average infrastructure-funding gap of about 40 per cent in the next five years and private sector involvement will be critical, said an industry expert.
Jeff Yousuf, partner for financial services at Oliver Wyman, told Gulf News that public-private partnerships (PPPs) are a good investment option in the Gulf as a means to boost private sector contribution to the economy.
He said that PPPs are vital as governments can offload some of the financing burden and project risks onto private investors, while acquiring private sector expertise and improving operating efficiency.
“PPPs help out on this and it is critical to do this as there is a clear correlation between better infrastructure and economic development. Without better infrastructure, you cannot enable the private sector to grow, which is very important as governments want to move away from an oilbased economy,” he said.
Across the world, he said that PPP is quite a complex and difficult to implement but in the region, only 5 per cent of the projects are PPP involved between 2011 and 2017.
“There is an opportunity to do this but the problem is if you are not clear on your objectives, then it is very difficult to get the investor to come in. Benefits from such efforts may prove short-lived if fundamental challenges in areas such as political consistency, legislation, regulation and communications are not addressed properly,” he said.
He added that PPP projects need to be aligned with the national strategic objectives and governments need to agree on which benefits to capture from collaborating with private sector entities, as well as defining an operating model accordingly.
Although PPP ventures have faced numerous challenges in the past, he said that their increased adoption in the region is a positive signal given the current economic environment.
“What investors want are clarity and certainty, and it can be done on a project-by-project basis or sector-by-sector basis. Investors do see opportunities in this region because there is a need for infrastructure and investors will follow where they can make money,” he said.
In the pipeline
According to a new report by Oliver Wyman, Gulf countries have seen a string of PPP projects going live. Yousuf said that more than 70 PPP ventures are in the pipeline across the region currently, with both value and volume peaking across the transportation, construction and power sectors.
The report said that the largest PPP projects include Kuwait’s Al Khairan IWPP power-generation project, valued at $4 billion (Dh14.7 billion) and Saudi Arabia’s Prince Mohammad Bin Abdul Aziz International Airport, valued at $1.2 billion.
He said that Gulf countries aim to aspire to attain world-class infrastructure within the next 15 to 20 years through their national development programmes in a bid to support the growth of their economies and populations.
However, he said the journey to a successful PPP programme is not an easy one, with numerous challenges besetting the Gulf’s nascent PPP market.
The report said that infrastructure pipeline is solid in the Gulf. In 2017, $108 billion worth of infrastructure projects were awarded, with 63 per cent accounted for by the UAE ($44 billion) and Saudi Arabia ($24 billion).
The total pipeline of projects in the planning stage exceeds $2.4 trillion, with over 86 per cent of value distributed across the construction, transportation and power sectors.
Kuwait was the first country in the Gulf to establish a PPP law in 2008, with the UAE being the second nation to formalise a PPP law in 2015 for the emirate of Dubai. Other Gulf nations like Oman, Bahrain and Saudi Arabia do not have a central PPP unit and currently regulate their PPP projects as part of wider privatisation programmes.