EARN TRIL­LIONS

In­fra­struc­ture spend is on the rise across the GCC as 2018 draws to close, with the re­gion’ s tril­lion-dol­lar in­fra­struc­ture sec­tor pre­sent­ing new growth op­por­tu­ni­ties for re­gional builders

Construction Week - - CONTENTS - WORDS BY JACK BALL

Multi-sec­tor con­struc­tion projects worth tril­lions of dol­lars are at var­i­ous stages of devel­op­ment in the GCC, ProTen­ders data shows

With ris­ing oil prices in­ject­ing cau­tious op­ti­mism over the health of the Mid­dle East’s con­struc­tion sec­tor, data from con­struc­tion in­tel­li­gence plat­form ProTen­ders has of­fered a glimpse in the size and scope of the re­gion’s projects as it stands to­day – de­fined across the ur­ban, in­fra­struc­ture, and oil and gas sec­tors, on a coun­try-by-coun­try ba­sis.

The data por­trays a re­gion that is once again pour­ing re­sources into its am­bi­tious in­fra­struc­ture plans, par­tic­u­larly in the Saudi Ara­bian con­text, with the UAE – per­haps as no sur­prise – dom­i­nat­ing the ur­ban sec­tor when com­pared to its fel­low GCC states. With this data in mind, de­fined also by project stage – from plan­ning through to con­struc­tion – op­por­tu­ni­ties for con­trac­tors and con­sul­tants, among oth­ers, across a project’s life­cy­cle are cer­tainly there for the tak­ing as we look to­wards 2019.

AC­TIVE OIL AND GAS SEC­TOR

When it comes to the GCC’s oil and gas sec­tor, Saudi Ara­bia leads the pack when ranked in terms of its cur­rent project port­fo­lio value, which cur­rently stands at $192.6bn (projects which are on hold are ex­cluded from this fig­ure). The UAE is not far be­hind, with the value of coun­try’s ac­tive oil and gas sec­tor val­ued at $152.2bn – de­spite hav­ing more projects than its neigh­bour­ing king­dom. The bulk of oil and gas projects in the UAE are un­der con­struc­tion ($92.8bn), and the same can be said for the king­dom, which has $111.3bn worth of projects cur­rently be­ing built.

Yet, with Bahrain’s 35 projects – across the plan­ning, de­sign, ten­der, and con­struc­tion stages – val­ued at $114.5bn, why does there seem to be lit­tle co-re­la­tion be­tween the to­tal value and num­ber of projects in each GCC coun­try?

Bart Cor­nelis­sen, man­ag­ing part­ner at Mon­i­tor Deloitte Mid­dle East – the strat­egy con­sult­ing arm of Deloitte – says projects “tend to come in many shapes and sizes, and as such look­ing at the num­ber of projects only doesn’t pro­vide the real pic­ture on the up­take of spend in the in­dus­try”, adding: “What we have seen over the last few years, and might do go­ing for­ward, is that the to­tal spend has grown and will grow slower than the num­ber of projects, which im­plies a smaller size of the av­er­age project. This is the re­sult of op­er­a­tors and in­vestors try­ing to man­age the risks and re­turns of their project port­fo­lio by de­vel­op­ing smaller projects than be­fore.”

With this in mind, the to­tal value of oil and gas projects across the GCC stands at $718bn, with over half of this fig­ure ($487bn) now at the con­struc­tion stage. “What is un­de­ni­able is that oil and gas cap­i­tal ex­pen­di­ture (capex) is in­creas­ing in the re­gion again, al­though what has changed is how that cap­i­tal is spent,” says Cor­nelis­sen. He points out that “a cost-con­scious cul­ture has now set in”, par­tic­u­larly af­ter oil prices bot­tomed out in 2014, with the price of Brent crude falling by 44% be­tween June and De­cem­ber.

“GCC GOV­ERN­MENTS ARE IN­CREAS­INGLY TURN­ING TO­WARDS PUB­LIC PRI­VATE PART­NER­SHIPS TO FILL BUD­GETARY GAPS.” KARIM HE­LAL, PROTEN­DERS

“At the be­gin­ning many firms be­lieved that a low price was a tem­po­rary is­sue – then it be­came lower for longer, and fi­nally lower for­ever,” he adds.

Four years later saw the price of oil hit $82.14 a bar­rel on 25 Septem­ber, 2018 – a high caused partly by Saudi Ara­bia-led Opec ef­forts to re­strict out­put. How­ever, speak­ing to Con­struc­tion Week this Septem­ber im­me­di­ately af­ter this four-year high, the Deloitte en­ergy ex­pert ex­plained that there is also of­ten a lag time be­tween any rises in oil price and cap­i­tal ex­pen­di­ture on new projects: “Oil and gas projects have a long hori­zon; firms look at the vi­a­bil­ity of a project’s life cy­cle over, for ex­am­ple, a 10 to 20-year time frame,” he said at the time. “So this rise in oil price won’t have an im­me­di­ate

im­pact on the size and num­ber of oil and gas projects across the GCC. Gone are the days of $100 a bar­rel.”

The num­ber of projects cur­rently on hold in the GCC’s oil and gas sec­tor is also an in­ter­est­ing data point, par­tic­u­larly when com­pared be­tween Oman, Kuwait, Bahrain, Saudi and the UAE. “A lot of projects in the re­gion may have been [con­cep­tu­alised] in the old [econ­omy], which was de­fined in part by higher prices,” ex­plains Cor­nelis­sen.

“This could be a rea­son why projects are now on hold or are ‘drop­ping out’. Also, a com­pany may have a li­cense to op­er­ate in a cer­tain area, for ex­am­ple, but the tech­nol­ogy may not be there yet to make that project com­mer­cially vi­able at the cur­rent oil price.”

Of course, this does not mean that these projects are never go­ing to be de­vel­oped – only that in con­tem­po­rary mar­ket con­di­tions, they may be held back by com­mer­cial con­straints. At present, the UAE has 42 oil and gas projects worth $48.5bn on hold, fol­lowed by Saudi Ara­bia, which has 19 projects worth $40.1bn. Cor­nelis­sen says: “It is also im­por­tant to look at the ra­tion be­tween the num­ber of projects and capex – projects now are be­com­ing more ef­fi­cient.

“When look­ing at a coun­try by coun­try ba­sis, the value of all Bahrain’s oil and gas projects stands at a sim­i­lar value to Saudi’s to­tal fig­ure.”

IN­FRA­STRUC­TURE AND UR­BAN

Stand­ing at $718bn, the re­gion’s oil and gas sec­tor – ex­clud­ing projects on hold – makes up just over quar­ter of all ac­tive GCC projects in terms of to­tal value across the oil and gas, ur­ban, and in­fra­struc­ture sec­tors. How­ever, it is the lat­ter – made up of avi­a­tion, en­ergy, trans­port, and other heavyengi­neer­ing projects – that makes up the lion’s share of to­tal value across the three. Ex­clud­ing projects cur­rently on hold, the value of ac­tive GCC in­fra­struc­ture scheme stands at $1.14tn, 42% of the GCC’s $2.72tn to­tal project value fig­ure.

Ciaran McCor­mack, re­gional di­rec­tor for the Mid­dle East at global con­struc­tion con­sul­tancy Li­ne­sight, com­ments: “What that tells me is that these in­fra­struc­ture projects are huge schemes, and I think that’s a re­flec­tion of the [pri­or­i­ties of the] gov­ern­ments in the GCC, their de­ter­mi­na­tion to carry out their in­fra­struc­ture projects, and un­der­take the mas­ter de­vel­op­ments to di­ver­sify their economies. The fact that the ma­jor­ity of spend is fo­cused on in­fra­struc­ture high­lights the sig­nif­i­cance of the projects. In­fra­struc­ture is some­thing we can’t ig­nore.”

On a coun­try-by-coun­try ba­sis, Saudi leads the GCC’s in­fra­struc­ture sec­tor, with $585.3bn worth of projects across the plan­ning, de­sign, ten­der, and con­struc­tion stages. Ex­clud­ing projects on hold, this fig­ure rep­re­sents 51% of the GCC’s to­tal in­fra­struc­ture project value ($1.14tn), as McCor­mack points out.

“Again, if you look at the in­fra­struc­ture sec­tor, 47% of projects in terms of value in the UAE are at the plan­ning and de­sign stage, while 51% are in Saudi and 63% in Kuwait. Cer­tainly, the fo­cus for con­sul­tants like our­selves needs to be on the in­fra­struc­ture sec­tor. There’s a strong de­mand for core in­fra­struc­ture ex­pen­di­ture, and it goes back to the com­mit­ment, which is ap­par­ent from var­i­ous GCC gov­ern­ments, to di­ver­sify their rev­enue base and re­duce de­pen­den­cies on hy­dro­car­bons.”

In­deed, the king­dom has made no se­cret of this con­certed ef­fort, as part of its Na­tional Trans­for­ma­tion Pro­gram 2020, which is an im­por­tant com­po­nent

“WHAT IS UN­DE­NI­ABLE IS THAT OIL AND GAS CAPEX IS IN­CREAS­ING IN THE RE­GION AGAIN, AL­THOUGH WHAT HAS CHANGED IS HOW THAT CAP­I­TAL IS SPENT.”

BART COR­NELIS­SEN, DELOITTE

of Saudi Vi­sion 2030. A pri­mary fo­cus of the NTP is to grad­u­ally re­duce Saudi Ara­bia’s de­pen­dence on crude oil ex­ports, trans­form­ing the coun­try into a global in­vest­ment hub. And, while the low oil price has clearly played a role in spurring on the strat­egy’s devel­op­ment, the NTP also recog­nises that the king­dom has much more to of­fer on the global stage.

Megapro­jects such as the $500bn (SAR1.9tn) Neom megac­ity on the king­dom’s Red Sea Coast and the 334km² Qid­diya en­ter­tain­ment city only of­fers only more ex­am­ples of the lead­er­ship’s de­sire to po­si­tion the king­dom as eco­nomic, tourist, and cul­tural desti­na­tion glob­ally.

Speak­ing on this trend, Karim He­lal, founder and chief ex­ec­u­tive of­fi­cer of ProTen­ders, says: “GCC gov­ern­ments are in­creas­ingly turn­ing to­wards pub­licpri­vate part­ner­ships to fill the bud­getary gaps for trans­port and in­fra­struc­ture de­vel­op­ments. Saudi Ara­bia’s Min­istry of Trans­port an­nounced 23 new projects worth of $598.9m (SAR2.2bn) to build a new net­work of roads.”

McCor­mack adds: “The out­look for the con­struc­tion mar­ket in Saudi def­i­nitely has im­proved; the op­por­tu­ni­ties do ex­ist when you look at the num­ber of projects at the ten­der stage. Against this back­drop, there will be sig­nif­i­cant chal­lenges for con­trac­tors – it’s a good chal­lenge, but it re­ally comes down to how they are go­ing to price these projects from per­haps a stand­ing stop po­si­tion.

“When it comes to Saudi, you may see con­trac­tors tak­ing a much more ag­gres­sive ap­proach to ten­der­ing in or­der to se­cure the turnover. If their turnover is low, they want to se­cure as much of that as pos­si­ble, and they may adopt a more com­pet­i­tive strat­egy.”

While Saudi Ara­bia largely dom­i­nates the GCC’s in­fra­struc­ture sec­tor, with $204.5bn worth of projects at the plan­ning stage, fol­lowed by the UAE’s $44.2bn, the lat­ter is the big­gest player when it comes to ac­tive ur­ban projects. Res­i­den­tial, com­mer­cial, cor­po­rate, health­care, hos­pi­tal­ity, ed­u­ca­tional, in­dus­trial, recre­ational, cul­tural, gov­ern­men­tal, lab­o­ra­tory, pharma,

“WE’RE AL­WAYS IN­TER­ESTED IN THE PIPE­LINE WHEN WE SEE THESE FIG­URES, AS THAT IS WHERE THE OP­POR­TU­NITY IS COM­ING FROM” CIARAN MCCOR­MACK, LI­NE­SIGHT

re­li­gious, and re­search projects are all in­cluded as ur­ban sec­tor projects, as de­fined by ProTen­ders.

THE ROAD AHEAD

The value of ac­tive projects in this ur­ban sec­tor in the UAE cur­rently stands at $377.9bn, rep­re­sent­ing 44% of the value of the GCC’s to­tal fig­ure for this seg­ment ($868bn), and fol­lowed by Saudi ($274.9bn). “These sta­tis­tics show that from a coun­try by coun­try per­spec­tive, the UAE re­mains num­ber one in the ur­ban sec­tor,” says McCor­mack. “We’re al­ways in­ter­ested in the pipe­line when we see these fig­ures, as that is where the op­por­tu­ni­ties are com­ing from. In the ur­ban sec­tor, 51% of the to­tal value of projects in Saudi Ara­bia are at the plan­ning and de­sign stage. Mean­while, Oman is next at 42%, and the UAE drops to about 28%.”

In­ter­est­ingly the UAE has 1,433 ac­tive ur­ban projects classed as ‘ on hold’, on top off the coun­try’s 13,373 to­tal fig­ure.

Saudi Ara­bia ranks sec­ond with 268 schemes on hold, fol­lowed by Oman with 129, Bahrain’s 28, and Kuwait at 20. While the UAE’s fig­ure may look alarm­ing, it is im­por­tant to take into ac­count the to­tal num­ber of ac­tive projects in the coun­try, as McCor­mack ex­plains.

“Look­ing at on-hold projects in the UAE, com­pared to the num­ber of ac­tive projects, the num­ber of ‘on hold’ projects rep­re­sents about 10% of that to­tal fig­ure. That’s ac­tu­ally com­pa­ra­ble to both Saudi Ara­bia and Bahrain, which hover at about 9 -10% in terms of to­tal projects on hold.

“If you look at both ends of the spec­trum, Oman has about 13.7% of its projects on hold, with Kuwait at the lower end with about 6.5%. You need to be con­sid­er­ate in the over­all con­text.”

He­lal also cites the de­cline in oil prices, which he says “has forced most de­vel­op­ers” to cut down the cost of the project or event can­cel some. Large projects in the re­gion are ex­pected to con­tinue to feel the slump in oil prices, He­lal says: “De­spite signs of re­cov­ery, Dubai Hold­ing has put $20.2bn mas­ter project Jumeirah Cen­tral on hold just over a year af­ter its launch.”

How­ever, he adds, de­vel­op­ers and con­trac­tors are still go­ing ahead with build­ing projects as sched­uled, with many be­ing de­vel­oped to meet the an­tic­i­pated rush dur­ing the Expo 2020 Dubai.

He­lal ex­plains: “2018 has seen an up­ward trend when it comes to the GCC con­struc­tion in­dus­try, which is ex­pected to con­tinue to re­main largely pos­i­tive, backed by Saudi Vi­sion 2030 to at­tract more in­vestors into the mar­ket. The UAE and Saudi Ara­bia are likely to re­main the top mar­kets for the con­struc­tion in­dus­try.

“Dubai’s econ­omy is likely to ben­e­fit from Expo 2020. Among the con­struc­tion sec­tors, res­i­den­tial, ed­u­ca­tion, hos­pi­tal­ity, health­care, trans­port, and en­ergy are ex­pected to emerge as sec­tors with lu­cra­tive op­por­tu­ni­ties for de­vel­op­ers and in­vestors, as well as con­trac­tors, and con­sul­tants in the com­ing years,” the ProTen­ders boss con­cludes.

“WHEN IT COMES TO SAUDI, YOU MAY SEE CON­TRAC­TORS TAK­ING A MORE AG­GRES­SIVE AP­PROACH TO TEN­DER­ING IN OR­DER TO SE­CURE AS MUCH OF THAT [WORK] AS POS­SI­BLE.” CIARAN MCCOR­MACK, LI­NE­SIGHT

In terms of to­tal project value, the UAE’s ur­ban sec­tor leads the GCC [im­age: Abu Dhabi]

Ciaran McKor­mack, Li­ne­sight [im­age: Li­ne­sight].

Bart Cor­nelis­sen, Deloitte. [im­age: Deloitte]

Karim He­lal, ProTen­ders.

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