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The outlook for the Gulf projectsmarket
The Confederation of Danish Industrys
Middle East Day, Copenhagen
7 December, 2011
Angus Hindley,MEED Research Director
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MEED Insight
MEED Insight is a bespoke research service brought to you by the MEED group (www.meed.com). Providing
tailor-made research, data and analysis, MEED Insight draws on our data-rich archives and unique
relationships with key business decision-makers across the Middle East.
For information on MEED Insight, please contact [email protected]
GCC WASTEWATER
2009
SELECTED REPORTS
POWER & WATER
IN GCC
OUR EXPERTISE
INDUSTRY &
SECTOR
SCOPING
MARKET
SURVEYS
EVALUATION &
FORECASTING
MARKETENTRY
STRATEGY
PROJECT
OVERVIEW &COMPETITIVE
ANALYSIS
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Agenda
The impact of the Arab spring
The drivers for capital investment in infrastructure
The opportunities, challenges and procurement trends
The recent performance of the Gulf projects market
Closing remarks
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2011, the year of the Arab spring
Morocco
Political reformsannounced
Tunisia
Revolution andregime change
Egypt
Revolution andregime change
Syria
Serious civil unrest
Kuwait
Minordemonstrations
Bahrain
Serious civilunrest
Jordan
Political reformsannounced
Lib
ya
Revolution andregime change
Yemen
Serious civilunrest
Saudi Arabia
Minordemonstrations
Oman
Minordemonstrations
In the GCC, serious political unrest has been confined to, and contained in, Bahrain. Inthe rest of the Middle East and North Africa, regime change has taken place in three
states and civil war in two more
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The carrot and stick approach in the Gulf
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
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The high oil price has bankrolled higher spending
Despite downward revisions, oilprices are expected to remain
above the GCC breakeven pointof $80-85 a barrel
Source: Deutsche Bank
90
95
100
105
110
115
120
2010 2011 2012
$abarrel
The oil price, 2010-12
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The economic impact of the Arab spring
Outside the regime change states of Egypt, Tunisia and Libya, economicgrowth 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
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The drivers for increased public expenditure
All MENA states have highdemographic rates, most
notably in Qatar where thepopulation 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
%
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The need for new capacity
In addition to meet increasingdemand from expanding
populations and economies,
there is a growing need todecommission infrastructurewhich is now at the end of its lifehaving been built in the 1970s
and 1980s.
Source: MEED Insight
Installed and required power capacity in selectedGulf states, 2010-19
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Bahrain
Kuwait
Oman
Qatar
SaudiArabia
AbuDhabi
Dubai
Iraq
MW
Installed capacity, 2010 Required total capacity, 2019
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The need for new capacity
Over $60bn will be required inthe water and wastewatersectors to meet demand,
increase capacity and expandnetwork coverage with abouthalf of the investment accounted
for by Saudi Arabia
Sources: MEED Insight, GWI
Planned water and wastewater spending in theGCC, 2010-20
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
$m
Water Wastewater
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The need for new capacity
Aviation Rail Roads Ports Total
Bahrain 4,900 7,900 1,217 860 14,877
Kuwait 3,389 14,000 8,159 2,660 28,208
Oman 12,604 2,500 9,992 7,928 33,024
Qatar 15,246 36,875 7,167 11,474 70,762
SaudiArabia 19,567 40,656 4,132 9,100 73,455
UAE 8,732 17,498 25,831 3,783 55,844
Planned transportation projects by GCC state ($m)
Over $275bn of transportation projects are planned with rail accounting forthe largest share of the total at $120bn
Source: MEED Projects
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The procurement options
2011 has been a record year forpower capacity contracted from
the private developer market,despite only three projects being
concluded
Source: MEED Insight
New power capacity procured from the privatedeveloper market, 2007-11
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The procurement options
Outside the power and desalination sector, the prospects for privateprocurement are very mixed
Successful PPP type projects have been few and far between in the last twoyears with the notable exceptions of the Al-Muharraq STP in Bahrain andMedina airport in Saudi Arabia
Abu Dhabi has effectively abandoned the approach for its social infrastructure
programme, as well on flagship transportation projects such as the midfieldterminal and Mafraq-Ghuweifat highway
Kuwaits Partnerships Technical Bureau (PTB) has over 30 large-scaleinfrastructure projects planned as PPPs but much will depend on how the Al-Zour north IWPP proceeds
National Water Company (NWC) is revisiting the BOT model for its $30bncapital investment programme, with the aim of tendering its first project in 2013
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Issues facing private procurement
GCC governments are cash
rich, having benefitted from 10-years of rising oil prices
The global credit crunch, andsubsequent Eurozone crisis,has hit the GCC project financemarket
The perceived high cost of PPPs against conventionalprocurement
The often lengthy time takento deliver a PPP
Source: MEED Insight
Projected budget surpluses in selected GCCstates, 2010-11 ($bn)
0
5
10
15
20
25
30
35
Kuwait Qatar Oman Saudi Arabia
2010 2011
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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 MENAregion in 2011 while Iraq has seen the biggest growth
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The challenges facing the Gulf 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
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The opportunities on offer in the Gulf
An estimated $1.1tn of project
work is at the planning, designor tendering stage in the Gulf
Source: MEED Projects
Planned and unawarded projects in the Gulf,November 2011 ($bn)
0
50
100
150
200
250
300
Bahrain
Iraq
Kuwait
Oman
Qatar
SaudiArabia
UAE
$bn
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The opportunities on offer
Infrastructure and construction
projects will account for themajority of future work in theGulf followed by oil and gas
Planned and unawarded projects in the Gulf bysector, November 2011 ($bn)
Source: MEED Projects
467
330
217
130
Oil & gas Construction Infrastructure Others
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Closing Remarks
The outlook for the Gulf 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 and Kuwait havingpotential 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 a long-term commitment to the region,
competitive pricing and a willingness to go increasingly local
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For more information on this presentation or anyMEED services, please contact:
Angus Hindley, Research Director, MEED
Mob: +44 7918 166446
