Out-Law News 2 min. read
28 May 2012, 4:51 pm
In its annual Gulf Cooperation Council (GCC) Powers of Construction report, analyst firm Deloitte said that Qatar's preparations for hosting the 2022 World Cup, together with a $400bn worth of capital expenditure scheduled to take place in Saudi Arabia over the next ten years, represented "massive opportunities" for the sector. However, many project sponsors were continuing to deal with "illiquid projects and debt".
"What primarily differentiates participants in the GCC's construction industry from their Western counterparts is that grand opportunities continue to be capitalised upon across the region, despite being forced to deal with continuing negative financial circumstances - simultaneously - in specific locales," said Rizwan Shah, corporate finance managing director for Deloitte Middle East.
In his introduction to the report, he said that the combination of investment announcements and "government-backed bailouts that stretch into the tens of billions of dollars that – quietly – we know are for unviable and commercially-challenged projects" made for an "unparalleled" situation in the region.
"The same contractor that had multiple outstanding client receivables in the millions of dirhams can also at the same time be bidding for projects in the billions of dirhams, even further challenged by a market with entrants that are increasingly competing just to survive," he said.
He called on companies to be "responsive to the market" to avoid the ongoing effects of macro-economic instability, rising unemployment and inflation on new and newly-resurrected projects.
The GCC is made up of six Arabic states bordering the Persian Gulf including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE). The states have benefitted from their vast oil-based reserves and various government stimulus packages despite ongoing political unrest in the wider Middle Eastern region, according to the report. Global demand for oil and gas in these more stable states escalated in 2011 due to political unrest in other areas, it said.
Infrastructure spending in the traditional oil and gas exporting regions such as Saudi Arabia, Qatar and Abu Dhabi was being driven by "the need to diversify their economies away from the traditional petrochemical and hydrocarbon industries", the report said. 47% of an estimated $40bn of construction contracts awarded in the first quarter of the year throughout the GCC overall were made up of energy-related projects.
The report forecast Saudi Arabia, the biggest market in the region in terms of population and gross domestic product (GDP), as the "most buoyant construction market globally", with the Government's Ninth Development Plan for infrastructure investment nearing $400bn over the next five years. These projects will include building schools, hospitals, universities, houses, airport expansions and railway and road improvements. However, 21% of survey respondents ranked its "restrictive labour regulations" as a barrier to growth, with the private sector being heavily dependent on labour from outside of the Kingdom.
Qatar was classified as the fastest-growing economy in the region, with anticipated average real year-on-year growth of 8.4% to 2015. In addition to a $10bn infrastructure allocation from its 2010/2011 following its successful World Cup bid, a further $70bn has been earmarked for transport and commercial projects.
Kuwait would likely be the "slowest member" of the region to recover economically due to its weak business environment compared to other states and its high dependence on oil exports, the report said.
