Out-Law News | 14 Jul 2014 | 4:16 pm | 2 min. read
According to PwC’s 2014 Middle East Capital Projects and Infrastructure Survey (28-page / 1.25 MB PDF) 75% of respondents expect an increase in spending over the next 12 months, “largely driven by mega events” including the Qatar World Cup in 2022, as well as increased spending on social infrastructure.
Respondents said strong economic growth and budget surpluses in all three states “provide the backbone for ambitious spending plans, as their governments continue to invest in economic diversification while at the same time spending to maintain or expand hydrocarbon and downstream petrochemical production”.
However, PwC warned of a “capacity crunch looming on the horizon” as market capacity risked failing to keep pace with demand.
According to PwC “there are already signs that these capacity constraints are beginning to impact project delivery”. In the survey, 95% of respondents said their projects were delayed, with “a staggering 45% delayed by more than six months”. Client decision-making “is also a big concern, with 35% of contractors citing it as the greatest challenge they face delivering projects”, PwC said.
PwC’s leader of capital projects and infrastructure in the Middle East Stephen Anderson said: “Whilst our survey shows a good dose of optimism, there is a capacity crunch looming which threatens the delivery of projects. It is already having an impact, we are seeing more delays on projects that are under way.”
Anderson said: “Broadly speaking these problems have been apparent in our region’s infrastructure sector for several years, but the increase in activity is making them more acute. They need to be urgently addressed if the region is to deliver on its ambitions.”
The survey identified the ability to find skilled people, both in terms of quality and volume, “as a key challenge for both project owners and contractors”. Difficulties securing funding were also highlighted as likely to lead to project delays. The survey said “there simply isn’t enough funding available... the sheer scale of commitments is making private sector finance a more attractive, and indeed necessary, option for funding infrastructure projects.”
The survey said: “The transient nature of the region has always been a challenge, but the uptick of megaprojects both within the Gulf Cooperation Council region and globally means competition for qualified, experienced people has intensified, as 54% of owners and 43% of contractors consider the availability of skilled resources as a top challenge in the coming year. It’s one of our biggest challenges to overcome, there are no quick fixes and ever-increasing compensation packages are adding to cost inflation.”
In a report on the UAE published in June 2014, the International Monetary Fund (IMF) said “following years of credit-less recovery, lending to the private sector has begun to rebound amid accelerating deposit growth”.
According to the IMF, the UAE’s economic growth is expected at 4.8% in 2014 and about 4.5% in coming years, supported by “megaprojects” such as the successful bid for the World Expo 2020.
The IMF said inflation is projected to rise further “driven by higher rents” and warned that a “strengthening real estate cycle, particularly in the Dubai residential market, could attract increased speculative demand, creating the risk of unsustainable price dynamics and an eventual, potentially disruptive correction”.