Middle East Regional Report: Rising star
By Helen Wright10 May 2011
Construction growth prospects in the Middle East at the start of 2011 were upbeat, and while heightened political tensions in countries such as Bahrain have clouded the outlook somewhat, the region's resilience should not be underestimated.
Construction projects with a value of US$ 958 billion are underway or planned in the UAE, according Deloitte's latest GCC Powers of Construction report, and the country is expected to see its construction industry increase by +9.6% on average per year between 2010 and 2014.
Meanwhile, Saudi Arabia has US$ 624 billion worth of projects planned or underway and is expected to launch contracts worth US$ 86 billion in 2011.
But while Qatar has a smaller value of projects planned or underway (US$ 221 billion), it has the biggest growth potential in the region with average annual growth from 2010 to 2014 estimated to reach +12%.
Under its 'Qatar National Vision 2030'programme, the country has committed to sustaining its development and providing high standards of living to its people. As such, the construction industry has received a boost from largely government backed projects aimed at establishing the country as a global tourist destination, while controls on foreign ownership have also been eased to attract global investment.
And Qatar's successful bid to host the 2022 football World Cup is also fuelling construction prospects in the country. Investments of more than US$ 75 billion for infrastructure, public facilities, security services and products, sports facilities, tourism, communications and transportation to manage the event are expected.
Qatar has plans to invest US$ 20 billion on road infrastructure projects between 2009 and 2014, while other major transport infrastructure projects include the development of a national rail system. The procurement process the country's US$ 36 billion integrated rail project started in June, undertaken by Qatar Railways Development Company.
The network will connect Qatar to its neighbours via the Bahrain Causeway in addition to a proposed bridge between the peninsula state at the UAE, plus the land link with bordering Saudi Arabia. The project is scheduled for completion in 2026, while the parts required to help boost transport infrastructure in time for the 2020 World Cup will be completed earlier.
The country also plans a new international airport in the capital, Doha (valued at US$ 11 billion) and has announced the construction of the Abu Dhabi-Qatar causeway (valued at US$ 13 billion).
Qatar's status a rising star of construction opportunity in the Middle East is cemented by the fact that the kingdom has not had to introduce any of the austerity measures that are currently haunting Western economies, and is not struggling with a budget deficit like its neighbour, Dubai. Qatar's long-term infrastructure needs, its stable economy and desire to diversify its income make it an attractive location for sustained construction sector growth in the future.
Nevertheless, some of the largest projects in the world are underway elsewhere in the Middle East. An explosion in population and the desire to diversify its economy has fuelled ambitious plans in Saudi Arabia to build six new cities, for example.
Development has already started on four of the new 'Economic Cities', and the Saudi Arabian General Investment Authority (SAGIA) plans to invest more than US$ 120 billion on the projects, which are expected to be home to up to five million residents by 2020.
Each of the new cities has been designed for different industrial purposes. The largest project, King Abdulla Economic City, is located on the coast of the Red Sea near the city of Rabigh in Makkah Province and has been designed with a focus on power and transport industries.
Due for completion in 2016, it has received US$ 27 billion of investment. Other economic focuses of the cities include heavy industries, transport and logistics support, mining industries and the knowledge industries sector.
The renewed construction boom in the Middle East has sparked fierce competition between contractors, and South Korea moved early to strengthen business ties in the region in the hope of winning new opportunities.
Last year saw the establishment of the UAE-Korea Business Council, which involves around 30 companies from public and private sectors and aims to increase the business relationship between both countries.
Construction companies included South Korea's Doosan Heavy Industries & Construction, Hanwha Engineering & Construction and Hyundai Engineering & Construction and the UAE's Al Habtoor and Al Futtaim enterprises. And the strengthened business ties have borne fruit - South Korean contractors have been appointed for work on some of the region's largest infrastructure projects.
For example, a South Korean construction consortium is preparing for work on the world's largest nuclear power project in Braka, Abu Dhabi. The Korea Electric Power Corp (KEPCO) consortium - including Hyundai Engineering Construction, Samsung C&T, Doosan Heavy Industries and Japanese-US company Toshiba-Westinghouse - won the US$ 20 billion contract for four nuclear reactors in Braka, Abu Dhabi, in 2009.
Work on the first nuclear plant is expected to start in 2012, with all four commissioned between 2017 and 2020.
And earlier this year, a South Korean consortium won a
US$ 1 billion contract to lay fibre optic cables in Saudi Arabia, according to the Korea Trade-Investment Promotion Agency. In addition, Doosan Heavy Industries signed a joint venture deal with Saudi Arabia's Saline Water Conversion Corporation in March to build the world's largest desalination plant in Yanbu, about 350 km northwest of Jeddah.
Doosan also won a second, US$ 1.46 billion order to build another desalination plant in Ras Al-Zour in the Eastern Province earlier in the year, to be completed in January 2014.
But China's construction giants are also keen to gain a slice of the action. Big wins include China Harbour and Engineering's US$ 879 million deal for Qatar's New Doha Port project, and China Railway Construction's US$ 1.8 billion deal to build the Mecca light rail system.
The Middle East still has a lot of opportunities to offer the construction industry, but sustainable growth is key in order to change the perception of the region as a high risk market. Recovery from the crash in construction activity during the financial crisis is most noticeable Saudi Arabia and Qatar, but projects that were put on hold in 2008 are also being restarted Dubai and the UAE.
Political unrest across the region is also affecting the development of robust business activity in some countries, and these problems cannot be solved easily. But with Qatar's successful world cup bid and the large infrastructure projects underway in the region, the construction market Middle East is well-placed for long-term success as well as diversification away from oil-related projects.iC