The infrastructure investors of the Middle East

15 October 2013

Volvo has supplied an L150F, L180F and L180G wheeled loader to Qatar Primary Materials, which produc

Volvo has supplied an L150F, L180F and L180G wheeled loader to Qatar Primary Materials, which produces 1180 tonnes of sand an hour in 40 °C heat at its facility 50 km from Doha.

With oil prices stuck above the US$ 100 per barrel-mark, governments in the Middle East have the funds to invest in their countries’ infrastructure. In fact construction markets around the region are generally in good health, with the obvious exceptions of Iran and Syria.

In terms of market size, Saudi Arabia dominates the Gulf region. It accounts for about a third of construction output of the Gulf Co-operation Council (GCC) countries, a group comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE. By one estimate – that of Kuwait-based financial services company, Global Investment House – there are US$ 2.5 trillion of infrastructure projects underway in the region at present and Saudi Arabia’s investments this year could total some US$ 219 billion. That would be a massive +19% increase on 2012.

But arguably a more talked-about market is Qatar. Over the next 10 years it is expected to be one of the consistently fastest growing construction markets anywhere in the world. Much of this can be attributed to it being selected to host the 2022 World Cup, which promises to see not only new venues built, but a comprehensive infrastructure investment programme put in place.

World cup investments

According to British government agency UK Trade & Investment, some US$ 220 billion should be invested in Qatar’s infrastructure over the next 10 years, and only about US$ 4 billion of that is related to venues for the World Cup.

Projects include a general upgrading of the country’s highway network, including up to 600 km of major highways. There are also plans to increase capacity at the country’s three main ports, in Ras Laffan, Mesaieed and Doha, as well as plans for the new Doha International Airport.

Rather than increase capacity at the existing airport, the decision was taken as far back as 2004 to build a completely new facility on a 22 km2 site – a significant proportion of which is reclaimed land – to the east of the existing airfield.

Once open, hopefully next year, the airport will be able to handle 24 million passengers per year, compared to the 23 million passengers expected this year through the current, over-stretched facility. However, the new airport could eventually be expanded to cater for 90 million passengers per year. That would make it the second busiest in the region after Dubai Airport.

The design for the airport is by architect HOK, and Bechtel is handling engineering, project management, and construction management work. According to the company, Early work included 62 million m3 of land reclamation and the largest environmental clean-up project in Qatar’s history – the site was a dumping ground for household waste, and some 6.5 million m3 had to be removed to a new landfill site before work could begin.

This year has seen the country’s construction boom continue, with the awarding of a series of enormous contracts for the construction of the Doha metro system. The overall investment in the project – comprising some 212 km of track and 85 stations split across four lines – is put at US$ 35 billion in total, and several key contracts have been awarded in the last few months.

Italian contractor Impregilo will lead the consortium that has won the US$ 2.2 billion contract for the 13 km northern red line. Other partners including SK Engineering & Construction and Galfar Engineering & Contracting.

Meanwhile, a joint venture between Vinci Construction (49%) and sovereign wealth fund Qatari Diar (51%), which itself owns a stake in Vinci, will build the 13.8 km dual-tube underground line along the coast between Doha airport and the Msheireb neighbourhood in the centre of the city.

Constructing the tunnel is expected to see as many as five, 7 m diameter earth pressure balance (EPB) tunnel boring machines (TBMs) at work at once.

Another winner this year was Austria’s Porr group, which said the US$ 1.23 billion award for a 16.6 km stretch of the green line was the largest contract in its history.

Inflation risk

But all this activity has its risks of course. A report earlier in the year by consultant EC Harris pointed out that Qatar’s building boom could also lead to soaring costs. It warned the Qatari construction industry could see annual inflation of +18% as the result of its building boom, adding that it put total infrastructure investment over the next decade at US$ 160 billion and forecast average annual growth of +12% in the construction industry as a whole.

In order to avoid the risk of inflation, which EC Harris says could add billions of Dollars to the cost of construction, the consultant has advocated a series of steps. These include building capacity and capability in the existing supply chain, by encouraging local and international contractors to combine their skills, make it easier to transport labour and materials by improving the quality of accommodation for construction workers, revamp the procurement process to focus on best value, and where possible, stagger the implementation of construction projects.

Terry Tommason, EC Harris’s head of property and social infrastructure Middle East said, “Qatar has seen a remarkable transformation in less than a generation, and the exciting thing is we’re only part way on the journey. These are unique times for Qatar as the country witnesses an explosion of construction activity, which will continue over the next decade.”

He added, “By taking action now, there is every reason to believe that construction inflation can be avoided. In doing so, Qatar would cement its position on the world stage – the World Cup host country with a world class approach to delivering infrastructure investment on a truly mass scale.”

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