It highlights major construction opportunities valued at US$500bn (£319bn) across the six states of the Gulf Cooperation Council (GCC).
The report GCC Powers of Construction: five lessons to learn from says that the oppportunities are there despite challenges and delivery issues related to current projects.
The 2012 edition provides a collection of perspectives on the underlying issues that have challenged the GCC’s multi-trillion dollar construction industry, and how these challenges have been overcome by some of the largest businesses in the region.
Key findings in the Deloitte report indicate that large infrastructure projects, particularly around social and transport infrastructure, will offer tremendous opportunities for contractors, as will continuing upstream and downstream oil and gas related developments in the coming years.
One of the biggest investments currently under way is Qatar’s plan to spend US$100 billion in preparation for hosting the 2022 World Cup and achieving its ‘2030 vision’. Saudi Arabia’s capital spend programme is approaching US$400bn over the next 10 years alone. There are massive opportunities associated with huge construction spend, many project sponsors still have to deal with illiquid projects and debt, according to the report.
“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, managing director, corporate finance, and leader of Deloitte’s capital projects advisory services practice for the Middle East.
Backed by vast oil-based reserves and government stimulus packages, the economic prospects of the GCC region have remained positive despite ongoing political unrest in the wider Middle East region. As such, efforts to maintain a balanced and diversified economic base have remained the primary focus of the regional governments as evidenced by a steady stream of investments into construction and infrastructure developments, says the report. There is at least an estimated US$500bn investment opportunity regionally, in energy, transportation, education, healthcare and other critical sectors of economic development.
The oil and gas exporting countries, such as Saudi Arabia, Qatar and Abu Dhabi, have an additional objective which is the need to diversify their economies away from the traditional petrochemical and hydrocarbon industries. This is also driving infrastructure. These countries are now looking at how to take advantage of existing strengths to develop upstream industries – and the focus has shifted to construction, according to the Deloitte report.
“The region certainly is expected to continue to offer a lot of opportunity for contractors,” said Cynthia Corby, audit partner Deloitte Middle East and leader of the construction industry for the UAE. Construction contracts alone worth US$ 40 billion were awarded to contractors in the first quarter of 2011, 47% of which were in the energy sector. “It is interesting to note that despite such grand investments, governments are still trying to recuperate from the impact of the financial crisis,” she added.
The report indicates that there are vast opportunities across the Middle East, with longer-term infrastructure investment plans for the region estimated to be in excess of US$1 trillion. This figure, as research shows, may continue to rise as governments assess the impact of the Arab Spring on priority investments. In addition, the uprisings have been credited with positively influencing infrastructure investment, forcing governments to accelerate spending programmes in order to meet citizens’ higher expectations. In terms of projects in the pipeline across the Middle East, the majority are social (36%); 29% power-related; 13% in transport and 13% in oil and gas.
There is imminent growth in the Saudi Arabian construction industry, being the biggest market in the across the six states of the Gulf Cooperation Council (GCC) in terms of population and GDP. Budget value of contacts to be awarded in Saudi Arabia in 2011 onwards is set to increase to US$35bn, as compared to US$25 billion in 2006. The government is undertaking grand investments, with plans nearing US$400bn in five years, demonstrating an increasing trend of projects that will need to be awarded in the coming years ahead. These will include building schools, hospitals, universities, houses, airport expansions, and new railway infrastructure and road improvements. This construction market is therefore expected to be one of the most buoyant in the world, according to the report.
The immediate challenge that the kingdom faces is how to implement the various capital investment programmes and to ensure efficient delivery whilst containing inflationary pressures that are challenging the region as a whole.
The report classified Qatar as the fastest growing economy in the GCC region and holding an 8% share of the total value of the regional projects. In terms of its construction industry, its value was forecasted at approximately US$8bn in the 2011 financial year. Projects planned to be under way in Qatar in the future are valued at approximately US$230bn. Sport will be a key element of the construction industry boom in the non-oil and gas sector with investments allocated to hotel, leisure, tourism, sports, recreational and infrastructure projects estimated at US$60-70bn.
The United Arab Emirates (UAE) is ranked as the second largest market with investments worth US$9bn allocated to buildings, infrastructure and energy sectors in the first quarter of 2011. Despite the regional unrest and the public slowdown of projects in Abu Dhabi in 2011, the UAE has overall demonstrated some key elements of stability, said the report. Abu Dhabi, in particular accounted for 70% of the total US$20bn of contracts awarded between the first and third quarters of 2011. The Emirate is placing particular attention on transport, utilities and social infrastructure.
The Abu Dhabi government has a long term investment programme to upgrade its airports, seaports and public transport system to cater to the growing population. In addition, approximately US$2bn has been allocated towards an integrated housing project on the outskirts of the capital to improve the imbalances within the residential market.