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TRANSCRIPT
The outlook for the Gulf projects
market
The Confederation of Danish Industry’s
Middle East Day, Copenhagen
7 December, 2011
Angus Hindley,
MEED Research Director
MEED Insight
MEED Insight is a bespoke research service brought to you by the MEED group (www.meed.com). Providing tailor-made research, data and analysis, MEED Insight draws on our data-rich archives and unique
relationships with key business decision-makers across the Middle East.
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GCC WASTEWATER
2009
SELECTED REPORTS
POWER & WATER
IN GCC
OUR EXPERTISE
INDUSTRY &
SECTOR
SCOPING
MARKET
SURVEYSEVALUATION &
FORECASTING
MARKET
ENTRY
STRATEGY
PROJECT
OVERVIEW &
COMPETITIVE
ANALYSIS
Agenda
The impact of the Arab spring
The drivers for capital investment in infrastructure
The opportunities, challenges and procurement trends
The recent performance of the Gulf projects market
Closing remarks
2011, the year of the Arab spring
Morocco
Political reforms
announced
Tunisia
Revolution and
regime change
Egypt
Revolution and
regime change
Syria
Serious civil unrest
Kuwait
Minor
demonstrations
Bahrain
Serious civil
unrest
Jordan
Political reforms
announced
Libya
Revolution and
regime change
Yemen
Serious civil
unrest
Saudi Arabia
Minor
demonstrations
Oman
Minor
demonstrations
In the GCC, serious political unrest has been confined to, and contained in, Bahrain. In
the rest of the Middle East and North Africa, regime change has taken place in three
states and civil war in two more
The carrot and stick approach in the Gulf
GCC troops sent into Bahrain in March 2011 to effectively seal the island state, in
a move accompanied by a $10bn aid package
Massive pay increases announced for government employees across most of the
GCC
Major spending programmes announced to remove any potential flashpoints
- Saudi Arabia launches 500,000 unit housing programme and new
employment rules to create 1.1 million jobs by 2014
- Oman unveils anti-corruption drive and pledges to create 40,000 jobs a year
- the UAE pledges to improve infrastructure in the northern emirates, which is
well below the standards in Abu Dhabi and Dubai
The high oil price has bankrolled higher spending
Despite downward revisions, oil
prices are expected to remain
above the GCC breakeven point
of $80-85 a barrel
Source: Deutsche Bank
90
95
100
105
110
115
120
2010 2011 2012
$ a
ba
rre
l
The oil price, 2010-12
The economic impact of the Arab spring
Outside the regime change states of Egypt, Tunisia and Libya, economic
growth will rise in 2011 due to increased public spending and higher oil
prices
Source: IMF
GDP growth in selected MENA countries, 2010-12
0
2
4
6
8
10
12
14
16
18
20
Egypt Iraq Jordan Kuwait Oman Qatar Saudi Arabia
Tunisia UAE
%
2010 2011 2012
The drivers for increased public expenditure
All MENA states have high
demographic rates, most
notably in Qatar where the
population doubled in the five
years to 2009
Source: IMF
Population growth in selected MENA states, 2010
0
2
4
6
8
10
12
Iraq Kuwait Libya Oman Qatar Saudi Arabia
UAE
%
The need for new capacity
In addition to meet increasing
demand from expanding
populations and economies,
there is a growing need to
decommission infrastructure
which is now at the end of its life
having been built in the 1970s
and 1980s.
Source: MEED Insight
Installed and required power capacity in selected
Gulf states, 2010-19
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Ba
hra
in
Ku
wa
it
Om
an
Qa
tar
Sa
ud
i Ara
bia
Ab
u D
ha
bi
Du
ba
i
Iraq
MW
Installed capacity, 2010 Required total capacity, 2019
The need for new capacity
Over $60bn will be required in
the water and wastewater
sectors to meet demand,
increase capacity and expand
network coverage with about
half of the investment accounted
for by Saudi Arabia
Sources: MEED Insight, GWI
Planned water and wastewater spending in the
GCC, 2010-20
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
$m
Water Wastewater
The need for new capacity
Aviation Rail Roads Ports Total
Bahrain 4,900 7,900 1,217 860 14,877
Kuwait 3,389 14,000 8,159 2,660 28,208
Oman 12,604 2,500 9,992 7,928 33,024
Qatar 15,246 36,875 7,167 11,474 70,762
Saudi
Arabia 19,567 40,656 4,132 9,100 73,455
UAE 8,732 17,498 25,831 3,783 55,844
Planned transportation projects by GCC state ($m)
Over $275bn of transportation projects are planned with rail accounting for
the largest share of the total at $120bn
Source: MEED Projects
The procurement options
2011 has been a record year for
power capacity contracted from
the private developer market,
despite only three projects being
concluded
Source: MEED Insight
New power capacity procured from the private
developer market, 2007-11
The procurement options
Outside the power and desalination sector, the prospects for private
procurement are very mixed
Successful PPP type projects have been few and far between in the last two
years with the notable exceptions of the Al-Muharraq STP in Bahrain and
Medina airport in Saudi Arabia
Abu Dhabi has effectively abandoned the approach for its social infrastructure
programme, as well on flagship transportation projects such as the midfield
terminal and Mafraq-Ghuweifat highway
Kuwait’s Partnerships Technical Bureau (PTB) has over 30 large-scale
infrastructure projects planned as PPPs but much will depend on how the Al-
Zour north IWPP proceeds
National Water Company (NWC) is revisiting the BOT model for its $30bn
capital investment programme, with the aim of tendering its first project in 2013
Issues facing private procurement
GCC governments are cash
rich, having benefitted from 10-
years of rising oil prices
The global credit crunch, and
subsequent Eurozone crisis,
has hit the GCC project finance
market
The perceived high cost of
PPPs against conventional
procurement
The often lengthy time taken
to deliver a PPP
Source: MEED Insight
Projected budget surpluses in selected GCC
states, 2010-11 ($bn)
0
5
10
15
20
25
30
35
Kuwait Qatar Oman Saudi Arabia
2010 2011
The recent performance of the Gulf projects market
Major contract awards in the Gulf, 2010-11*
2010* 2011*
Bahrain 2.4 1.3
Iraq 8.4 24.2
Kuwait 10.1 7.8
Oman 4.4 4.7
Qatar 10.5 10.9
Saudi Arabia 35.7 47.1
UAE 30.1 16.8
* first nine months
Source: MEED Projects
Saudi Arabia has maintained its position as the largest projects market in the MENA
region in 2011 while Iraq has seen the biggest growth
The challenges facing the Gulf market
Intense competition for new work, driven by the downturn in the UAE and
companies entering the region for the first time
Lower margins and potentially rising subcontractor and equipment costs in
selected markets
Slow decision-making in some markets particularly in Abu Dhabi
Increased risk being placed on the shoulders of contractors
Growing pressure to be local, especially in Oman and Saudi Arabia
The opportunities on offer in the Gulf
An estimated $1.1tn of project
work is at the planning, design
or tendering stage in the Gulf
Source: MEED Projects
Planned and unawarded projects in the Gulf,
November 2011 ($bn)
0
50
100
150
200
250
300
Bahra
in
Ira
q
Ku
wa
it
Om
an
Qa
tar
Sa
ud
i Ara
bia
UA
E
$b
n
The opportunities on offer
Infrastructure and construction
projects will account for the
majority of future work in the
Gulf followed by oil and gas
Planned and unawarded projects in the Gulf by
sector, November 2011 ($bn)
Source: MEED Projects
467
330
217
130
Oil & gas Construction Infrastructure Others
Closing Remarks
The outlook for the Gulf construction sector is reasonable, considering the
Arab spring, the global economic downturn and the European financial crisis
The engine of growth will be infrastructure, which will be largely
government-financed, provided oil prices remain above the critical $80
threshold
Saudi Arabia will be the most important market, with Iraq and Kuwait having
potential for strong growth
Competition for new work will remain intense and bureaucratic, localisation
and security/political issues will have to be overcome in some markets
Keys to contractor success will be a long-term commitment to the region,
competitive pricing and a willingness to go increasingly local
For more information on this presentation or any
MEED services, please contact:
Angus Hindley, Research Director, MEED
Mob: +44 7918 166446