The Middle East construction sector Al-Habtoor Leighton analysts visit, Dubai

Transcription

1 The Middle East construction sector Al-Habtoor Leighton analysts visit, Dubai Angus Hindley, Research Director, MEED 19 November, 2011

2 MEED Insight MEED Insight is a bespoke research service brought to you by the MEED group ( 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. For information on MEED Insight, please contact angus.hindley@meed.com

3 Agenda The impact of the Arab spring The economic outlook The drivers for capital investment The opportunities and challenges An assessment of the key markets Closing remarks

4 2011, the year of the Arab spring Revolution and regime change Serious civil unrest Political reforms announced Political reforms announced Minor demonstrations Morocco Tunisia Libya Egypt Syria Jordan Kuwait Bahrain Saudi Arabia Oman Serious civil unrest Revolution and regime change Revolution and regime change Minor demonstrations Yemen Serious civil unrest 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

5 The carrot and stick approach in the GCC 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 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

6 Can the GCC afford the measures? 35 The budget surpluses in selected GCC states, Despite record capital expenditure, the region has been enjoying rising budget surpluses which in turn have been used to build up reserves Kuwait Qatar Oman Saudi Arabia Source: MEED Insight

7 The key will be the oil price 120 The oil price, Despite downward revisions, oil prices are expected to remain above the GCC breakeven point of $80-85 a barrel $ a barrel Source: Deutsche Bank

8 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 GDP growth in selected MENA countries, Egypt Iraq Jordan Kuwait Oman Qatar Saudi Arabia Tunisia UAE Source: IMF

9 The drivers for increased public expenditure 12 Population growth in selected MENA states, All MENA states have high demographic rates, most notably in Qatar where the population doubled in the five years to 2009 % Iraq Kuwait Libya Oman Qatar Saudi Arabia UAE Source: IMF

10 The drivers for increased public expenditure Installed and required power capacity in selected MENA states, ,000 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. This particularly applies to the power, water, and transportation, sectors across the region MW 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Bahrain Kuwait Oman Qatar Saudi Arabia Abu Dhabi Dubai Iraq Installed capacity, 2010 Required total capacity, 2019 Source: MEED Insight

11 The recent performance of the Gulf projects market Major contract awards in the Gulf, * 2010* 2011* Bahrain Iraq Kuwait Oman Qatar Saudi Arabia UAE * 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

12 The opportunities on offer in the Gulf 300 Planned and unawarded projects in the Gulf, November 2011 ($bn) 250 An estimated $1.1tn of project work is at the planning, design or tendering stage in the Gulf $bn Bahrain Iraq Kuwait Oman Qatar Saudi Arabia UAE Source: MEED Projects

13 The opportunities on offer Planned and unawarded projects in the Gulf by sector, November 2011 ($bn) 130 Infrastructure and construction projects will account for the majority of future work in the Gulf followed by oil and gas Oil & gas Construction Infrastructure Others Source: MEED Projects

14 The challenges facing the 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

15 Kuwait the sleeping giant Kuwait has promised much but delivered little over the past decade as a result of politics, bureaucracy and a very slow decision making apparatus It has drawn up a five-year, $100bn investment programme with a strong focus on transportation projects Despite having record surpluses and rising reserves, the government is looking to the private sector to deliver over 30 large-scale infrastructure projects This will provide greater opportunities for international contractors in the market, which has traditionally been dominated by local companies outside the oil and gas sector

16 Qatar in the world cup spotlight Winning the right to host the 2022 World Cup will ensure that over $100bn of infrastructure work will go ahead Investment in the direct World Cup infrastructure (stadia/accommodation) will be small compared to the rail programme ($35bn) and the road programme ($20bn) Contract awards on the World Cup programme will begin in earnest in late 2012, with the majority awarded by 2016/17 Competition for new work is already intense and will intensify

17 Saudi Arabia the undisputed leader The kingdom will remain the biggest construction market with significant opportunities in housing, rail, airports, education, healthcare power and water Local contractors will continue to dominate, but will seek foreign expertise for technically challenging schemes and project management Foreign contractors will have to overcome manpower, Saudiisation and visa challenges Given the kingdom s rising unemployment, there will be a growing need for international contractors to maintain a substantial local presence

18 UAE contracting opportunities Despite three-year high oil production, contract awards have slumped in the UAE this year as a result of a spending review in Abu Dhabi A series of high profile schemes, taking in museums, hospitals, and highways, have all been affected, although strategic projects such as the UAE rail network, power and water schemes and major gas developments have gone ahead New project activity in Dubai has edged up this year but is less than 10 per cent of what was being recorded in the boom years of The UAE and Abu Dhabi in particular has a healthy pipeline of new projects, but only priority schemes are likely to go ahead over the medium term

19 The others Iraq considerable potential but much will depend on how the international oil companies perform on the crude increment programme Libya a long road ahead, but substantial opportunities, if political stability can be achieved, especially in infrastructure, which even before the civil war was in a poor state Oman will remain a small but steady market with the best prospects in the road, rail and tourism sectors

20 Closing Remarks The outlook for the Middle East 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, Kuwait and longer term Libya 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 an established presence, a long-term commitment to the region, competitive pricing and a willingness to go increasingly local

21 For more information on this presentation or any MEED services, please contact: Angus Hindley, Research Director, MEED Mob: