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The Middle East - In Search of New Markets
This year is unlikely to bring much cheer to the construction industry in some parts of the Middle East. The spotlight is likely to fall on the region’s fast-growing larger economies, such as Saudi Arabia and also Iraq, where further recovery after the US-led invasion of 2003 continues apace, writes Ian Lewis.
In Saudi Arabia, demand from a young, increasingly urbanised population looks set to drive new housing and infrastructure projects, especially given the government’s major facilitating role in the sector. The Kingdom is also pushing ahead with flagship developments, such as the so-called airport cities at the King Khalid International airport in Riyadh and the King Fahd International airport in Dammam. Here land is to be made available to private firms for uses including hotels and conference centres, shopping centres and free-trade zones. The General Authority of Civil Aviation (GACA) is set to look for a property developer partner for these projects in 2009, supported by the International Finance Corporation (IFC).
More ambitious still are Saudi Arabia’s efforts to replicate the success of its Yanbu and Jubail industrial cities – started more than three decades ago – with the development of six more economic cities, the largest being the King Abdullah Economic City (KAEC) on the coast to the north of Jeddah. These and other major development projects are likely to require in excess of $250 billion to complete.
The Saudi government has been quick to dampen speculation that these projects could be delayed given the parlous state of the global economy and falling oil prices, claiming that there would be no financing shortfall. “Oil revenues will definitely cover these projects in addition to what we have in reserve,” Ibrahim al-Assaf, the country’s finance minister, told a Saudi television station in late 2008.
According to the Dubai/Saudi-owned master developer, Emaar Economic City, 10,000 housing units will be built in KAEC by 2010, with enough housing for two million inhabitants envisaged for 2020, when the project is scheduled for completion. If that ambition is realised, KAEC could become the country’s main economic centre. In early 2008, Emaar signed an agreement with UAE-based Mubadala Development Company and Dubal to build a $5 billion-plus, 700,000-tonnes/year aluminium smelter in the city.
The six new city projects build on the blueprint laid out by their predecessors by adding a more diverse set of objectives. As well as developing manufacturing and processing based on cheap power and hydrocarbon inputs, and providing housing and amenities for workers, the new projects are to incorporate extensive business districts and higher education facilities, as well as encouraging the development of technological industries at centres such as KAEC and the Medina Knowledge Economic City. Another difference between these new zones and their predecessors is that the private sector is to play a much greater role in building them, with the government stating that it prefers to act just as regulator and enabler, through the Saudi Arabian General Investment Authority (SAGIA).
Elsewhere in the Gulf, Qatar’s construction sector is thriving on the back of government spending on infrastructure projects, and demand for residential and commercial property is still strong. Major projects include the $4.2 billion Bahrain-Qatar causeway, the Lusail City real estate project, Energy City, Barwa’s Al-Khor City and The Pearl offshore island.
Reconstruction opportunities
Iraq could also provide substantial opportunities for construction firms, given the scale of the country’s rebuilding programme, if investment conditions continue to improve. The government has prioritised investment housing, schools, roads, bridges and other infrastructure. Billions of dollars of investment are required to develop projects, including a new international airport at Karabala ($3 billion), new rail lines ($5 billion), a number of multibillion dollar housing developments around the country, steel and cement plants plus several oilfield development and refinery projects.
Lebanon offers similar investment possibilities, albeit on a smaller scale. Post-war reconstruction there has been under way for more than a decade, but long-term reconstruction continues.
North Africa also offers good prospects, with Egypt having launched a fiscal stimulus package with a focus on public investment in infrastructure, and Libya experiencing a construction boom in the run-up to the 40th anniversary of the revolution.
The opportunities presented by such markets are likely to be seized by the big construction and property development firms that have sprung up in the Gulf region during the recent property boom. They may have difficulty filling their order books in their home markets and will need to look further afield if they are to maintain momentum. UAE-based firms are likely to be more eager than most to seek more contracts in the wider Gulf region to compensate for an expected lull in project commissioning in Dubai, once the current wave of contracts is fulfilled.
Gulf investments are also playing an important role in helping to keep ailing western real estate markets afloat, as surplus cash from the recent oil income bonanza is ploughed into high-profile developments. The Qatar Investment Authority (QIA) is a prime mover in the UK property market, for example, having bought a 20 per cent stake in property group Chelsfield in mid-2008. The QIA also has a £1.6 billion investment in the Shard of Glass tower being built by the River Thames in London.
Ian Lewis
Global Arab Network