the meed view of the gcc construction market 2010

Overview of MBA/EMBA market in the Gulf region

The MEED view of the GCC construction marketEd James, Head of MEED Insight A presentation for Arabian World Construction SummitAbu Dhabi, 24 May 2010

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MEED InsightMEED Insight is the research and analysis arm of the MEED group, providing off-the-shelf reports and bespoke services to customers. It offers tailored research on a broad range of countries and sectors in the Middle East on issues such as market sizing and outlook, project overviews and competitor analysis.

The unit draws on the resources of: MEED Projects, which is tracking more than $7 trillion worth of schemes in the region; MEED magazine/ MEED.com, which has been reporting on the Middle East and North Africa for more than 50 years; and MEED Events, which organises over 25 premium events a year in the Gulf.

For more information, please contact:

Nicky Dawson, Business Development [email protected] or +9714 3681975

Edward James, Head of MEED Insight, [email protected] +9714 3671231

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Contents

Introduction

The Past: the boom years 2004-2008

The Present: coming back to Earth

The Future: a promising outlook

Project opportunities

Conclusions


MEED Projects The majority of data from this presentation is taken from MEED Projects, MEEDs proprietary online database of all major projects in the Middle East.

MEED Projects is updated daily and currently tracks more than 3,000 projects totaling more than $7 trillion across the region. For more information on this service, please visit www.meedprojects.com


The Boom Years2004 - 2008

The Boom Years 2004-2008The five years up to the end of 2008 marked an unprecedented period of growth for the six GCC statesSource: MEED ProjectsThe UAE was the clear hotspot for project activity but Qatar and Saudi Arabia were also important. Spending spree took off in 2005

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Real estate was the clear winner in terms of sector spendingDubais 2002 decision to allow non-GCC nationals was catalyst for real estate boom and was copied by some other GCC states, although to a lesser extentInfrastructure spending also high as governments improved transport links and adjusted to higher population levels

Source: MEED Projects


Direct correlation between oil price and growth in GCC project activitySource: MEED InsightAlongside real estate speculation, the high oil price was the principal driver of project market growth


Other shared drivers of demand

Real estate and high oil revenues were the primary contributing factors to the project boom. But there are others too:

Undeveloped infrastructure especially in transportation sector, and roadsA new generation of leadership committed to diversification and modernisation of the economyThe relative failure of previous oil booms and the oil crash of 1998 Fast-growing population and the need for greater utility and housing capacity

Apart from real estate, the other project drivers still remain


The Bursting of the Bubble?

The bursting of the real estate bubbleAt its peak in March 2009, the GCC project market was worth $2.6 trillion. Today, we value it at $1.9 trillion. However.apart from the UAE, the rest of the GCC has not been so affected


A massive number of Dubai projects put on holdOn hold projects now nearly double those under construction. ome 40 per cent of UAE projects on hold or cancelled


Considerable uncertainty whether these will proceed


Abu Dhabi has been far less impacted than DubaiAbu Dhabi clearly less troubled by economic crisis. Capital is expected to overtake Dubai in terms of construction activity over coming five years. However, concerns remain over real estate



Material prices have dropped dramaticallySource: Davis Langdon research for MEED


The bubble only burst for someClearly an issue with the UAE projects market, but the rest of the region has escaped relatively unscathed. Kuwait and KSA least affected



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There has been a sharp fall in construction activity, but overall spending has been less impactedSource: MEED Projects


Indeed it is largely business as normal in other sectorsDamage outside construction sector is comparatively small



Spending on strategic sectors remains relatively stable or has even increased

No indication of that spending on key sectors is going to reduce thanks to continued population growth, high oil prices and increased demand for utilities



Indeed KSA projects market bucked the global trend last year

While UAE projects market has collapsed, KSA actually doubled in size last year! Clear to see that other GCC markets remain small in comparison to UAE and KSA



However, for now the UAE remains the busiest project hubSource: MEED Projects


But in terms of un-awarded projects Saudi Arabia is the new leaderSource: MEED Projects

UAE projects market will continue to contract while KSA market will continue to grow


Future Outlook

Kuwait and Saudi Arabia have the largest capacity for growth in projects marketIn contrast, Qatar and the UAE have probably already passed their project activity peak



Construction is still the main sector


Only in Qatar is construction not the largest sectorSource: MEED Projects


The greater Middle East also hold a lot of promiseSource: MEED ProjectsThe wider region clearly represents an opportunity


Other reasons to be hopefulGovernment budgets are up on 2009 expenditure

Saudi Arabia $144bn (+14%)Kuwait $56bn (+33%)Qatar $32bn (+25%)Oman $19bn (+12%)

The high oil price has allowed governments to set more ambitious budgets and ensure an expansion of their capital investment programmes.

All told, there will be more than $35bn worth of government spending in the GCC this year compared with 2009


Saudi Arabia - outlook is very brightActual awardsForecastSource: MEED InsightThe crucial element for the forecast is for the oil price to remain above $50 a barrel


Forecasted project pipeline is very healthySource: MEED InsightOur forecasting takes in to account delayed and cancelled projects and provides a more realistic picture of future project activity


Saudi project opportunitiesFast-growing population means government has to diversify economy. Six economic cities will require more than $100bn of investment to provide homes and jobs for local nationals

Ambitious rail and airport plans to improve transportation links

Three new world-scale refineries and worlds largest crude increment plan

More than 3,000 MW a year of new power capacity required for the next 10 years

Plans to build wastewater facilities in every major city

Project market driven by necessity as much as capacity


But .a word of cautionSince Dubai real estate collapse, regional contractors have all been targeting KSA, but reality is that it is hard to compete against local firms. Contractors who want to win work in KSA will have to team up with a local partner or look for subcontracting work. Kuwait is a similar story


Kuwait a sleeping giantDespite its wealth, state has yet to get going. Signs are now that it is finally preparing to develop its potential with new 5-year, $100bn investment programme.

Major projects include:

Subiya Causeway - $3bnExpansion of airport - $2bnNew Kuwait University Campus - $3bnDevelopment of Failaka island - $3bnNew Bubiyan Port - $3bnNew Al Zour refinery - $12bn

Non-local contractors can only bid on largest projects but still plenty of opportunities


Iraq a less hostile environmentIraqs infrastructure is in ruins. The award of permits for 10 major field developments will soon see Baghdad producing more than 6 million b/d of oil and earn significant amounts of revenue.

Local contracting capacity is limited and international expertise is required

Contractors already entering the country to help the IOCs

A massive amount of work required ranging from railways and refineries to sewage treatment plants and new housing stock.

Iraq will become a hotbed of contracting activity over next five years


ConclusionsAfter an unprecedented boom between 2005-2008, the GCC projects market is now in a period of adjustment.

Clearly, real estate will not provide the same number of opportunities as before and Dubai is unlikely to see the same amount of activity

However. the other drivers that have pushed the project market remain. High oil prices, strong population growth and a commitment to diversification and modernisation ensure that there will continue to be opportunities in the GCC and the wider region as a whole

Infrastructure, transportation, utilities and hydrocarbons in particular will see significant investments over the next 10 years

Contractors which can operate across sectors and which can tap into new markets will be the most successful


MEED Insights GCC construction market survey

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the meed view of the gcc construction market 2010

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