Blog Details

Major shift towards construction and infrastructure development all across the GCC countries

TPCI_construction

Ever since oil first spurted from a well in Bahrain in 1931 and it was subsequently discovered throughout the Gulf, the focus in all the nations that are now called Gulf Cooperation Council (GCC) remained on ways to extracting oil, refining it and transporting it. With time, new technologies were introduced and the processes became more and more sophisticated. That helped the energy industry in the Middle East to grow to such a size that by 2013, according to the IMF figures, the income generated from it accounted for more than 60% of the GCC country’s fiscal revenues. According to a report, there are currently 456 active projects in the oil and gas sector in the Middle East, with a total value of around $540 billion. Though dependence on oil and gas sector still remains, as this continues to be the major source of wealth generation for the GCC countries, a major shift can be seen in focus towards construction and infra development all across the GCC countries.

The growth in the economy, due to sudden oil-begotten wealth, was so stupendous that for many decades the GCC countries thought of no other alternative source for wealth generation other than oil and gas. But things are changing now! There is an increasing concern now among the GCC nations to diversify their economies by developing alternative sources of wealth. These changing priorities are particularly visible since the fall in oil prices since 2014. The countries are fast realizing that they have to come out of their dependence on oil income; and the sooner it happens, the better.

Result:  construction and infrastructure projects today account for the biggest proportion of project spending in the region.  According to figures referenced in Deloitte’s GCC Powers of Construction, GCC nations combined together boast of a pipeline of construction, transport and energy projects worth $2.4 tn out of which active civil building projects requiring the latest PM technologies and techniques alone are worth $1.35 tn. Though there had been some drop in the construction activity when oil prices slumped, leading to severe cash crunch, this drop in prices led to increased realization that alternative avenues have to be found as early as possible.

According to a report, the Middle East’s thriving construction sector alone is expected to post an annual growth rate of 3.5 per cent over the next five years to place ahead of Europe and North America and third behind Asia. The pickup in oil prices since the middle of 2017 as a result of the agreement between OPEC and non-OPEC oil-producing countries to place a temporary cap on oil production has been a big catalyst for change. This is boosted further by the announcement of the new mega projects, particularly in Saudi Arabia, as part of its Vision 2030 economic restructuring program, but also in Abu Dhabi and Dubai and the rest of GCC countries. The construction and transport project activity is set to increase significantly across the GCC in the near future, with the return to spending on construction projects in Saudi Arabia in particular, gaining momentum.

Saudi Arabia’s wealth fund, the Public Investment Fund (PIF), has been slowly taking over the development of major infrastructure projects. Its portfolio includes the development of Entertainment City, Jeddah Waterfront, the Medina development, NEOM City and various other turnkey projects.

According to a report published in India’s premier financial daily, The Financial Express, “the Vision 2030, announced by the young Saudi Crown Prince Mohammad bin Salman, has a potential to expand the Kingdom’s economy through major changes and mega projects like NEOM, new railroads, airports and sea ports and Qiddiya entertainment city.” This is expected to open up new opportunities for Indian companies and professionals in various sectors including railways, hospitality, tourism, airport, housing, IT and entertainment. In recent past, Saudi Arabian General Investment Authority has issued more than 400 licenses to Indian firms and there is greater scope for Indian companies to participate in the high speed 450-km railway line linking Mecca and Medina and a new airport in Jeddah.

To tap into the $500 billion mega city projects launched by Saudi Arabia, representatives of top 30 Indian infra companies, housing and allied sectors are set to visit Saudi Arabia later this month, under the umbrella of the Ministry of External Affairs (Economic Diplomacy Division), the Indian Embassy in Saudi Arabia and Trade Promotion Council of India (TPCI), wherein “the industry honchos will interact with the key decision makers of the Saudi Government and business community.”  Some of these companies who are heading to Saudi Arabia to explore possible contracts and investment opportunities in the $500 billion futuristic mega city Project “NEOM” and the Red Sea Tourism Project include Hiranandani Group, L&T, Tata Projects, Afcons, Waaree, VA Tech Wabag, NMS Enterprises Ltd., Shalimar Corp Ltd., S3 Infrareality, ICMC Projects, Consistent Consultants and ACME Group.

Though Saudi Arabia is the unrivalled leader in shifting its focus towards generating alternative sources of wealth and consequently going for heavy spending in construction activities, other GCC countries are not far behind.

In Bahrain, projects worth $8.3bn are either in pipeline or are in design or prequalification phases.  Manama is utilizing money from the Gulf Development Fund, sovereign wealth fund Mumtalakat and the country’s pension fund to carry out construction activity. Kuwait too is spending KD2.5bn ($8.3bn) this year on the development of infrastructure, road networks, its new airport and power generation. Oman too has allocated projects worth RO12.5bn ($32.5bn) this year whereas $2.5bn worth of construction contracts are undergoing in the UAE.

In Qatar, the spending got impacted due to transport blockade but didn’t stop the Government from enhanced spending due to the Football World Cup. Apart from this, QR42bn ($11.5bn) has been allocated for infrastructure and transportation projects.

Scope that exists for Indian companies can be gauged  from the fact  that at the start of the current financial year, about $715 bn of construction and transport projects were under construction, or at the design or tendering stage in the GCC countries.  About $393 bn worth of construction and transport projects were under way across the GCC at the start of April 2018 and a further $322bn worth of projects were in pre-execution phase (excluding study).

Construction was the most active segment of the GCC projects market in 2017, accounting for 41 per cent of the $117.6 bn worth of main contract awards made across the region. This was followed by oil and gas accounting for 26 per cent while transport projects accounted for 12 per cent of main contract awards. This figure itself is enough to show the shift in focus all across GCC countries from oil and gas based economy to finding alternative sources of wealth generation.

0 0 vote
Article Rating

guest
0 Comments
Inline Feedbacks
View all comments