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United Arab Emirates Infrastructure Report Q3 2011
Business Monitor International, June 2011, Pages: 77
Business Monitor International's United Arab Emirates Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on United Arab Emirates's infrastructure industry.
BMI View: We have revised our 2010 estimates slightly and are pencilling in near zero growth and a moderate rise in nominal industry value for the UAE’s infrastructure sector. Steep deflation in the construction sector over 2009 – due to a fall in raw material and labour prices – has distorted real growth figures for the year..We anticipate that 2011 will be the year the UAE’s industry shakes off the effects of Dubai's downturn, and the value of the infrastructure and construction sector returns to a normalised growth trajectory. Growth will be moderate and sustained mainly by investment in Abu Dhabi.
Our core views regarding the UAE remain the same. While we have become more bearish in our estimates, we still maintain that the fundamental driver of growth will be Abu Dhabi. We also believe there are opportunities for continued growth in water, power and large industrial construction. South Korean firms have established a strong presence in the UAE and recent moves have ensured that they have strengthened that foothold.
- The joint venture (JV) between Russia's Inter Rao and UAE-based Crescent Investments creates another player that will have the technical prowess and financial muscle to compete for a slice of the Middle East's US$131bn power project market.
- Abu Dhabi-based energy firm Masdar has secured US$615m of bank financing for its Shams 1 concentrated solar power (CSP) project, which will be one of the world's largest solar plants as well as the first of its kind in the Middle East.
- The tender for the Midfield Terminal at Abu Dhabi's International Airport has been released. This tender was one of the most eagerly awaited in the UAE and the progress of the project reinforces BMI's view that the strength of Abu Dhabi's infrastructure will greatly enhance the prospects for the regional market.
- The Mafraq-Ghweifat highway public private partnership (PPP) hangs in the balance at time of writing, with reports in MEED that the government of Abu Dhabi is considering alternative procurement methods. This is the first PPP of its kind in the UAE, and the cancellation could be a blow for the prospects of major transport PPPs.
In BMI’s Q3 UAE Infrastructure Report we have maintained the same construction industry value forecast for 2011 (AED69.2bn) as last quarter, but because BMI’s inflation forecasts for 2011 have been revised downward our real growth rate has increased from 2.8% to 3.5%. This growth will be fuelled largely by Abu Dhabi and to a lesser extent by transport infrastructure projects in Dubai, such as the Green Line metro project, the Al-Maktoum International Airport and the expansion of Dubai Airport. However, the collapse of the Dubai property market is still leaving a mark on the construction companies most active in the emirate. Australia’s Leighton had to take a US$535mn impairment charge in the value it carried for Al Habtoor Leighton (it’s ME JV) on its books.
Official annual data for 2009 are yet to be published, but a study from the Abu Dhabi statistics centre found that steel prices in Abu Dhabi witnessed an average decline of 44% and concrete prices fell by 13.5% over 2009. This reinforces our estimates for 2009, which indicate that construction industry value real growth slowed quite abruptly.
The Risk/Reward score in BMI’s Middle East Business Environment Ratings for the UAE remains favourable, in spite of the fall in the score for Industry Rewards following the downgrade in forecasts. On a structural level, the development of the emirates’ infrastructure has left a highly positive legacy, having promoted sophisticated local players and a highly competitive base which is ripe for development, a factor that is quantified by very strong scores for the Industry Risks category.
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