Ventures ONSITE, a product by Ventures Middle East, has been a market leader in tracking construction projects for more than 15 years. The subscription-based service provides in-depth and up-to-date coverage of key Middle East and North African (MENA) construction projects and information of companies and decision makers involved. In addition, Ventures ONSITE allows its users to convert the data into statistical charts and graphs, making it a critical decision-support tool for individuals, companies and organizations that directly or indirectly target the region’s construction industry.
Research Director Mibu John answered our questions about the key developments in the Middle East construction market, the factors influencing growth and the biggest challenges facing the industry today.
Q1. What have been the biggest developments in the Gulf Cooperation Council construction market over the past ten years? What are the key projects GCC governments are currently focusing on, and why?
Mibu: A lot has happened in the GCC especially in the construction market over the past 10 years. Some of the major developments in the GCC construction market during this period include the following:
- With a growing population and a shortage of affordable housing, the GCC countries have taken serious measures to improve the housing situation. All of the GCC countries have made affordable housing a national priority in their successive five year plans each year.
- Transport authorities in the GCC have started looking for alternative modes of surface transport and identified rail as a viable solution for the passenger and freight challenges confronting the region. The most ambitious project being the multi-billion dollar GCC Railway Network. There has always been major focus on transportation in the region, with some facilities being built ahead of demand as a way to attract new businesses into the region.
- GCC countries are now motivated to build metro rail networks not only to cope with their rapidly growing urban populations and increasingly congested roads but also to help sustain their economic development. Metro projects have been on the rise as demand accelerates for overbridges, roads, flyovers, interchanges and parking complexes that feed into the metro system.
- Despite the quest to support economic diversification through infrastructure investment, most of the large infrastructure projects in the GCC are dominated by the power, oil and gas and industries based on natural resources.
- The GCC has always been a tourist hub for pilgrims, international shoppers, and leisure travellers. In order to satisfy and sustain a large number of tourists, GCC countries have invested heavily in the development of airports, transportation systems, hotels, and retail & leisure sectors.
- In the wake of low oil prices, private sector involvement appeared imperative for the construction industry’s further development which is why PPP models to ensure project continuity and the restructuring of public sector spending commitments are said to be among the biggest developments in the GCC construction market.
- Green and Sustainable projects are gaining momentum.
Investments in the region’s infrastructure has enabled countries within the GCC to reap rewards such as winning the rights to host major world class events like the Fifa World Cup 2022 (Qatar), Expo 2020 (UAE) etc.
Key GCC Government Projects
Falling oil prices are forcing the GCC government to reduce its dependency on the oil & gas industry. The region's tourism industry is expected to boom in the near future, and rising demand is expected within the retail, hospitality, and infrastructure construction markets. Mega events such as the Dubai Expo 2020 and the FIFA World Cup in Qatar are ensuring the government places priority on developing projects related to the events. To cater to the affordable housing shortage, the government is also prioritizing meeting the demands of its growing population. Some of the major projects the GCC government is focusing on include the following:
- 500,000 Housing Units in Different Areas of Saudi Arabia - Client: Ministry of Housing, Saudi Arabia - Value (US$ Mn): 68,000
- Riyadh Light Rail Network - Client: High Commission for the Development of Arriyadh - Value (US$ Mn): 23,000
- Makkah Madina Railway Link (MMRL), Haramain - Client: Saudi Railways Organization (SRO) - Value (US$ Mn): 13,743
- Expansion of Makkah Holy Haram - Client: General Presidency of Holy Mosques Affairs,The High Commission For The Development of Makkah Province - Value (US$ Mn): 11,000
- Qatar National Rail Scheme - Client: Qatari Diar Real Estate Investment Company (QDREIC), Deutsche Bahn, Qatar Railways Development Company - Value (US$ Mn): 40,000
- Local Roads & Drainage Programme - Client: Public Works Authority (Ashghal) - Value (US$ Mn): 14,600
- New Doha Port - Client: New Port Project Steering Committee - Value (US$ Mn): 7,000
- Nuclear Power Plant in Abu Dhabi - Client: Emirates Nuclear Energy Corporation (ENEC) - Value (US$ Mn): 20,000
- Oman Khazzan Gas Project - Client: Government of Oman,BP Exploration (Epsilon) LTD, Oman (BP Global) - Value (US$ Mn): 16,000
- Kuwait New Refinery Project (NRP) - Client: Kuwait National Petroleum Company (KNPC) - Value (US$ Mn): 15,500
- Clean Fuels Project - Client: Kuwait National Petroleum Company (KNPC) - Value (US$ Mn): 14,000
- Al Zour North IWPP - Client: Kuwait Authority for Partnership Projects (KAPP),Shamal Az Zour Al Oula KSC, Ministry of Electricity & Water (MEW), Kuwait - Value (US$ Mn): 8,387
Q.2 What factors have influenced growth in the GCC power construction market? Are there any prevalent trends you’re noticing, and what do these mean for the region as a whole?
Factors influencing GCC power construction market:
Mibu: Strong economic and demographic growth, driven in part by the GCC economies’ highly energy-intensive industrialisation programmes, has led to a dramatic surge in power consumption. As the demand increases, GCC countries are also experiencing significant requirements for power sector infrastructure development. The GCC, which represents 47% or 148 GW of the current Middle East and North Africa (MENA) power-generating capacity, will require over US$300 billion by 2020 to meet its growing power needs.
Prevalent Trends and what it means for the region as a whole:
Most GCC countries have been introducing policies that allow the participation of power producers from the private sector, mainly in the construction of power plants. Example: The Saudi Arabian power sector has recently enabled the involvement of private companies in the power sector, within the framework of Independent Power Producers (IPPs). The 200 MW Mohammed Bin Rashid Al Maktoum Solar Park in Dubai is one of the first projects contracted under an IPP framework by DEWA. Bahrain, Oman, UAE, Kuwait and Qatar have involved private developers in power projects already. This trend towards increased participation of the private sector in GCC’s power sector has helped in the development of alternative energy sources, including renewable energy.
Several GCC countries have announced plans and targets for conserving natural resources, improving energy efficiency, and deploying renewable technologies. Solar power has received special focus, reflecting its high suitability in terms of resource availability, cost-competitiveness and matching regional demand patterns. Some of the projects worth mentioning include Mohammed Bin Rashid Al Maktoum Solar Park, King Abdullah City of Atomic and Renewable Energy, Shagaya Renewable Energy Complex, Masdar City, Nuclear Power Plant, Hydrogen based Power Plant and Coal Based Power Plants. This results in cleaner energy, technological uplift, capital gain and sustainability for the region.
Q.3 In what way has Qatar’s role in hosting the 2022 World Cup impacted the country’s construction industry? Will it influence the construction industry of other countries in the region?
Mibu: There has been a flurry of activity across the building construction sectors of residential, educational, commercial, healthcare, hospitality and retail segments, wherein the country is witnessing a sudden influx of population as the country gears up for the World Cup 2022. This is in addition to the planned developments within sports and recreation, parks and museums etc. The World Cup 2022 directly accounts for about US$ 10 billion of the US$ 200 billion development programme.
Qatar’s Public Works Authority (Ashghal) is playing a vital role in Qatar’s construction industry, awarding billions of dollars’ worth of new contracts in a bid to build up the state’s infrastructure in preparation for the FIFA World Cup 2022. Qatar is planning to build approximately 80 new hotels and hotel apartments over the next five years as the country prepares for the surge of visitors expected during the 2022 FIFA World Cup, which is driving the hotel pipeline. Within the GCC, Qatar is investing heavily in sports facilities ahead of the event. The government has allocated US$ 7 billion for development of sports infrastructure including the construction of new stadia. However, in the wake of low oil prices, while governments continue to spend on development and infrastructure projects, the level of this spending will inevitably be curtailed over the medium term.
Having two mega events such as Expo 2020 and FIFA World Cup 2022 in the Gulf around a similar time has the potential to increase prices, but this also results in a struggle for resources, availability of materials, skilled labour and growing opportunities for construction and related companies. There will be prospects for specialist companies from the region and outside – consultants, contractors, and suppliers etc. who can join hands with local companies in executing large and complex projects.
Q4. What are the biggest challenges facing the Middle East construction industry today, and how are market participants responding to these?
Mibu: The following factors have been considered as the biggest challenges facing the Middle East construction market:
- Volatility in oil prices: The impact of the oil price dip continues to be felt in the construction sector, forcing regional governments and project owners to delay, scale down or even cancel some of their projects. Slumping crude prices are forcing Middle East countries to finance projects with funding sources other than national treasuries and bank debt, including capital markets and private investment. A further drop in the price of oil could force governments to rethink their spending strategies.
- Lack of skilled manpower: Skills shortages have always been problematic for the Middle East construction industry. This is especially true today as construction companies continue to grapple with policies for the nationalisation of labour forces. The implications of shortages have led to delays in projects and increases in costs. In Saudi Arabia (KSA), recent crackdowns saw many migrant workers exit the country and resulted in outright shortages of labour. Meanwhile, in Qatar the availability of visas has been an issue for construction firms, running the gamut from skilled engineers to labourers. With many labourers arriving in the Gulf with little or no training in the construction field, companies are also having to take it upon themselves to provide basic training.
- Delayed payments: Slow payments have been a perennial problem in the Middle East construction market. As governments cope with reduced oil revenues, contractors may face even longer waiting periods.
- Contract disputes: The Middle East has become the world’s costliest market for construction disputes, with fallouts between contractors and clients involving bigger cases than anywhere else in the world, according to Arcadis. The average value of disputes in the Middle East increased by 7% over the past 12 months to US$ 82 million (Dh301.2m), putting it ahead of Asia (average dispute cost US$ 67 million). The average dispute in the Middle East took 15.2 months to resolve, which is close to the global average of 15.5 months.
Market participants are currently working towards mitigating these challenges. However, experts believe that in an economic environment impacted by the oil price, the market will continue to see a restriction in decision-making within the industry.
Q5. Outside of those you already cover, what other industries do you find interesting? Have you ever considered covering these?
Mibu: Ventures ONSITE, a product from Ventures Middle East, is a construction tracking portal monitoring all construction activities in the Middle East and North African (MENA) region. We cover new construction projects in various industries including Buildings, Industrial, Oil & Gas, Power & Water, Infrastructure and Marine. We recently launched a Hotel Refurbishment section within ONSITE which covers refurbishment plans and schedules for all Hotels in the region. This was one area where we identified lot of activity happening with a large number of companies vying for small to large contracts. We are interested in widening our coverage to other countries especially those within the African market.
As we can see from Mibu’s answers, there are a large number of construction projects within a variety of sectors currently underway in the Middle East. Some projects are a response to the region’s booming population while others are directly related to the hosting of international events such as the Fifa World Cup in Qatar in 2022. However, in order to ensure these projects are completed in a timely and financially sound manner, governments, developers and contractors need to effectively manage the region’s various challenges such as oil price volatility and shortages in skilled workforces.
We’d like to take this opportunity to thank Mibu for answering our questions and offering his expertise on this area.
About the Analyst:
Mr. Mibu John has been heading Ventures ONSITE for more than 15 years and is actively monitoring the construction activities across various industries - energy, buildings and infrastructure sectors in the Middle East and North African region. Ventures ONSITE is the Knowledge Partner / Research or Intelligence Partner for almost all the major construction related events in the region. Mibu John has contributed as an expert speaker for major industry and private member events providing insight into industry movements and trends. Mr. John has written many construction related reports and also is involved in supplying construction related articles and statistics to the press and media. Mr. John has also consulted with many large local and multinational companies in the construction industry in the areas investments, growth development, competitive, customer and market strategies.
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