A health warning: while the database attempts to track project developments in a comprehensive and timely way, the sheer scale and volume of the region's massive investment plans makes this a tough task. Large, complicated projects often have trouble sticking to their original schedules, making estimates of implementation and completion dates very uncertain. Similarly, keeping track of project costs is also especially difficult, particularly in an environment where capital costs are changing markedly - as they are in many sectors today. For this reason, the dates and numbers presented in the following analysis should be seen as indicative of broad trends, rather than 100 percent precise.

Also, the numbers presented here do not precisely equate to the 'capital expenditures' of a country or sector, such as might be presented in a government's budget or a firm's annual report. The latter tend to include all expenditures aimed at lifting future output, including for example, training and development expenses or purchases of productivity-enhancing machinery. The MEED database, on the other hand, covers mostly spending on plants, buildings and infrastructure. Moreover, project cost in the database reflects outlays expected over the entire duration of the project - often several years. Indeed, some may never be completed at all. The capital spending plans of governments and businesses, however, are often announced just one year at a time and are usually fairly certain to be implemented.

Current status of GCC projects
As of end 2Q 2009, the database reported a total of $2.1 trillion worth of projects in various stages of planning or completion across the GCC. This is an immense figure, worth two-to-three times the size of the region's expected GDP this year, and some US$55,000 for each inhabitant of the Gulf. Although time series data is not easily available, what there is supports the claim that there has been explosive growth in planned spending. The value of tracked projects has increased by an average of nearly 50% per year from $490 billion in June 2005. These figures include projects at all stages of completion - from the early stages of planning (the 'planned', 'feasibility study' and 'outline design' stages), to advanced stages of planning (at the 'invitation to bid' stage) and to those projects actually underway (where the main contract has already been awarded). The numbers exclude, however, projects that are currently on hold. Of the current $2.1 trillion of projects, some 29% (US$610 billion) are already underway, with the remainder still at the planning stage.

The overwhelming majority - some 73% - of all projects are civil construction-type projects, emphasizing the sector's crucial role not just in developing the region's future, but in the GCC's recent economic performance as well. ('Construction' here includes everything from houses, hotels, malls and offices to ports, bridges and railways.) Three quarters of these construction projects are still at the planning stage, suggesting that - if they are followed through - the medium-term outlook for the sector remains encouraging. By contrast, the amount of spending taking place in other sectors is relatively small. The value of projects in the region's all-important hydrocarbon sector, for example, totaled some $236 billion, of which more than one-third is underway. This bias towards the construction sector may partly reflect the region's underlying economic structure: a relative lack of opportunities in the broader manufacturing/industrial sphere leaves investment spending weighted towards buildings used by the service sector. Nevertheless, the absolute size of the construction sector's plans is impressive.

Saudi Arabia and the UAE dominate
The UAE accounts for by far the biggest share of project activity, totaling $929 billion and affirming its position as the leading GCC country in attracting capital investment.  Some 81% of Emirati projects are in the construction sector. Indeed, the construction sector dominates in every GCC country, though to a lesser degree. Interestingly, while the total value of projects in the UAE is far higher than anywhere else, Saudi Arabia has a much larger base of non-construction related projects - some $224 billion, which is 28% larger than in the UAE. This probably reflects the larger size of the Saudi economy in absolute terms, necessitating a greater degree of industrial diversification. The higher value of non-construction-related projects in Saudi Arabia stems largely from the petrochemical, power and utilities sectors, where, at a combined $127 billion, the value of its projects are 35% larger than in the UAE. The overwhelming balance of non-construction-related projects in other countries comes in the oil & gas and power & utilities sectors, the latter reflecting the region's growing domestic power needs.

Plans for mega projects
The data also reveal a sharp surge in the size of projects on average.  While projects planned to start in 2003 averaged less than $500 million, the average size of project already planned for 2012 is $4 billion. Admittedly, interpreting these numbers needs a little care. Some of the increase may have been due to rising project costs. More importantly, large projects tend to be announced furthest ahead of time, so average project size may be biased upwards the further ahead you look. But at least some of the rise seems likely to reflect the more ambitious nature of projects that have emerged over time. Table 1 shows the three largest projects captured in the database for each of GCC country. All but two of the projects are in the construction sector. The most ambitious (i.e. largest) projects are in the UAE and Kuwait, though the latter is boosted by the inclusion of the $77 billion Silk City project, which is still in the early planning phase.

Overall then, these data show that a huge pipeline of potential projects in the GCC remains, though largely in the construction sector and weighted towards the UAE. If executed as planned, the schemes would provide a major stimulus to the regional economy and help it pull through the current economic downturn. But in the light of a weakening growth outlook and credit constraints, a number of current investment proposals are likely to end-up being rethought. In the next GCC Brief, we will look at the separate roles played by the public and private sectors in undertaking these projects and how plans have been affected by the deteriorating economic climate of the past year

© Arab Times 2009

 

Community Comments (0) - Comment on this article

The opinions of the authors expressed herein do not necessarily state or reflect Zawya. Read our Comment Policy.

 

 

 

close x

Loading ...

 

close x

Report Abuse

Loading ...

 

 

close x

Loading ...