Projects worth $610bn under progress in Gulf |
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Of the current $2.1 trillion (Dh2.1trn) of projects in the GCC, some 29 per cent ($610bn) are already under way, with the remainder at the planning stage.
The majority - some 73 per cent - of all developments are civil construction-type projects. This emphasises the sector's crucial role, not just in developing the region's future, but in the GCC's recent economic performance as well, according to a recent report from National Bank of Kuwait (NBK) entitled "Downturn weakens outlook for GCC project spending".
UAE and Saudi dominate
The UAE accounts for by far the biggest share of project activity totalling $929bn and affirming its position as the leading GCC country in attracting capital investment. Some 81 per cent 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 worth $224bn, which is 28 per cent 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," said the report.
"The higher value of non-construction-related projects in Saudi Arabia stems largely from the petrochemical, power and utilities sectors, where, at a combined $127bn, the value of its projects are 35 per cent larger than in the UAE," it said.
The overwhelming balance of non-construction-related projects in other GCC countries comes in the oil and gas and power and utilities sectors, the latter reflecting the growing power needs.
NBK said 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 per cent precise," said the report. It draws data from the projects database of the Middle East Economic Digest (Meed) for its analysis.
As of end Q2 2009, the database reported $2.1trn 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 $55,000 for each inhabitant.
"Although time series data is not easily available, what 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 cent per year from $490bn in June 2005," said the report.
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.
Bias towards the sector
Three quarters of these construction projects are still at the planning stage, said the report. "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," it said.
"The value of projects in the region's all-important hydrocarbon sector, for example is some $236bn, of which more than one-third is under way. 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. Despite the economic downturn, the Gulf still has an estimated $2.1trn major infrastructure and industrial sector projects in place. Around a quarter of these have actually begun, with the rest at various stages of planning. Civil construction projects (mostly real estate) account for the bulk, reflecting the relatively narrow industrial landscape. The UAE is the most popular destination, though not for all types of projects, according to the NBK report.
"The turbo-charged economic performance enjoyed by the Gulf for much of the past half-decade has been closely associated with massive and ambitious infrastructure development plans - ranging from the tourism and real estate sectors to oil and industry.
"As the economic environment has deteriorated, however, the fate of many of these plans has become much less certain," said the report. "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."
It added: "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 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 for just one year at a time and are usually fairly certain to be implemented," said the NBK report.
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 a project already planned for 2012 is $4bn.
"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," said the report.
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," said the report.
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