May 23 2012
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Deloitte Report: Major construction opportunities valued at US$ 500 billion in GCC
Key findings in the Deloitte report indicate that large infrastructure projects, particularly around social and transport infrastructure, will offer tremendous opportunities for contractors, as will continuing upstream and downstream oil and gas related developments in the coming years. Cemented as a trusted advisor to a large number of clients throughout the Middle East construction industry and supply chain entities, Deloitte is uniquely positioned in this report to analyze the impact of the global financial crisis on the GCC construction sector, particularly regarding current projects.
Of the biggest investments currently underway is Qatar's plan to spend US$ 100 billion in preparation for hosting the 2022 World Cup and achieving its 2030 vision, and Saudi Arabia's capital spend program approaching US$ 400 billion over the next 10 years alone. The Deloitte report indicates that although there are massive opportunities associated with huge construction spend, many project sponsors still have to deal with illiquid projects and debt.
The 'GCC Powers of Construction' series is an annual report issued by Deloitte Middle East. The 2012 edition provides a collection of unique perspectives on the underlying issues that have challenged the GCC's multi-trillion dollar construction industry, and how these challenges have been overcome by some of the largest and most sophisticated businesses in the region.
The Deloitte report is produced based on data gathered from surveys and internal data, supported by interviews with some of the most prominent industry leaders from the region, to understand and leverage how they have progressed their businesses through these difficult times and how they have managed to create a stable foundation to move forward.
Backed by vast oil-based reserves and government stimulus packages, the economic prospects of the GCC region have remained positive despite ongoing political unrest in the wider Middle East region. As such, efforts to maintain a balanced and diversified economic base have remained the primary focus of the regional governments as evidenced by a steady stream of investments into construction and infrastructure developments. The Deloitte report indicates that there is at least an estimated US$ 500 billion investment opportunity regionally, in energy, transportation, education, healthcare and other critical sectors of economic development.
The oil and gas exporting countries, such as Saudi Arabia, Qatar and Abu Dhabi, have an additional objective which is the need to diversify their economies away from the traditional petrochemical and hydrocarbon industries. This is also driving infrastructure spending in these countries. These countries are now looking at how to take advantage of existing strengths to develop upstream industries - and the focus has shifted to construction, according to the Deloitte report
"The region certainly is expected to continue to offer a lot of opportunity for contractors," says Cynthia Corby, audit partner Deloitte Middle East and leader of the Construction industry for the UAE. "Construction contracts alone, worth US$ 40 billion were awarded to contractors in the first quarter of 2011, 47 percent of which were in the energy sector. It is interesting to note that despite such grand investments, governments are still trying to recuperate from the impact of the financial crisis," she added.
The Deloitte construction industry report indicates that there are vast opportunities across the Middle East, with longer term infrastructure investment plans for the region estimated to be in excess of US$ 1 trillion. This figure, as research shows, may continue to rise as governments assess the impact of the Arab Spring on priority investments. In addition, the uprisings have been credited with positively influencing infrastructure investment, forcing governments to accelerate spending programs in order to meet citizens' higher expectations. In terms of projects in the pipeline across the Middle East, the majority are social (36%); 29% power-related; 13% in transport and 13% in oil and gas.
Saudi Arabia, forecasted as most buoyant construction market globally
The Deloitte report shows that there is imminent growth in the Saudi Arabian construction industry, being the biggest market in the GCC in terms of population and GDP. Budget value of contacts to be awarded in Saudi Arabia in 2011 onwards is set to increase to US$35 billion, as compared to US$25 billion in 2006. The Government is undertaking grand investments, with plans nearing US$400 billion in five years, demonstrating an increasing trend of projects that will need to be awarded in the coming years ahead. These will include building schools, hospitals, universities, houses, airport expansions, and new railway infrastructure and road improvements. This construction market is therefore expected to be one of the most buoyant in the world.
The immediate challenge that the Kingdom faces is how to implement the various capital investment programs and to ensure efficient delivery whilst containing inflationary pressures that are challenging the region as a whole. However, the lower global demand in some locales for construction products together with foreign companies shifting focus to countries such as KSA should provide some buffer against inflationary pressures, as per Deloitte's report on the GCC construction industry.
Qatar, fastest growing economy in GCC
The Deloitte report classified Qatar as the fastest growing economy in the GCC region and holding an 8 percent share of the total value of the regional projects. In terms of its construction industry, its value was forecasted at approximately US$ 8 billion in FY11. Projects planned to be underway in Qatar in the future are valued at approximately US$ 230 billion; with the hosting of the 2022 FIFA World Cup positioned to be a truly major enabling event for the future development of the country and achieving its vision for 2030. Therefore sport will be a key element of the construction industry boom, in the non-oil and gas sector, with investments allocated to hotel, leisure, tourism, sports, recreational and infrastructure projects estimated at US $60-70 billion.
Abu Dhabi, leads share of US$ 20 billion contracts awarded
The UAE is ranked as the second largest market with investments worth US$ 9 billion allocated to buildings, infrastructure and energy sectors in the first quarter of 2011 as the Deloitte report indicated. Despite the regional unrest and the public slowdown of projects in Abu Dhabi in 2011, the UAE has overall demonstrated some key elements of stability. Abu Dhabi, in particular accounted for 70 percent of the total US$ 20 billion of contracts awarded between Q1 and Q3 of 2011. Driving this growth, with over USD$ 12 billion in awarded contracts, the Emirate is placing particular attention on transport, utilities and social infrastructure.
In addition, according to the Deloitte report, the Abu Dhabi government has a long term investment program to upgrade its airports, seaports and public transport system to cater to the growing population. In addition, approximately US$ 2 billion has been allocated towards an integrated housing project on the outskirts of the capital to improve the imbalances within the residential market.
The report, 'GCC Powers of Construction' further assesses other markets in the GCC, looking at challenges and opportunities for each. Issued annually, it serves as a comprehensive review of the construction industry for leaders. To read the full report, visit 'GCC Powers of Construction Report'.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte's approximately 182,000 professionals are committed to becoming the standard of excellence. Deloitte's professionals are unified by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to each other, and strength from cultural diversity. They enjoy an environment of continuous learning, challenging experiences, and enriching career opportunities. Deloitte's professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities.
About Deloitte & Touche (M.E.):
Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the first Arab professional services firm established in the Middle East region with uninterrupted presence for over 85 years. Deloitte is among the region's leading professional services firms, providing audit, tax, consulting, and financial advisory services through 26 offices in 15 countries with over 2,500 partners, directors and staff. It is a Tier 1 Tax advisor in the GCC region (International Tax Review World Tax 2010, 2011 and 2012 Rankings) and was recognized as the 2010 Best Consulting Firm of the Year in the Complinet GCC Compliance Awards. In 2011, the firm received the Middle East Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW).
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