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Project Slowdown

Gulfs states awarded much fewer projects in the second quarter as the initial euphoria of economic stimulus gave way to the cold hard reality of tough lending conditions, market lethargy and planning delays.

While Gulf governments have been quick to allocate sizeable monies for development and improvement of infrastructure, the projects pipeline has not flown as quickly.

This was partially expected given that it takes time to develop project scopes and bids and bring together various project players, especially for large projects.

Projects awarded in the second quarter of the year fell by 43.3% to hit $22.2-billion, according to EFG-Hermes, with Saudi Arabia and Qatar leading the way.



Saudi Arabia accounted for nearly 30% of the projects being awarded in the Gulf in the second quarter.

"Project awards were scheduled to be less in Saudi Arabia in 2Q2011, and were also delayed in being awarded. Nevertheless, Saudi Arabia saw a 49.5% Y-o-Y increase in project awards in 1H2011," says EFG-Hermes.

Qatar appears to have moved away from gas development and focused on awarding contracts in infrastructure and construction, in line with the country's 2011-2016 Development Plan goals.

"Solid project activity is adding to credit demand in Saudi Arabia and Qatar. In the latter, the nature of current and likely medium-term project activity, infrastructure and construction, should require greater domestic funding from the previously gas-focused investment programme, says EFG-Hermes. "For Saudi Arabia, we see an acceleration in investment spending creating additional demand. Both Qatar and Saudi Arabia have seen a pickup in corporate credit growth in 1H2011."



UAE Leads, But Not Dubai

It was surprisingly the UAE that had the best showing. Abu Dhabi led project activity with nearly $10.3-billion worth of projects awarded in the second quarter. Mubadala's Advanced Technology and Investment Company (ATIC) announced a $6-billion semiconductor factory, leading to a 62.7% jump in quarter-on-quarter growth in the country.

Meanwhile, a mere $475-million worth of projects were awarded in Dubai, a far cry from the heydays when the emirate led the region in project development.

According to Citibank estimates close to $800-billion of projects are on hold in the UAE, much of it in Dubai. In addition, a little over a $100-billion worth of projects have been cancelled.

Poor Showing

The other Gulf countries appear to be beseeched by their own set of troubles in the second quarter of 2011, which saw them contribute little to the project pipeline.

Bahrain's well-documented political woes meant that the country was too distracted to award new contracts. Still, the government managed to eke out $600-million worth of contracts in the second quarter, down 24%.

"We expect delays in project implementation and awards to continue into 2H2011. The government is looking to push ahead projects as well as devise a new investment programme to revitalise the economy. We believe that any activity linked with the latter is unlikely to occur in 2011."

It was however, Kuwait that saw a virtual freeze in project awards, down 87% during the second quarter. EFG-Hermes blame political deadlock for the main reason for the complete lockdown in new projects.

Kuwait has billion earmarked for projects ranging from energy to infrastructure, but they have fallen victim to the political paralysis that has plagued the country.

"We continue to see political developments as a hurdle," says EFG-Hermes. "The Supreme Petroleum Council approved of several projects in 2Q2011, including refining, but some must be approved by parliament."

Oman fared no better, with project awards down 84% in the second quarter, as the government hunkered down in the midst of domestic unrest and various changes within government circles.

Saudi Dominance

Most analysts expect to slowdown as well given nervousness in global credit and financial markets and the onset of Ramadhan in August.

However, Dow Chemicals and Aramco started the third quarter on a positive note by agreeing on building a $20-billion chemicals complex in Jubail, with construction expected to start 'immediately'.

Saudi Arabia is expected to dominate project development in the foreseeable future. The Kingdom has awarded 37 projects year to-date at a value of 411.4-billion, making up a major chunk of Gulf markets, and 25% of the wider MENA market.

"At $220bn Saudi Arabia accounts for 36% of the circa $628bn project pipeline across the main MENA construction markets," says Citibank. "This is up 26% from our last report in May. Saudi Arabia also has over $180bn of projects in the early development (pre-pipeline) stages. We thus believe Saudi Arabia will continue to dominate the MENA construction landscape. However, entry to this market remains challenging given domestic player and Korean contractor dominance, as well as prohibitive licensing requirements. We believe foreign entry needs to be via domestic partnerships."

© alifarabia.com 2011