10 July 2015

Infrastructure boom heralds a decade of potential

A massive programme of major projects, worth around USD4.3 trillion, according to MEED Projects, is underway in the Middle East and North Africa.

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According to MEED, the Middle East business insight service, nearly 80 per cent of the money being spent on projects in the Middle East and North Africa (MENA) is on infrastructure schemes, covering transport, power and water, and social infrastructure.

The reason? A rising population of young people that has "triggered the destabilisation of several states over the past three years, and will continue to undermine political stability unless governments can deliver improved living standards, job opportunities and the security that their citizens demand.*

While there's a general urgency to build better transport systems, schools, hospitals and housing, each country has its own needs and has developed specific programmes to address those needs.

Tim Evans, HSBC's Regional Head of Global Trade & Receivables Finance, takes a look at key developments across the region. 

"Saudi Arabia is by far the biggest opportunity; just look at the magnitude of the projects. Out of a regional total of roughly USD168 billion-worth of project contract awards this year, 55 to 60 per cent of that is in Saudi Arabia, where the USD22 billion Riyadh Metro and the USD93 billion King Abdullah Economic City are huge market-drivers. In second place is the UAE, followed by Qatar, Kuwait and Oman."

This year, though, other countries have started to emerge. Egypt has a backlog of unawarded projects worth around USD150 billion, which promises potential for companies, providing investor confidence returns. Planned major projects include housebuilding, developing Cairo's metro system, modernising and expanding the country's rail network and a proposal to expand and develop the Suez Canal and surrounding land over the next 20 years.

And in Algeria, oil and gas revenue has enabled the government to embark on some of the most ambitious public infrastructure development programmes in the region. Flagship projects include the Algiers Metro, a 1,216km motorway linking the Algerian borders with Tunisia and Morocco, and the construction of a million houses. Electricity production is also planned to double by 2017, and six new refineries are to be built by 2018 along with petrochemical complexes and a renewable energy programme.

In Bahrain, despite – and to address – the country's unrest, Manama is spending on transport, utilities and social housing. The GCC Development Fund is providing Bahrain with a 10-year, USD10 billion financing package to support crucial infrastructure.

Projects include the expansion of the international airport and the Khalifa bin Salman port, a rail network to link with the GCC network, improved road networks and upgrading of the country's overburdened wastewater treatment plants.

While the need is definitely there, Jordan and Lebanon are struggling to provide for their growing populations, swelled by a total of more than two million Syrian refugees. Jordan has no significant oil production, so overhauling subsidies, support from the GCC and private sector investment are seen as key for rail and port developments. Lebanon is moving ahead with a highway project, but is bedevilled by infrastructure bottlenecks and frequent electricity blackouts. Plans for public-private partnerships have not advanced, with the framework PPP law still awaiting approval.

While the concept of an infrastructure boom implies opportunities will be short-lived, Tim Evans foresees a lengthy period of activity.

"A lot of these schemes are not overnight projects," he says. "Once you decide to build a metro, it's an eight- to 10-year project. There will be a large number of projects under way over the next decade.

"And infrastructure is not just limited to building a metro system, for example. You also have to import the rolling stock; you have to bring in the power systems; you have to get the air conditioning system in, and so on. So, infrastructure investment is a strong driver of regional trade flows."

The day-to-day challenges for the region lie in under-resourced project management and an overstretched supply chain. The MEED report suggests the programme is already overwhelming the region's construction sector, and sees delays in delivery and rising costs because of poor coordination and project management.

So, with resources and talent in short supply, there are significant opportunities for local and international companies to get involved in everything from consultancy to materials supply.

* Middle East Infrastructure 2014 (MEED)

Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article.

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