Building new economies

01 February 2010

The Middle East construction boom is transforming not only the landscape of the region but also its economy as Gulf states diversify away from hydrocarbons.

A passenger touching down at a Gulf airport for the first time would be forgiven for thinking they had landed in the middle of a building site. The 45-minute taxi ride from Dubai International Airport to one of the Marina beach hotels, for example, starts at an airport being expanded, passes through scores of road works, 30 kilometres of metro works, and hundreds of tower blocks rising from the sand.

Similar levels of mega-project development are found in other regional centres, such as Doha and Abu Dhabi. For the region’s governments, these unprecedented levels of construction are more than just business opportunities for consultants, contractors and suppliers. They are concrete proof of their investment in the future.

Building boom

The current building boom may only be five or six years old, but mega-projects are not a new phenomenon. In the late 1970s, Dubai began work on Jebel Ali port, which remains one of the world’s largest marine projects. In 1983, Saudi Arabia’s Jubail industrial city project was cited in the Guinness Book of Records as the largest engineering and construction project ever attempted it attracted more than $64,000 million worth of investment over 25 years. Without oil, none of these projects would be possible.

Dubai’s former ruler, Sheikh Rashid bin Saeed al-Maktoum, is said to have planned major infrastructure projects for the emirate in the 1950s, but until oil was found in 1960, many of his plans were never carried out.

Naturally, the first major projects were built to support the oil and gas industry itself. Pipelines, refineries and housing complexes were built to ensure that the black stuff kept coming. It was not until 20 years ago that investment began to be pumped into industrial infrastructure and the development of new urban areas in Saudi Arabia, Kuwait, Qatar and the UAE.

This has accelerated over the past decade. Investment across the Gulf has completely changed the geography of the Middle East. In the 1950s, the region’s urban areas were almost exclusively confined to North Africa and the Levant. Although ancient cities such as Cairo still dwarf these centres, these new cities are among the most prosperous in the world.

Today, investment in projects continues as the next generation seek to capitalise on sky-high oil prices and diversify their economies away from a reliance on hydrocarbons.

Dubai has led the way. By investing heavily in hotels, commercial centres, business parks and industrial estates, the emirate has successfully broadened its economic base. Projects such as the Burj al-Arab and Palm Jumeirah have established the emirate as a tourist destination, while Dubai Internet City, Dubai International Finance Centre and Dubai Industrial City have had a similar impact on the technology, financial and industrial sectors.

‘We have succeeded in diversifying Dubai’s sources of income and reduced dependence on oil such that oil’s contribution to GDP is a mere 3 per cent,’ said UAE Vice-President, Prime Minister and ruler of Dubai Sheikh Mohammed bin Rashid al-Maktoum at the launch of the Dubai Strategic Plan 2015 in February this year.

Island development

Encouraged by Dubai’s transformation, other governments around the Gulf are investing in sectors unrelated to hydro-carbons. In Muscat, the Omani government wants to capitalise on the sultanate’s mix of beaches, mountains and desert as its reputation grows for offering an authentic Arabian holiday.

To develop the tourism sector further, Muscat launched the $800 million Wave offshore island development in 2004, and in 2005 launched the even larger $15,000 million Blue City project. Construction work on the projects has started and both should be ready for visitors by 2010.

In Bahrain, the aim is to mix business with pleasure. The kingdom is building Bahrain Financial Harbour and Bahrain Bay to consolidate its position as a regional financial centre. But it is also investing in tourism, with projects such as the $1,500 million Amwaj islands and the $3,000 million Durrat al-Bahrain.

In Doha, finance and tourism are also on the agenda. Qatar is building a $5,000 million airport that will act as a hub for its carrier, Qatar Airways, which aims to bring more visitors to the state. For finance, Qatar Financial Centre has been built and new business districts are planned in downtown Doha.

On the tourism side, construction on the Pearl-Qatar is well advanced and infrastructure works are about to start at the $5,000 million Lusail residential development to the north of Doha.

A much-needed emphasis has recently been given to the education sector. Qatar Foundation for Education, Science & Community Development has launched projects to develop education, technology and healthcare. Construction is already well under way on the Education City and Qatar Science & Technology Park, and tenders have been issued for the $1,000 million Sidra Medical & Research Centre.

Even oil-rich Abu Dhabi is building a series of multi-billion-dollar projects aimed at developing its tourism potential. These include the $40,000 million Yas island, the $27,200 million Saadiyat island, and the $14,700 million Al-Raha Beach.

These developments will be linked by a series of bridges and highways with a commercial centre built on Suwwa island and the old port area to the north-east of Abu Dhabi island.

In Saudi Arabia, construction projects have a different rationale. Instead of the ‘build and they will come’ approach made famous by Dubai’s Sheikh Mohammed, the dynamics of development are different for a kingdom with a population of nearly 24 million.

People need homes to live in and jobs to go to. To this end, the government, with the help of the private sector, has launched a series of projects aimed at creating commercial and industrial centres together with vast housing estates.

Projects include the six economic cities: King Abdullah Economic City near Rabigh, Prince Abdulaziz bin Mousaed Economic City in Hail, Jizan Economic City and Medina’s Knowledge Economic City, together with sites at Tabuk and in the Eastern Province (see feature, page 51).

Industrial development will continue to create further jobs. Earlier this year, the Royal Commission for Jubail & Yanbu (RCJY) kicked off development on the $56,000 million Jubail 2 industrial area that will create 55,000 new jobs.

Railway projects

A series of rail links are planned to connect these developments and enhance trade flows. The grandest is the proposed GCC rail project, which will have 16 lines including a route from Iraq following the Gulf coast through Kuwait, eastern Saudi Arabia, the UAE and Oman, with the potential for spur lines to Qatar and Bahrain. Other routes include a line from northern Syria along the Red Sea coast to Yemen.

These lines will connect a series of rail schemes across the region.

In Saudi Arabia, plans are moving ahead on the Mecca-Medina rail link, the Landbridge project and the North-South railway, which will also serve the interests of the Saudi Arabian Mining Company (Maaden).

Plans are also being drawn up in the UAE for an inter-emirates rail link running from Ruwais through Abu Dhabi to Dubai and the Northern Emirates, and over the Hajjar mountain range to Fujairah.

Abu Dhabi is also planning its own light rail system for Abu Dhabi island commuters.

The challenge for companies working across the Gulf is meeting the demands placed on them by governments.

Experience from Dubai shows that the supply chain can be remarkably elastic. But, inevitably, that elasticity comes at a price. Developers complain that contractor margins have now reached unacceptable levels and costs for basic materials, equipment and services continue to rise (see feature,page 65).

As development in other markets begins to accelerate, this inflation will inevitably be exported across the region.

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