Investments on key airports must proceed

05 January 2016

Budget cuts must exclude projects that could help expand non-oil GDP

The Mena region is divided between small countries that have big and profitable airlines, and large countries with struggling airlines.

With few exceptions, the same could be said of the existing airport infrastructure.

Most airport facilities outside of Dubai, Abu Dhabi and Doha need upgrading to cope with rising passenger traffic and adopt more modern security and IT infrastructure to improve their operations.

The significant budget cuts that have been announced or are anticipated across the GCC states in response to lower oil revenues, however, inevitably threaten continued investment in transport infrastructure in general, including planned airport expansion projects.

According to regional projects tracker MEED Projects, some $28bn worth of airport terminal and runway projects are scheduled for award in 2016. However, the value of annual airport project awards since 2006 averaged at about $4bn, also according to MEED Projects data. This means an assumption of $4-5bn contract awards could apply in 2016, or double that value if Kuwait’s $4.3bn Terminal 2 megaproject is finally awarded.

Some $3.9bn worth of projects is planned for award in 2016 by Saudi Arabia’s General Authority for Civil Aviation (Gaca) alone. This includes the international airport in Taif that will be developed on a public-private partnership (PPP) basis. Most of these projects, one can speculate, could be covered with ease by the $23.9bn infrastructure allocation in the kingdom’s 2016 budget, along with a select number of rail and road projects. But until the contracts are signed and formally awarded, and even without throwing in the vague plan to privatise the kingdom’s airports, uncertainty is expected to be the norm.

Uncertainty, however, should no longer be an option for the Kuwait airport projects, particularly for Terminal 2, which was retendered in early 2015. The main issue for the project it seems is not so much budget as the bureaucratic process within the state.

Kuwait’s airport has been operating beyond capacity and while it, like Oman, may not aim to duplicate the Dubai model, its airport’s current state strongly negates its status as among the richest countries in the world in terms of nominal GDP-per-capita.

Status aside, investments in the region’s aviation sector is also strongly vetted by advocates to produce long-term benefits such as jobs creation, transfer of expertise, and in sustaining the region’s key non-oil industries such as tourism and logistics.

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