The rise of public-private partnerships (PPP) is one of the most strategically significant shifts in the business landscape of the Middle East since the nationalisation of the oil industry in the early 1970s.
The structural change in the oil markets over the past three years means governments in the region cannot continue to directly finance all of the huge infrastructure projects and public services needed to meet the needs of a growing population and expanding industrial base. As a result, the private sector is increasingly being invited to design, build, finance and operate state assets and services through PPP schemes.
Value of PPP projects in the Mena region
Number of PPP projects planned in the Mena region
Rise in value of Mena PPP pipeline over past 12 months
Value of PPP projects in Saudi Arabia
Value of transport PPP projects
Value of housing PPP projects
While offering exciting new opportunities for business and investors, PPP challenges the status quo. It requires a combination of political will, changes in procedures and commercially attractive contracts to make it happen. The most critical element of all is finding the right balance in risk allocation and reward for each stakeholder.
In its latest research report, PPP in the Middle East & North Africa 2017, MEED provides a comprehensive snapshot of the regions PPP market and looks at what lies ahead.
MEED estimates that the value of PPP projects planned or under way in the region as at the end of July 2017 is about $206bn from a total of about 156 projects. This represents a 116 per cent year-on-year increase on the estimated $95bn-worth of PPP projects in the pipeline at the same point in 2016.
With close to $42.9bn of PPP projects planned or under way, the biggest single market in the GCC is Saudi Arabia, which has put PPP at the heart of its National Transformation Programme. Kuwait has the regions second-biggest pipeline with about $30.5bn-worth of PPP projects planned or under way. The UAE is the third-biggest market with an estimated $19.4bn of PPP schemes planned.
MEEDs PPP in the Middle East & North Africa 2017 report
This article is an excerpt from MEEDs PPP in the Middle East & North Africa 2017 report. Click here to buy it
Outside the GCC, Morocco is the leading exponent of PPP with some $29.2bn-worth of PPP projects planned or under way. While Morocco has a strong track record, PPP projects have stalled in countries such as Egypt, Tunisia and Libya due to political and economic instability. Cairo and Tunis have taken measures to reinvigorate private sector investments.
Together, the transport and housing sectors account for about 75 per cent of the value of PPP projects planned in the region. The transport sector, including road, rail, aviation, ports and logistics, has the biggest share of the market, with $93bn-worth of projects (48 per cent of all PPP schemes). Housing PPP projects worth about $51bn are planned or under way. With about $30.6bn of projects, power, water and wastewater PPPs represent about 16 per cent of the market. This, however, does not include projects being procured as traditional independent water and power projects or independent power projects by electricity utilities.
Most GCC countries, except Bahrain, have introduced or plan to introduce dedicated PPP frameworks. Some of these countries have developed their own PPP laws and central units, which are responsible for awarding and managing PPP projects. Saudi Arabia and Kuwait have a central PPP unit. Oman is also expected to launch its PPP legal framework and a PPP central unit in the second half 2017. In the UAE, in the absence of a central PPP authority, individual public entities regulate projects in the respective sectors.
Dubai is the only emirate to have its own PPP law, which was enacted in November 2015. In May 2017, the UAE Cabinet passed a resolution on the PPP procedures manual, which will be used to draft a new federal law to encourage more private sector participation. Similarly, Qatars Ministry of Economy & Commerce is also expected to launch its PPP law in the second half of 2017.
Despite these initiatives, many obstacles remain and it is difficult to predict the success of these PPP models. It will not be easy and the latest push towards PPP must avoid the pitfalls of the past to succeed. Selecting appropriate and bankable projects will be key, as will building up institutional capacity and developing a body of skilled civil servants.