The Middle East and North Africa (Mena) region covers a large area featuring great economic disparities. Mena countries have varying levels of natural resources, different political and social systems and, therefore, different drivers for their infrastructure development.

Inappropriate risk transfer and a failure to … push the tender process forward will cause projects to fail

Despite this economic and demographic diversity, a common feature of the region is the high level of infrastructural deficit. With significant population growth in the region over recent years, there is not only a public demand for improvements in infrastructure, but also a need to provide quality infrastructure to enable further economic growth beyond the recession.

Infrastructure spending in the Middle East and North Africa

Since the beginning of 2007, there has been almost $90bn of project financings in the Mena countries. Oil, gas and power projects have accounted for much of this. However, a number of key transport and social infrastructure projects have also been delivered in the region – indicating that governments are increasingly looking to the private sector to deliver key public facilities and services.

Not all the Mena countries are blessed with an abundance of natural resources to fund their infrastructure spending (for example Jordan and Syria) and this, coupled with the downturn in bourses across the region, has given rise to a need to identify ways in which critical infrastructure can still be delivered to meet growing demand. Interestingly, even some oil rich states are looking to public-private partnerships (PPP) for their projects.

PPP programmes are an expression of political will, relying as they do on government policy. The political will to adopt the PPP model is spreading through the region – a process that is likely to take some time. Despite the tight market conditions, there appears to be a healthy pipeline of infrastructure projects across various sectors throughout the Mena region that are being touted as potential PPPs.

Kuwait has declared an ambitious programme of very significant PPPs, including the Failaka Island development, Kuwait Metro, the National Rail Network, a large hospital project and the Al-Zour independent water and power project (IWPP), plus some quasi privatisations in the postal and telecoms sectors.

Egypt has banked its first project, the New Cairo wastewater treatment plant (WWTP), and has a series of follow-ups planned across a number of sectors, including the Rod el-Farag highway, Alexandria University Hospitals and the Abu Rawash and 6 October WWTP’s.

In Abu Dhabi, the perception is that much rests on the eventual outcome of the pathfinder Mafraq-Ghweifat Highway project. Saudi Arabia, still smarting from the aborted attempt to procure the Saudi Landbridge rail project, appears to have turned its back on private finance, at least for now.

Qatar has considerable plans, particularly in the transport sector, but it seems that this infrastructure will mainly be traditionally procured. In Bahrain, the Muharraq Sewage Treatment Plant leads the way followed by the Tubli WWTP and the Bahraini Social Housing PPP.  In Dubai, there is the Al-Maktoum Hospital, a power project and a water transit project, as well as plans for additional rail projects.

Clearly then, the range of sectors represented in the Mena PPP opportunity over the next decade looks to be diverse. However themes are also emerging: outside the power sector (where volumes will continue to be highest) the rail sector is leading the way, with huge projects planned across the region. Close behind is the wastewater sector and healthcare industry. 

A key challenge remains the availability of private finance in the current market. Some have suggested the need to increase reliance on short-term debt, with governments to take the resulting refinancing risk – governments are largely unwilling to share this risk at present.

This is not to say that the availability of long-term debt is a thing of the past; liquidity is there for the right projects. Recently, the Shuweihat 2 IWPP in Abu Dhabi completed its $3.5bn financing by securing a 22-year commercial bank loan of $1.1bn. Given the size of the scheme and the current economic climate, this is a remarkable success for the region’s project finance market.

Public private partnership project structuring

If PPP in the Mena region is to flourish, it is critical that the public sector improves at structuring and tendering these projects effectively. Inappropriate risk transfer and a failure to properly push the tender process forward will cause projects to fail and momentum to stall.

There is considerable private sector appetite for PPP in Mena and this will increase as liquidity constraints ease. The creation of dedicated central PPP units, as in Egypt, Kuwait and Jordan, could help drive this process, sponsoring appropriate legislation and refining best practice. The public sector can harness this, but it too must play its part.