Protests lead to infrastructure promises

28 November 2011

The political turmoil of this year could generate opportunities for the region’s contractors


In the first three quarters of 2011, $29.1bn-worth of construction deals were signed in Saudi Arabia, the region’s largest market

Source: MEED

The political unrest that swept through the region in 2011 has severely impacted the Middle East construction market, with $100bn-worth of construction and infrastructure schemes being put on hold or cancelled in the first three quarters of 2011.

The uncertainty in the market has caused many projects to stall as investors and developers have found planning and decision-making difficult.

In the medium term, however, the pro-democracy protests may benefit the region’s projects sector as governments seek to invest in infrastructure schemes to meet the social and economic needs of their people.

With the announcement of a massive increase in project spending in the wake of the regional unrest, Saudi Arabia is set remain the focal point for the region’s construction sector, but Qatar, which is preparing to host the 2022 football World Cup, and the newly emerging Iraq market also offer ample opportunities.

Biggest spender

Saudi Arabia consolidated its position as the region’s largest construction market in 2011 and will maintain its position as the region’s biggest spender in 2012. In the first three quarters of 2011, $29.1bn-worth of construction and infrastructure contracts were awarded in the kingdom, more than double the $13.2bn of contracts awarded during the same period in 2010.

Qatar is simmering … Hopefully, we will see some of [the projects] reaching tender stage next year

Regional contractor

A key aim of Riyadh’s development plans is to address a looming housing crisis, caused by continued rapid population growth. The kingdom is facing a severe shortage of housing over the next five years, with some 1.6 million new homes needed by 2015.

The housing development programme was given fresh impetus in March, when King Abdullah bin Abdulaziz al-Saud announced plans to spend $67bn on building 500,000 low-cost houses by 2014.

US-based Parsons International was awarded the first major contract on the housing scheme in November. Parsons will work on the initial package, which will cover a total area of 32 million square metres divided into 11 sites spread across the kingdom. Each site covers a different sized area, ranging from 10 million square metres in Dammam to 729,000 sq m in Khamis Mushayt.

In addition to housing schemes, Saudi Arabia is diverting a significant amount of its resources into improving healthcare facilities.

In August, the Interior Ministry received bids for two medical cities in Riyadh and Jeddah, worth an estimated total of SR25bn ($6.7bn). The contracts were two of the largest construction deals to be tendered in 2011 and show the kingdom’s commitment to upgrading its healthcare infrastructure.

Spending on healthcare projects will continue into 2012, with contractors expecting to receive tender documents in the first quarter for an estimated $1.2bn hospital project in Dammam. The planned 1,500-bed King Fahad Specialist Hospital will consist of seven specialised medical centres and cover a total area of 700,000 sq m. In addition to the medical centres, the development will contain a residential complex, research centre and an international academy.

Despite much optimism at the beginning of the year, Abu Dhabi has disappointed the region’s contractors

Saudi Arabia’s road infrastructure is also set to receive heavy investment from the government in the next five years. The kingdom’s ninth five-year development plan, approved in August 2010, set aside $29.6bn to upgrade transport infrastructure and communications networks. The infrastructure programme involves local municipal projects and major highway road schemes.

Project windfall

Qatar is another Gulf market that offers much promise to contractors in 2012. With more than $60bn-worth of construction and infrastructure projects planned over the next 10 years in preparation for hosting football’s World Cup in 2022, contractors are anticipating a windfall of construction projects.

“Qatar is simmering just now, everyone is waiting for the projects to start coming,” says one large regional contractor. “Hopefully, we will see some of them reaching tender stage next year.”

Doha’s vast road expansion programme is already under way, with the government planning to spend $20bn over the next five years on developing roads and related infrastructure. Qatar was the region’s most active road market in 2011, awarding more than $1.9bn-worth of road contracts in the first three quarters.

In August, the Public Works Authority (Ashghal) received bids for the estimated $700m first phase of its Lusail Expressway project. The first package will be 5.8 kilometres long and will have about 16 lanes, some of which will be two or three levels. The second package, which is expected to be tendered in 2012, will run beside the Lusail mixed-use structure and on to the Pearl real-estate development. The expressway will be about 12km long when completed.

Qatar is also preparing to tender the Al-Khor highway project for the Lusail real-estate development. The Al-Khor highway will be a multi-level road that will run along the western flank of the Lusail City development and will include up to five interchanges. The project was scheduled to be tendered by the end of 2011, but contractors are now likely to be invited to submit bids in early 2012.

In addition to its World Cup infrastructure programme, Qatar is continuing to pursue its aim of becoming a knowledge-based economy by 2030. A key part of Doha’s efforts to diversify its economy is the Education City development on the outskirts of the capital. In 2011, Qatar awarded three construction projects totalling more than $700m at the site and more projects are planned, including a light transit rail system and hotel.

Meanwhile, state-owned developer Msheireb Properties is pushing ahead with a QR20bn ($5.5bn) urban regeneration project in Doha. The 750,000-sq-m Msheireb development is one of the largest real-estate schemes in the capital and will be built behind the Emiri Diwan administrative centre on Doha corniche. The scheme will also include an interchange for Doha’s proposed metro system.

In October, the developer received bids for phase 1b of the scheme, which will involve the construction of a multi-use cultural forum, offices, hotel and serviced apartments, shopping district, townhouses, a school and a mosque. Phase 1c is expected to be tendered by the end of the first quarter in 2012.

Social infrastructure

With a population expected to grow by 63 per cent over the next 20 years, Kuwait is also pressing ahead with major housing and social infrastructure initiatives.

As part of plans worth an estimated $8bn to expand the country’s healthcare infrastructure, the government will upgrade nine hospitals and build eight new facilities. In 2011, the Health Ministry issued tender documents for three of the planned nine hospital expansion projects.

In addition to the Health Ministry’s plans, the Public Works Ministry intends to build eight new hospitals to add 5,000 beds to the state’s healthcare system. The ministry is planning to build four hospitals at the Al-Sabah medical area in Shuwaikh, located just west of Kuwait City. The new Al-Razi hospital and Ibn Sina hospital projects will both add 600 beds. Kuwait is also planning to build an 800-bed hospital at Al-Jahra, a 600-bed unit at Al-Amiri and a 1,000-bed hospital at Al-Adan.

In June, Kuwait’s Partnerships Technical Bureau invited companies to express interest in a project to design, build and finance the proposed 500-bed Physical Medicine and Rehabilitation hospital, the region’s first public-private partnership hospital project.

Kuwait is also making progress with the new Sabah al-Salem university campus, which will be located at Shadadiyah, 20km west of Kuwait City. In October, the university approved the award of $1.2bn-worth of construction contracts on the scheme, having previously awarded $2.4bn-worth of deals on the education project.

It is the contract for the proposed medical campus and 600-bed university hospital that is the most eagerly anticipated. The university has prequalified consultants for the main design contract and is expected to tender the consultancy contract in the first half of 2012.

Kuwait is also undertaking a sizeable road infrastructure programme, which is part of the Public Works Ministry’s plans to spend $11.5bn over the next four years on developing infrastructure.

Despite much optimism at the beginning of the year, Abu Dhabi has disappointed the region’s contractors in 2011 as its spending cuts resulted in a series of projects being downsized and halted. Contractors are hoping that next year will see the emirate’s construction sector reverse its decline. Key projects that are delayed in Abu Dhabi include the estimated $1bn Louvre museum and the Guggenheim museum planned for the cultural district on Saadiyat island.

Destabilised market

The prospects for Bahrain’s construction sector in 2012 are dependent on whether the country can resolve the political unrest that has destabilised it this year. By early November, the value of its projects sector had fallen $20bn year-on-year as a result of uncertainty in the market. In an attempt to promote stability, the GCC has pledged $10bn to Bahrain over the next 10 years to build much-needed housing and improve conditions for its people – although it is believed none of this has been disbursed as yet.

Outside the GCC, Iraq is an emerging market that will offer the construction sector ample opportunities in 2012. It is the region’s fastest growing construction market, with the value of projects planned or under way in the country up 38 per cent year-on-year by mid-November as Baghdad’s reconstruction effort starts to gain momentum.

In 2011, UK-based architecture firm Broadway Malyan completed the masterplan for a $10bn project to regenerate and expand the Sadr City area of Baghdad, while US-based Hill International was awarded a contract to provide project management services for the first 100,000 houses of a $35bn housing development.

With many more large residential and infrastructure projects planned, contractors will be keeping a watchful eye on Iraq in 2012.

In spite of the civil unrest that has spread across the Middle East in 2011, the region remains one of the world’s most promising construction markets.

The political troubles may even benefit the region’s construction sector with governments promising to invest in housing and social infrastructure to placate protesters and avoid following the fate of those regimes already unseated. Next year will reveal whether these promises turn into actual projects.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications