Unrest drives Middle East infrastructure revival

12 July 2011

The Arab uprisings have spurred the Gulf’s governments into pushing forward the agenda for the development of social projects, such as housing, education and health

The political unrest in the Middle East during 2011 has caused the GCC’s projects market to drop in value from $2.1 trillion at the beginning of January to $1.8 trillion at the end of June. Uncertainty in the market has resulted in many projects being stalled or cancelled, as investors and developers have found planning and decision-making difficult.

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

Saudi Arabia promises to be the region’s biggest spender on social infrastructure projects over the next five years. In March, King Abdullah bin Abdulaziz al-Saud announced $67bn-worth of investment in low-cost housing for its people in the years up to 2014 in an attempt to stave off potential anti-government demonstrations.

Housing drive in Saudi Arabia

The pledge, which included plans to build 500,000 low-cost homes, highlights how politically important the issue of housing has become in Saudi Arabia. The kingdom has one of the fastest-growing populations in the world and Riyadh is aware it needs to act quickly to prevent a chronic housing problem.

Riyadh has pledged to divert SR150bn ($40bn) towards improving education and training facilities

In addition, the kingdom’s expanding population will require modern healthcare and education facilities. Other spending targets were laid out in Riyadh’s Ninth Five-year Development Plan (NDP), approved by King Abdullah in August last year. In total, the NDP plans to invest $385bn on infrastructure development up to 2014. The uprisings across the region have put increased pressure on the kingdom to deliver on its promises.

The plan allocates $195bn for improving educational infrastructure. As part of this, Riyadh plans to increase the capacity of primary, secondary and tertiary education to accommodate 1.7 million students. This will involve the construction of 25 technology colleges, 28 technical institutes and 50 industrial training institutes. According to the Saudi government’s 2011 budget report, 3,200 new schools are under construction with 600 more planned for 2011. In the 2011 budget, Riyadh has pledged to divert SR150bn ($40bn) towards improving education and training facilities within the kingdom.

GCC social infrastructure spending
($m)OmanBahrainKuwaitQatarSaudi ArabiaUAE
First half 201139442461871,5001,100
Source: MEED Projects

About $73bn of the NDP’s total budget will be directed towards the kingdom’s healthcare sector. The allocation will include the construction of 117 new hospitals, 750 primary healthcare centres and 400 emergency centres.

The largest healthcare projects planned are two medical cities at Riyadh and Jeddah, worth a total estimated value of SR25bn. The Interior Ministry has invited contractors to submit bids by 7 August for the main construction contract on the projects, which will each have a total built-up area of 1.3 million square metres. Both include three hospitals and all related medical and residential facilities.

In contrast to the relative calm in Saudi Arabia, Bahrain has been the GCC country most severely affected by the political unrest. During the protests that began in mid-February, more than 30 civilians were killed in clashes with security forces.

The political instability has caused much uncertainty in Bahrain’s construction market, with many future projects being cancelled or facing indefinite delays. The total value of Bahrain’s projects market has shrunk to $60.6bn in June, from the $80.6bn of schemes that were planned or under way in early March.

Project commitment to Bahrain

In response to the protests, the government has affirmed its commitment to push ahead with necessary infrastructure and housing projects to meet the needs of its citizens. To help fund the investment programme, the GCC has agreed to give Manama $10bn over the next 10 years to revive Bahrain’s economy and address its social problems.

Manama has pledged to spend BD2.5bn ($6.6bn) to build new homes for its people and solve the current housing crisis.

Much of the housing built in recent years has been luxury developments targeting expatriates, while little has been provided for those on lower incomes. As a result, in 2010, there were 47,000 local citizens on the waiting list for state-allocated houses. The government has said it will build 50,000 social housing units over the next five years to meet demand.

In spite of the political problems engulfing the country, Manama intends to move forward with plans to encourage private-sector investment in infrastructure projects through the public-private partnership (PPP) model. In April, MEED reported that Bahrain’s Housing Ministry was pushing ahead with plans to develop 5,000 new homes under a PPP deal.

Bahrain recently qualified its intentions to proceed with required infrastructure schemes with an award on the expansion of the existing terminal building at Bahrain International airport. In June, Beirut-based Dar al-Handasah was awarded the BD4.5m contract. The scheme will boost the airport’s capacity to 13.5 million passengers a year from the current 9 million and is expected to be completed by 2015.

Oman is also set to divert increased funds into improving its infrastructure to curb unrest and prevent further protests. It was the scene of minor demonstrations in February and March. Like Bahrain, Oman will receive $10bn in aid from the other GCC states over the next 10 years to assist in developing its infrastructure.

In January, before the protests began, Muscat approved its 2011 budget and its eighth five-year plan. The government’s planned total investment of $30bn over the next five years is one of the highest ratios of spending when compared with gross domestic product in the region and much of the increased expenditure will go on improving infrastructure.

Under the eighth five-year development plan, OR5.9bn ($15.3bn) and OR2.5bn has been allocated to the education and health sectors respectively. The healthcare expenditure includes the provision of nine new hospitals, four polyclinics and various health centres throughout the sultanate. The largest single planned healthcare project will be the OR140m Muscat referral hospital.

More than 100 schools will be built in an attempt to improve the provision and quality of education in Oman.

With Sultan Qaboos’ promise to raise wages and create new jobs appearing to have appeased protesters in the short term, the estimated $10bn-worth of construction and infrastructure projects currently either at the initial development stage or planned for the sultanate before 2015 will offer some interesting opportunities in the GCC’s second-smallest economy.

Standard of living in Qatar

Qatar has avoided the political unrest that has affected many of the states in the region. The world’s biggest liquefied natural gas (LNG) exporter has one of the highest per capita income rates in the world at $65,495. This high standard of living has meant Qataris have not taken to the streets to protest over a lack of political rights.

Qatar’s success in winning the right to host football’s World Cup in 2022 means it will prove a fertile hunting ground for the region’s contractors over the next decade, with a spate of infrastructure projects planned. In addition to the World Cup infrastructure programme, Qatar will continue to divert funds towards its target of becoming a knowledge-based economy by 2030.

Set out in its Vision 2030, Doha aims to diversify its economy away from its heavy reliance on its hydrocarbons by investing in its education and healthcare sectors. Part of this programme includes further developing the 14-square-kilometre Education City development on the outskirts of Doha. In May, Athens-based Consolidated Contractors Company was awarded a QR775m ($212m) contract to build the Faculty of Islamic Studies at the campus.

Progress is expected to be slower in Kuwait, where the rulers dismissed its cabinet in March and pledged to move ahead with political and economic reform in a bid to stave off unrest. With a rapidly increasing population, the state is aware it must implement the raft of healthcare and education projects that are planned.

The Public Works Ministry is planning to build nine new hospitals by 2016 at an estimated cost of $4.5bn. In addition to the new hospitals, the Health Ministry is renovating and extending nine existing hospitals.

Similar investment is earmarked for improving and expanding the country’s educational facilities. The largest project under way is the multibillion-dollar expansion of the national university, which involves the construction of a new $3bn integrated campus. The university has approved the award of $1.4bn-worth of construction contracts for the development since December and has still to tender the medical campus, including a 600-bed hospital.

Positive outlook in the Gulf

The politically stable UAE has also made pledges to upgrade infrastructure as a result of the regional unrest. The government has allocated $1.8bn to develop infrastructure in the lesser-populated northern emirates.

The first half of 2011 has been difficult for the GCC’s projects market, but the longer term outlook is much more positive.

Unlike the real-estate boom in Dubai that preceded the recession, there is real demand for social infrastructure projects. With the region’s population set to more than double by 2050, GCC leaders will need to invest in developing social infrastructure to cope with the increased demand and to remain in pacify their population. The pipeline of social infrastructure projects promises to offer the region’s construction sector much-needed work over the next few years. 

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