Yearbook 2011: Construction outlook - State schemes drive the construction market

09 December 2010

Saudi Arabia may be the biggest construction market, but Qatar and Kuwait are also attractive propositions


$277bn: Value of projects currently on hold or cancelled in the UAE

$1bn: Public building contracts tendered by Doha in the second half of 2010

$2.6bn: Cost of building Kuwait’s Subiya Causeway – the biggest construction project tendered in the region in 2010

Source: MEED

With no sign of recovery for the real-estate sector, government-funded infrastructure projects will continue to lead the way in the region’s construction sector in 2011.

The economic downturn continued to impact on the region’s construction market in 2010. According to Gulf projects tracker MEED projects, $984bn of the region’s projects remain on hold or cancelled. There has been no pick-up for Dubai’s property market, which was synonymous with the Gulf’s construction boom in recent years. Most of the estimated $277bn of projects currently on hold or cancelled in the UAE are from Dubai’s real-estate sector.

Largest construction projects awarded in 2010 ($m)
Cleveland ClinicAbu Dhabi1,300
Bubiyan PortKuwait1,200
Hamad Medical CityQatar1,100
Umm Qasr Port ExpansionIraq1,000
Burj Rafal TowerSaudi Arabia800
Taif University – faculty accommodation buildingsSaudi Arabia600
King Abdulaziz Centre for Knowledge and CultureSaudi Arabia533
King Abdullah Petroleum Studies Research Centre (Kapsarc) – residential buildingsSaudi Arabia506
Presidential PalaceAbu Dhabi490
Governmental administrative buildingQatar436
Source: MEED Projects

The global recession, and the subsequent reduction of foreign investment in the region’s real-estate sector, has meant that the region’s projects market is now being driven by state-backed infrastructure projects.

Social infrastructure in Abu Dhabi

With Dubai still feeling the full force of the recession in 2010, neighbouring Abu Dhabi was able to use its oil reserves to award some large social infrastructure projects. These include the estimated $1.3bn Cleveland Clinic hospital and the Abu Dhabi New York University (ADNYU).

The presidential affairs ministry also awarded an estimated $490m contract to build the Presidential Palace in the Ras al-Akhdar area of Abu Dhabi.

However, it was a mixed year for state-backed construction projects in the UAE capital. Despite there being some large contract awards, there were also some high-value projects put on hold or cancelled. In February, the tender for the $1.6bn Tawam hospital was cancelled, and in October MEED reported that the $1.4bn football stadium project planned for the Capital City District had been put on hold. With the number of construction tenders slowing down in the capital emirate, contractors are starting to look to other markets in the GCC to win work.

Saudi Arabia offers great potential for the region’s work-hungry contractors. But it is a difficult market to enter

Saudi Arabia has emerged as the region’s biggest construction market over the past couple of years, and is set to offer the most potential for the region’s contractors in 2011. After a steady 2010, Qatar and Kuwait are also set to continue to offer some exciting possibilities for the region’s construction market.

As the world’s largest liquefied natural gas (LNG) exporter, Doha has been able to continue spending through the financial crisis, investing income from its hydrocarbons resources to keep its development plans on track. In the second half of 2010, Doha tendered contracts totalling more than $1bn for public building projects.

After a steady 2010, Qatar and Kuwait are set to continue to offer some exciting possibilities

Most of these are based in Education City – a vast 14-square-kilometre site on the western edge of Doha. Education City is being developed by the Qatar Foundation for Education, Science and Social Development – a non-profit organisation founded in 1995 by Qatar’s Emir Sheikh Hamad bin Khalifa al-Thani to lead the state’s transformation into a knowledge-based economy.

The state-funded projects in Education City include the new Qatar Central Library project, Faculty of Islamic Studies and the College of Media and Communication.

National museum in Qatar

Beyond the construction work under way at Education City, Qatar is planning to further develop its cultural facilities. Tender documents for the new Qatar National Museum on the corniche are expected to be issued by the end of November.

Qatar is also pressing ahead with transport infrastructure projects. Doha is planning to invest $20bn in new roads and related drainage and infrastructure in the next five years. Qatar’s Public Works Authority (Ashghal) is expected to issue tenders in the coming months for the contract to build the new QR2.5bn ($687m) Lusail Expressway.

The emirate is also making a substantial investment in developing a metro and railway network. Doha metro is the first part of Qatar’s $25bn railway plan to be developed and will be a crucial part of Doha’s infrastructure. Doha is expected to issue construction tenders for the first phase of the Qatari capital’s metro network by the middle of 2011.

Government-backed infrastructure schemes are also leading the projects market in Kuwait, as the government invests to meet the needs of its growing population.

In October, Kuwait received bids for the estimated KD739.8m ($2.6bn) Subiya Causeway – the biggest construction project tendered in the region in 2010. This followed the award of a KD328m contract to a consortium of the local Mohammed Abdulmoshin al-Kharafi & Sons with South Korea’s Hyundai Engineering and Construction Company in June for the marine engineering works contract at the planned port on Bubiyan Island.

In addition to traditional infrastructure schemes, contracts in Kuwait are increasingly being tendered and awarded for social infrastructure projects, including hospitals, schools and universities.

In October, Kuwait’s Syed Hamid Behbani & Sons submitted the low bid of KD86.4m for the contract to build the new Ahmadi hospital and surrounding residential buildings in Kuwait. The Ahmadi project is one of nine new hospitals scheduled to be built in Kuwait by 2016, which will cost the state more than $4.5bn.

Kuwait is also directing similar levels of investment into improving and expanding the country’s educational facilities. The largest project in the pipeline is the multi-billion dollar expansion of the national university, which has witnessed an increase in student and staff numbers of more than 40 per cent over the past five years.

“We expect these figures to double in the next 10 years and so Kuwait will require a substantial number of new educational facilities for its population,” Rana al-Fares, director of projects at Kuwait University, told MEED in July.

The new $3bn Sabah al-Salem integrated campus is being built at Shadadiyah, 20km west of Kuwait City. The tender process for several of the main campus buildings has already begun.

In November, the university received bids for the main construction package on the Faculty of Arts and Education buildings, and in August received submissions for the estimated $472.6m College of Engineering and Petroleum (Coep). There is plenty more planned for the new campus, and 2011 will see a number of further construction contracts tendered.

“By the end of the first quarter of 2011, we are planning to tender the College of Social Sciences, College of Law and College of Sharia and Islamic Studies,” said Al-Fares.

When completed, the new university campus will comprise more than 25 faculty buildings. It will include a 600-bed hospital, dormitories, sports facilities and auditoriums.

With billions of dollars worth of infrastructure projects still to be tendered, Kuwait will continue to offer attractive possibilities for the construction sector in 2011.

Largest construction market in Saudi Arabia

But the market that will offer the most potential is Saudi Arabia. The kingdom is set to continue as the region’s largest construction market following the approval of its ninth five-year development plan (NDP) by King Abdullah bin Abdulaziz al-Saud. Under the economic stimulus package, $385bn is earmarked to be invested in infrastructure development by 2014.

After years of under-development, the government is aware of the urgent need to build new housing for its rising population, as well as expand and improve the country’s transport and social infrastructure. This will result in a raft of new construction and infrastructure projects.

A key aim of the kingdom’s development plans is to address the housing crisis. Saudi Arabia will face a severe shortage of housing over the next five years, with some 1.2 million new homes needed by 2015.

It is not just state-backed schemes that will be required to meet the demand; there will also be an opportunity for private developers to establish themselves in the Saudi market. An example of a private real-estate company building a residential development in the kingdom is the local Injaz Development Company. Injaz expects to tender the first major construction package for its estimated SR5bn ($1.3bn) Al-Marina project in the Eastern Province in early 2011.

Riyadh is also planning to invest $73bn into building new hospitals and healthcare facilities and $29.6bn into upgrading the country’s transport infrastructure and communications networks over the next five years.

In addition to addressing social problems, Riyadh is aware of the importance of planning towards future economic diversification. The drive for further diversification is further good news for the region’s construction sector as it will entail billions of dollars worth of new building projects. At the heart of Riyadh’s diversification strategy is the creation of a number of economic cities.

King Abdullah Economic City (Kaec) is the first of five economic cities planned in the kingdom. Kaec, located about 100km from Jeddah, is being developed by Emaar, The Economic City (EEC), a subsidiary of the Dubai-based real-estate company Emaar Properties. Kaec is scheduled to contain 2,700 manufacturing businesses when complete, and its 13.8-square kilometre seaport will become one of the world’s top five largest industrial ports.

The first phase of the Kaec development is expected to be open by early 2012, but with completion of the entire project not due until 2029, there will be plenty more construction contracts tendered in the coming years.

Through its plans to develop infrastructure and diversify its economy, Saudi Arabia offers great potential for the region’s work-hungry contractors. But Saudi Arabia is a difficult market to enter. The kingdom’s construction market is dominated by the so-called ‘big three contractors’ – Saudi Binladin Group (SBG), Saudi Oger and El-Seif Engineering & Contracting.

Formidable barriers in Saudi Arabia

There are limited options for international contractors looking to break into the Gulf’s most exciting construction market. The dominance of local firms and stringent business regulations create formidable barriers to entry. Of the $60bn-plus infrastructure and construction contracts under way in the kingdom, less than a fifth were won by foreign contractors.

“It is a difficult market to enter, no question,” says Karim Yazbek, vice-president for business development in the Gulf at Hill International.

“The big three firms have been there for a long time and can mobilise quickly, and until external contractors can set up offices and have local employees, it is difficult to compete.”

But for the kingdom to proceed with all the projects it has planned over the coming years, it will require outside help. Local contractors are already close to full capacity with current projects, and if the development programme rolls out as planned, there will be opportunities for foreign firms to win work. 

If the region’s contractors are willing to take a risk and are able to overcome the hurdles to entering the Saudi market, then potentially billions of dollars worth of construction deals await them.

Iraq is also an emerging market that the region’s construction sector will be watching closely in 2011. The $1bn Umm Qasr port expansion project was one of the largest projects awarded in 2010, and if the political situation improves, there will be a glut of further construction and infrastructure projects tendered over the coming years.

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