“Missions impossible” was the expression used at the 2012 MEED Arabian World Construction Summit to describe the challenge of delivering against the massive investment in construction planned in the Middle East.
Nash Fitzwilliams, corporate finance adviser to the construction sector, chose to sponsor the conference due in part to the optimism that now prevails in the region.
The Dubai construction boom and bust – and latterly the Arab Spring – have to a great extent distorted the western view of the Middle East construction opportunity and it was very useful and interesting to hear the views of MEED and industry players as to where the opportunities now lie.
It is now a commonly held view that the Arab Spring has only been good for the construction sector, where the need for the oil wealth to trickle down is clearly recognised.
The largest opportunity by amount invested is in Saudi Arabia, where the government is focused on country-wide infrastructure investment and, like many other oil-rich countries, on diversification of income streams.
Annual investment has been put at above $150 billion and strong fundamentals, such as the rapid population growth, underpin this.
Importantly, this construction boom is mostly non-speculative – in contrast to the Dubai boom – but driven by such fundamentals as population growth and/or welfare.
Qatar has a huge amount of construction to complete – infrastructure, stadiums, accommodation – as it prepares for the 2022 World Cup. It is also in the running for the 2020 Olympic Games.
The supply challenges are considerable and this will inevitably also benefit the wider region. In the UAE, there is set to be a steady but strong increase in investment - mostly, as elsewhere, in publicly funded projects but also, in a measured way, in private.
For example, occupancy in Dubai reached 81.8 per cent in 2011, driving further investment in tourism.
Innovation and differentiation
The wider Middle East offers a range of opportunities, with Iraq and Libya as examples. MEED hosted Iraq’s minister for construction and housing, who made the case for global construction firms to participate in reconstruction.
While this is the most upbeat I have seen the Middle Eastern construction sector since 2007-08, for Western companies there is strong competition from the Far East, in particular Korea. This means that Western companies need to show innovation and differentiation.
For example, in the case of the huge public investment in housing in Saudi Arabia, my sense is that success will be driven by identifying cost-saving techniques rather than trying to persuade the government to pay more for added features.
There are other challenges – not least the political risk. But where Western economies are characterised by debt and austerity, the Middle East has cash surpluses and a clear intention to invest in construction. That is a good start.
Adrian Pritchard is a construction industry specialist at Nash Fitzwilliams