When contractors discuss the Gulf construction boom, nine times out of ten it is Dubai or Abu Dhabi that is the real focus of their attention.
The six states of the Gulf Cooperation Council – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates – are each investing heavily in infrastructure but it is the UAE where most of the activity and opportunities lie.
In terms of its project market, the UAE – consisting of seven states including Dubai and Abu Dhabi – is the Gulf leader.
According to the project tracking service of Construction News sister publication Middle East Economic Digest (MEED), the construction market is worth £427.5 billion with £120.8 billion worth of projects currently on site and the rest in feasibility, planning or design stages.
With a population of just 4.5 million this works out at an incredible investment of £51,150 being spent on infrastructure per person.
The main driver behind the UAE boom is real estate. More than 84 per cent of project activity is related to such developments, led by Dubai through government backed developers such as Nakheel and Emaar. The emirate was the first to launch its investment plans in earnest as is seeks to build non-oil related income.
Unlike neighbouring Abu Dhabi, Dubai has minimal natural resources and has therefore tried to diversify through investing in tourist infrastructure, the construction of ports and free zones, and encouraging financial sector growth.
Gross domestic product is now growing at 11 per cent a year and oil accounts for less than 10 per cent of this. The result for the UAE is a construction market that is growing at 37 per cent a year and is so buoyant that firms are turning work away.
“We are trying to restrict our growth. We don’t want to be too greedy,” claims Interserve managing director for international business Keith Ridgway.
Interserve is a joint venture partner in five different firms across the region including Khasaheb Civil Engineering, based in the UAE, and OHI in Oman. “There are lots of opportunities; in fact they are almost too numerous. The problem is that we want to service our traditional clients and give them value for money. There is so much work that we are turning it away,” says Mr Ridgway.
At the same time other GCC markets are beginning to accelerate their investment plans. Neighbouring emirate Abu Dhabi last year launched some of the region’s largest real estate schemes such as the £10 billion Al Raha beach, being built in joint venture with developer Aldar and the UK’s Laing O’Rourke.
“There is a lot of potential for Abu Dhabi as a growing market,” says Kier Construction area manager Andrew Keir.
“Dubai has grown steadily and the contracting market with it. I don’t think there is enough work for a flood of new entrants. The region on the whole is very promising.”
One such promising market is the state of Qatar. It may have a population of less than one million people but it has a construction market worth £55 billion – including construction in the oil and gas sector this increases by £30.6 billion to £85.6 billion.
In terms of projects under way, the state has the best record for ensuring developments make it to site. So far 34 per cent of construction schemes have started construction and more than 70 per cent of schemes have entered design or construction.
This 34 per cent compares with 28 per cent in the UAE and Bahrain, 18 per cent in Oman, 11 per cent in Saudi Arabia and just less than six per cent in Kuwait.
Kuwait in particular suffers from political interference in its construction sector. Unlike other Gulf states, the elected parliament can override decisions made by the appointed ministers and may also question government officials in parliament.
It does this with such regularity that mass resignation of entire cabinets is not uncommon. The last time this happened was in March 2008 following a series of disagreements over raising public sector pay.
Kuwaiti red tape
The majority of the population is employed by the public sector and endemic bureaucracy and slow decision-making is often behind project delays.
These factors make gaining approval for major infrastructure schemes difficult. Despite plans for a £46 billion megacity development, the City of Silk, the state has the region’s slowest growing construction sector this year.
Also slow to get projects started is Saudi Arabia but this is more down to its conservative approach. It is often described as the region’s ‘sleeping giant’ – should construction pick up, the kingdom has the potential to outperform other markets.
“There are huge construction opportunities in Saudi that could dwarf what is happening in other parts of the region,” says Mr Keir.
Infrastructure development in Saudi Arabia is dominated by six new cities which have industrial growth at the heart of their strategy, and a number of major port and railway projects including a 950 km link between the capital Riyadh and the coastal city of Jeddah.
Slowly but surely, states such as Bahrain, Saudi Arabia and Oman are releasing major projects into the market and the construction industry consensus is that the GCC as a whole is scraping the surface of what is planned, with only Dubai having really fulfilled its potential to date. Firms with a foothold in these states will be busy for many years to come.
Christopher Wilkinson, managing director of Aldar Laing O’Rourke, will be speaking at the Arabian World Construction Summit in Abu Dhabi organised by Emap with the support of Construction News on 9-11 February 2009. For more information go to: arabianconstructionsummit.com