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The GCC's PPP schemes can help to avoid order book declines in 2018

It may be reasonable for Gulf construction leaders to expect order book declines in 2018, but the opportunities offered by the region’s expanding PPP network cannot be ignored

COMMENT, Business, Gcc, Order book declines, Ppp, Saudi Arabia

The public sector’s noteworthy efforts towards driving an attitudinal, long-term evolution in the Gulf’s construction sector are continuing unabated. Meeting these goals remains the top priority; however, the region’s private-sector enterprises are rapidly reshaping the road to achieving structured growth.

Take Saudi Arabia as an example. The country’s private sector plans to build 1,600 schools to meet the kingdom’s growing need for education facilities. Earlier this month, Saudi Education Minister, Ahmed Al-Issa, said the private sector would finance the construction and operation of the schools in Makkah and Jeddah, with Phase 1 to include 60 facilities.

Saudi Arabia’s Ministers of Finance and of Economy and Planning will supervise the project. Al-Issa said the programme would help the ministry relinquish more than 5,000 rented facilities that are currently used as schools.

“We are aiming to supplement the direct government support for those school buildings [through] partnership with the private sector in the construction and operation [stages]. We hope that the project will lure investors [...] to participate with us, not only for on project, but also on all the [others that] will soon be announced,” Al-Issa continued, according to the Saudi Gazette.

While the programme hasn’t been publicised as a public-private partnership (PPP) scheme, it certainly appears to offer all the benefits of one. The good news is that, regardless of its formal status, the Saudi education project is not the first instance of public-private collaboration that the Gulf has witnessed this year – and it’s still only February.

For instance, three real estate projects with a combined value of $735m (AED2.7bn) were announced in Sharjah this January. Sharjah Investment and Development Authority (Shurooq) and Abu Dhabi-based Eagle Hills have formed a joint venture – Eagle Hills Sharjah Development – to develop the Maryam Island, Kalba Waterfront, and Palace Al Khan projects.

The need for essential city infrastructure – as is the case with Saudi Arabia – could, in part, encourage the growth of PPPs and other similar arrangements in the region this year. Middle East Electricity show’s GCC Power Market report states that despite the region’s current power-generating capacity of 157 gigawatts (GW), it will still need investments worth $81bn to generate the 62GW of required additional capacity, and $50bn for supporting transmission and distribution networks.

The prevailing industry sentiment that was revealed by Pinsent Masons’ recent annual GCC Construction Survey – which showed that 20% of respondents expected their order books to decline by more than 10% in the coming months – is neither surprising, nor overly pessimistic.

However, given the evident need for private-sector expertise that permeates countries and sectors within the GCC, business leaders that adopt a proactive approach to winning regional PPP work stand to not only recoup lost opportunities, but to leverage new ones as well.

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Construction Week - Issue 724
Jan 12, 2019