GCC's $150bn spend on infrastructure

New report predicts massive investment in road, electricity and water projects over the next three years.

Infrastructure spending is expected to rocket as GCC countries’ account surplus increases and oil prices remain high at around $65 dollars a barrel.
Infrastructure spending is expected to rocket as GCC countries’ account surplus increases and oil prices remain high at around $65 dollars a barrel.

The UAE, Kuwait, Qatar and Bahrain are expected to spend a further US $150 billion on infrastructure over the next three years, according to a recent report by Merrill Lynch.

In its latest Global Research Highlights, Merrill Lynch said infrastructure spending in emerging markets could exceed $1 trillion in the next three years as investment banks boost their activity in the sector.

The estimate is based on higher spending forecasts for China and the emergence of new sources of spending in Russia and the Middle East, particularly the GCC countries, which currently rank as the world�s largest consumers of capital per capita due to the ongoing construction boom.

“Vast domestic savings in the developing world are finally being mobilised for investment in infrastructure projects to enhance growth potential,� the report said.

The key drivers of infrastructure spending are under-investment in infrastructure projects in the past and the pressing need to improve quality as well as the need to ease bottlenecks that could delay or reverse the substantial progress that has already been made.

Other factors include increases in the population of urban centres, as well as improved sources of funding, current account surpluses, oil revenues, economic growth and foreign exchange reserves.

According to an IMF forecast, the combined current account surplus of the GCC countries, which accounted for 25.3% of their gross domestic product in 2005, is poised to surge to 28.8%, with oil prices hovering around $65 per barrel.

Infrastructure spending in the region includes projects worth $8.5 billion in Qatar as part of the Public Works Authority�s (Ashgal) five-year plan announced in 2005. The bulk of the spending will go towards road, electricity and water projects.

It is hoped that the additional spending on infrastructure projects in the Gulf will further boost economies in sectors including power and energy, transportations, water, sanitation and environmental services, and engineering and construction.

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