Revealed: Top sectors of trillion-dollar GCC construction pipeline

Exclusive research reveals GCC oil and gas, infrastructure, and urban projects valued in excess of $2.7tn

The GCC's total construction project pipeline is valued in the trillions [representational image of a Liebherr tower crane in Dubai].
The GCC's total construction project pipeline is valued in the trillions [representational image of a Liebherr tower crane in Dubai].

With rising oil prices injecting cautious optimism over the health of the Middle East’s construction sector, data from construction intelligence platform ProTenders has offered a glimpse in the size and scope of the region’s projects as it stands today – defined across the urban, infrastructure, and oil and gas sectors, on a country-by-country basis.

The data portrays a region that is once again pouring resources into its ambitious infrastructure plans, particularly in the Saudi Arabian context, with the UAE – perhaps as no surprise – dominating the urban sector when compared to its fellow GCC states. With this data in mind, defined also by project stage – from planning through to construction – opportunities for contractors and consultants, among others, across a project’s lifecycle are certainly there for the taking as we look towards 2019.

Active oil and gas

When it comes to the GCC’s oil and gas sector, Saudi Arabia leads the pack when ranked in terms of its current project portfolio value, which currently stands at $192.6bn (projects which are on hold are excluded from this figure). The UAE is not far behind, with the value of country’s active oil and gas sector valued at $152.2bn – despite having more projects than its neighbouring kingdom. The bulk of oil and gas projects in the UAE are under construction ($92.8bn), and the same can be said for the kingdom, which has $111.3bn worth of projects currently being built.

Yet, with Bahrain’s 35 projects – across the planning, design, tender, and construction stages – valued at $114.5bn, why does there seem to be little co-relation between the total value and number of projects in each GCC country?

READ: PM Imran Khan seeks Saudi investors for Pakistan oil refineries

Bart Cornelissen, managing partner at Monitor Deloitte Middle East – the strategy consulting arm of Deloitte – says projects “tend to come in many shapes and sizes, and as such looking at the number of projects only doesn’t provide the real picture on the uptake of spend in the industry”, adding: “What we have seen over the last few years, and might do going forward, is that the total spend has grown and will grow slower than the number of projects, which implies a smaller size of the average project. This is the result of operators and investors trying to manage the risks and returns of their project portfolio by developing smaller projects than before.”

What is undeniable is that oil and gas capex is increasing in the region again.

With this in mind, the total value of oil and gas projects across the GCC stands at $718bn, with over half of this figure ($487bn) now at the construction stage. “What is undeniable is that oil and gas capital expenditure (capex) is increasing in the region again, although what has changed is how that capital is spent,” says Cornelissen. He points out that “a cost-conscious culture has now set in”, particularly after oil prices bottomed out in 2014, with the price of Brent crude falling by 44% between June and December. 

“At the beginning many firms believed that a low price was a temporary issue – then it became lower for longer, and finally lower forever,” he adds.

Four years later saw the price of oil hit $82.14 a barrel on 25 September, 2018 – a high caused partly by Saudi Arabia-led Opec efforts to restrict output. However, speaking to Construction Week this September immediately after this four-year high, the Deloitte energy expert explained that there is also often a lag time between any rises in oil price and capital expenditure on new projects: “Oil and gas projects have a long horizon; firms look at the viability of a project’s life cycle over, for example, a 10 to 20-year time frame,” he said at the time. “So this rise in oil price won’t have an immediate impact on the size and number of oil and gas projects across the GCC. Gone are the days of $100 a barrel.”

The number of projects currently on hold in the GCC’s oil and gas sector is also an interesting data point, particularly when compared between Oman, Kuwait, Bahrain, Saudi and the UAE. “A lot of projects in the region may have been [conceptualised] in the old [economy], which was defined in part by higher prices,” explains Cornelissen.

READ: Saudi Aramco, Bahrain's Bapco commission 112km oil pipeline

“This could be a reason why projects are now on hold or are ‘dropping out’. Also, a company may have a license to operate in a certain area, for example, but the technology may not be there yet to make that project commercially viable at the current oil price.”

Of course, this does not mean that these projects are never going to be developed – only that in contemporary market conditions, they may be held back by commercial constraints. At present, the UAE has 42 oil and gas projects worth $48.5bn on hold, followed by Saudi Arabia, which has 19 projects worth $40.1bn. Cornelissen  says: “It is also important to look at the ration between the number of projects and capex – projects now are becoming more efficient.

“When looking at a country by country basis, the value of all Bahrain’s oil and gas projects stands at a similar value to Saudi’s total figure.”

Infrastructure and urban

Standing at $718bn, the region’s oil and gas sector – excluding projects on hold – makes up just over quarter of all active GCC projects in terms of total value across the oil and gas, urban, and infrastructure sectors. However, it is the latter – made up of aviation, energy, transport, and other heavy-engineering projects – that makes up the lion’s share of total value across the three. Excluding projects currently on hold, the value of active GCC infrastructure scheme stands at $1.14tn, 42% of the GCC’s $2.72tn total project value figure.

There’s a strong demand for core infrastructure expenditure, and it goes back to the commitment, which is apparent from various GCC governments.

Ciaran McCormack, regional director for the Middle East at global construction consultancy Linesight, comments: “What that tells me is that these infrastructure projects are huge schemes, and I think that’s a reflection of the [priorities of the] governments in the GCC, their determination to carry out their infrastructure projects, and undertake the master developments to diversify their economies. The fact that the majority of spend is focused on infrastructure highlights the significance of the projects. Infrastructure is something we can’t ignore.”

READ: Dubai's RTA approves $160m smart traffic infrastructure project

On a country-by-country basis, Saudi leads the GCC’s infrastructure sector, with $585.3bn worth of projects across the planning, design, tender, and construction stages. Excluding projects on hold, this figure represents 51% of the GCC’s total infrastructure project value ($1.14tn), as McCormack points out.

“Again, if you look at the infrastructure sector, 47% of projects in terms of value in the UAE are at the planning and design stage, while 51% are in Saudi and 63% in Kuwait. Certainly, the focus for consultants like ourselves needs to be on the infrastructure sector. There’s a strong demand for core infrastructure expenditure, and it goes back to the commitment, which is apparent from various GCC governments, to diversify their revenue base and reduce dependencies on hydrocarbons.”

Indeed, the kingdom has made no secret of this concerted effort, as part of its National Transformation Program 2020, which is an important component of Saudi Vision 2030. A primary focus of the NTP is to gradually reduce Saudi Arabia’s dependence on crude oil exports, transforming the country into a global investment hub.  And, while the low oil price has clearly played a role in spurring on the strategy’s development, the NTP also recognises that the kingdom has much more to offer on the global stage.

Megaprojects such as the $500bn (SAR1.9tn) Neom megacity on the kingdom’s Red Sea Coast and the 334km² Qiddiya entertainment city only offers only more examples of the leadership’s desire to position the kingdom as economic, tourist, and cultural destination globally.

When it comes to Saudi, you may see contractors taking a much more aggressive approach to tendering in order to secure the turnover.

Speaking on this trend, Karim Helal, founder and chief executive officer of ProTenders, says: “GCC governments are increasingly turning towards public-private partnerships to fill the budgetary gaps for transport and infrastructure developments. Saudi Arabia’s Ministry of Transport announced 23 new projects worth of $598.9m (SAR2.2bn) to build a new network of roads.”

READ: Musanada launches Abu Dhabi infrastructure projects worth $123m

McCormack adds: “The outlook for the construction market in Saudi definitely has improved; the opportunities do exist when you look at the number of projects at the tender stage. Against this backdrop, there will be significant challenges for contractors – it’s a good challenge, but it really comes down to how they are going to price these projects from perhaps a standing stop position.

“When it comes to Saudi, you may see contractors taking a much more aggressive approach to tendering in order to secure the turnover. If their turnover is low, they want to secure as much of that as possible, and they may adopt a more competitive strategy.”

While Saudi Arabia largely dominates the GCC’s infrastructure sector, with $204.5bn worth of projects at the planning stage, followed by the UAE’s $44.2bn, the latter is the biggest player when it comes to active urban projects. Residential, commercial, corporate, healthcare, hospitality, educational, industrial, recreational, cultural, governmental, laboratory, pharma, religious, and research projects are all included as urban sector projects, as defined by ProTenders.

The road ahead

The value of active projects in this urban sector in the UAE currently stands at $377.9bn, representing 44% of the value of the GCC’s total figure for this segment ($868bn), and followed by Saudi ($274.9bn).

“These statistics show that from a country by country perspective, the UAE remains number one in the urban sector,” says McCormack. “We’re always interested in the pipeline when we see these figures, as that is where the opportunities are coming from. In the urban sector, 51% of the total value of projects in Saudi Arabia are at the planning and design stage. Meanwhile, Oman is next at 42%, and the UAE drops to about 28%.”

Interestingly the UAE has 1,433 active urban projects classed as ‘on hold’, on top off the country’s 13,373 total figure.

READ: Saudi Arabia reveals construction progress updates of $500bn Neom

Saudi Arabia ranks second with 268 schemes on hold, followed by Oman with 129, Bahrain’s 28, and Kuwait at 20. While the UAE’s figure may look alarming, it is important to take into account the total number of active projects in the country, as McCormack explains.

2018 has seen an upward trend when it comes to the GCC construction industry.

“Looking at on-hold projects in the UAE, compared to the number of active projects, the number of ‘on hold’ projects represents about 10% of that total figure. That’s actually comparable to both Saudi Arabia and Bahrain, which hover at about 9 -10% in terms of total projects on hold.

“If you look at both ends of the spectrum, Oman has about 13.7% of its projects on hold, with Kuwait at the lower end with about 6.5%. You need to be considerate in the overall context.”

Helal also cites the decline in oil prices, which he says “has forced most developers” to cut down the cost of the project or event cancel some. Large projects in the region are expected to continue to feel the slump in oil prices, Helal says: “Despite signs of recovery, Dubai Holding has put $20.2bn master project Jumeirah Central on hold just over a year after its launch.”

However, he adds, developers and contractors are still going ahead with building projects as scheduled, with many being developed to meet the anticipated rush during the Expo 2020 Dubai.

PROGRESS REPORT: Construction at Expo 2020 Dubai site

Helal explains: “2018 has seen an upward trend when it comes to the GCC construction industry, which is expected to continue to remain largely positive, backed by Saudi Vision 2030 to attract more investors into the market. The UAE and Saudi Arabia are likely to remain the top markets for the construction industry.

“Dubai’s economy is likely to benefit from Expo 2020. Among the construction sectors, residential, education, hospitality, healthcare, transport, and energy are expected to emerge as sectors with lucrative opportunities for developers and investors, as well as contractors, and consultants in the coming years,” the ProTenders boss concludes.

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