GCC construction opportunities valued at $500bn

Despite grappling with challenges and delivery issues related to current projects, major opportunities in the construction sector remain prevalent in Saudi Arabia, Qatar, Abu Dhabi and Iraq in 2012, according to the newly released Deloitte Middle East\'s annual report on the sector: \'GCC Powers of Construction: Five Lessons to Learn From\'. Key findings in the Deloitte report indicate that large infrastructure projects, particularly around social and transport infrastructure, will offer tremendous opportunities for contractors, as will continuing upstream and downstream oil and gas related developments in the coming years. Of the biggest investments currently underway is Qatar\'s plan to spend $100 billion in preparation for hosting the 2022 World Cup and achieving its 2030 vision, and Saudi Arabia\'s capital spend programme approaching $400 billion over the next 10 years alone. The Deloitte report indicates that although there are massive opportunities associated with huge construction spend, many project sponsors still have to deal with illiquid projects and debt. \"What primarily differentiates participants in the GCC\'s construction industry from their Western counterparts is that grand opportunities continue to be capitalized upon across the region, despite being forced to deal with continuing negative financial circumstances - simultaneously - in specific locales,\" said Rizwan Shah, Managing Director, Corporate Finance, and Leader of Deloitte\'s Capital Projects Advisory services practice for the Middle East. Backed by vast oil-based reserves and government stimulus packages, the economic prospects of the GCC region have remained positive despite ongoing political unrest in the wider Middle East region. As such, efforts to maintain a balanced and diversified economic base have remained the primary focus of the regional governments as evidenced by a steady stream of investments into construction and infrastructure developments. The Deloitte report indicates that there is at least an estimated $500 billion investment opportunity regionally, in energy, transportation, education, healthcare and other critical sectors of economic development. The oil and gas exporting countries, such as Saudi Arabia, Qatar and Abu Dhabi, have an additional objective which is the need to diversify their economies away from the traditional petrochemical and hydrocarbon industries. This is also driving infrastructure spending in these countries. These countries are now looking at how to take advantage of existing strengths to develop upstream industries - and the focus has shifted to construction, according to the Deloitte report \"The region certainly is expected to continue to offer a lot of opportunity for contractors,\" said Cynthia Corby, audit partner Deloitte Middle East and leader of the Construction industry for the UAE. \"Construction contracts alone, worth $40 billion were awarded to contractors in the first quarter of 2011, 47 per cent of which were in the energy sector. It is interesting to note that despite such grand investments, governments are still trying to recuperate from the impact of the financial crisis,\" she added. The Deloitte construction industry report indicates that there are vast opportunities across the Middle East, with longer term infrastructure investment plans for the region estimated to be in excess of $1 trillion. This figure, as research shows, may continue to rise as governments assess the impact of the Arab Spring on priority investments. In addition, the uprisings have been credited with positively influencing infrastructure investment, forcing governments to accelerate spending programs in order to meet citizens\' higher expectations. In terms of projects in the pipeline across the Middle East, the majority are social (36 per cent); 29 per cent power-related; 13 per cent in transport and 13 per cent in oil and gas. Saudi Arabia The Deloitte report shows that there is imminent growth in the Saudi Arabian construction industry, being the biggest market in the GCC in terms of population and GDP. Budget value of contacts to be awarded in Saudi Arabia in 2011 onwards is set to increase to $35 billion, as compared to $25 billion in 2006. The Government is undertaking grand investments, with plans nearing $400 billion in five years, demonstrating an increasing trend of projects that will need to be awarded in the coming years ahead. These will include building schools, hospitals, universities, houses, airport expansions, and new railway infrastructure and road improvements. This construction market is therefore expected to be one of the most buoyant in the world. The immediate challenge that the Kingdom faces is how to implement the various capital investment programs and to ensure efficient delivery whilst containing inflationary pressures that are challenging the region as a whole. However, the lower global demand in some locales for construction products together with foreign companies shifting focus to countries such as KSA should provide some buffer against inflationary pressures, as per Deloitte\'s report on the GCC construction industry. Qatar The Deloitte report classified Qatar as the fastest growing economy in the GCC region and holding an 8 per cent share of the total value of the regional projects. In terms of its construction industry, its value was forecasted at approximately $8 billion in FY11. Projects planned to be underway in Qatar in the future are valued at approximately $230 billion; with the hosting of the 2022 FIFA World Cup positioned to be a truly major enabling event for the future development of the country and achieving its vision for 2030. Therefore sport will be a key element of the construction industry boom, in the non-oil and gas sector, with investments allocated to hotel, leisure, tourism, sports, recreational and infrastructure projects estimated at $60-70 billion. Abu Dhabi The UAE is ranked as the second largest market with investments worth $9 billion allocated to buildings, infrastructure and energy sectors in the first quarter of 2011 as the Deloitte report indicated. Despite the regional unrest and the public slowdown of projects in Abu Dhabi in 2011, the UAE has overall demonstrated some key elements of stability. Abu Dhabi, in particular accounted for 70 per cent of the total $20 billion of contracts awarded between Q1 and Q3 of 2011. Driving this growth, with over $12 billion in awarded contracts, the Emirate is placing particular attention on transport, utilities and social infrastructure. In addition, according to the Deloitte report, the Abu Dhabi government has a long term investment program to upgrade its airports, seaports and public transport system to cater to the growing population. In addition, approximately $2 billion has been allocated towards an integrated housing project on the outskirts of the capital to improve the imbalances within the residential market.