Despite oil slump, GCC construction set to break records
London - The year is shaping up to be a record-breaker for construction in the six Gulf Cooperation Council (GCC) countries, with planned and active projects estimated to reach $172 billion, according to a new study.
A report by Deloitte highlighted mega-projects in development in the region, such as Saudi Arabia’s Riyadh East Sub-Centre, a mixed-use commercial, retail and residential high-density development worth $15 billion. The second largest project in the kingdom is the Khozam Development, which will be south-east of Jeddah and is projected to be worth $13.3 billion.
The biggest GCC project in the works though is Dubai World Central’s Al Maktoum International Airport expansion, which is budgeted at $32 billion and will result in the airport becoming the world’s largest. The second largest UAE project is Abu Dhabi’s Al Gharbia Chemicals Industrial City, which is a joint venture between the Abu Dhabi National Chemicals Company and the International Petroleum Investment Company. It has a budget of $20 billion.
According to the Deloitte report: “This is all against a backdrop of lower oil prices, continuing political unrest and reduced International Monetary Fund (IMF) growth forecasts across the GCC. It is also impacted by the deepening recession in Russia.”
The report revealed that Saudi Arabia’s multi-billion-dollar infrastructure spending programme is driving the bulk of demand in the GCC. The kingdom has the second largest market share, after the UAE, in the overall MENA cement industry. Algeria has launched a number of major housing and railway projects, which will also increase demand for concrete and cement.
In Qatar, the report reveals that the two largest projects in the pre-execution phase and expected to be awarded in 2015 are from QRail. The QIRP: Passenger & Freight Rail is budgeted at $15 billion and QIRP’s Passenger & Freight Rail: Phase 2 is expected to cost $3 billion.
A total of 400 kilometres of mainline rail connecting Qatar to neighbouring countries and 260 kilometres of metro and light rail are planned, most of which is to be completed before the 2022 World Cup.
In Oman, the largest project in pre-execution phase is the sultanate’s ambitious railway project. Oman Rail – Oman National Railway is to be 2,135 kilometres in length and is budgeted at $15.6 billion. The railway is to be executed in nine segments and completed by 2022.
The report emphasised the GCC’s dependency on oil reserves and the need to spend on infrastructure and capital projects to achieve economic diversification. In terms of key drivers for diversification, the report underlined the need for job creation given that more than half of the GCC population is under the age of 25.
The report forecast that in Saudi Arabia 4 million jobs will be needed in the next five years. The GCC overall population is forecast to grow from 350 million to 602 million by 2050, all driving GCC strategies to provide education, health care, infrastructure and support to communities.
“And of course all this growth will require energy and water: a 34% increase in electricity generation capacity and a further 2.2 billion litres desalination capacity is required by 2020,” Deloitte said.
“Out of the total $2.8 trillion projects that are in execution and pre-execution phases, 40% of this value relates to residential, leisure and hospitality buildings and mixed-use developments, totalling an anticipated budget value of $1.1 trillion,” a summary of the Deloitte report stated.
The IMF warned in May that, due to the global oil-price slump, GCC oil exporters must diversify their economies while also scaling back public spending, including subsidies. In terms of growth, estimates for GCC states are forecast at 3.4% for 2015, which the IMF revised downward 1 percentage point since October 2014 because of the slowdown in non-oil growth in response to lower oil prices.