Eyes on the prize

Investors could reap the benefits from an infrastructure boom in the Gulf – provided local governments get their act together.

There’s a sea change underway in the Gulf. For one, the region looks well placed to host the first football world cup ever organised in winter – following hints this week by FIFA president Sepp Blatter that, after all, June temperatures in Qatar might prove a little uncomfortable for players in 2022.

But probably more momentous is the prospect that this occasion – as well as other international shindigs, like Dubai’s World Expo 2020 – will catalyse a fresh infrastructure push in the region. Investors and developers rightly have high hopes: most members of the Gulf Cooperation Council (GCC) – which comprises Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain and Oman – have slated multi-billion dollar infrastructure programmes for the coming decade. Deloitte thinks Qatar’s “Q2022” investment plan, for example, could amount to more than $200 billion.

Some powerful forces are certainly at play. The sobering impact of the financial crisis on booming cities like Dubai has created a will among Gulf States to strongly support their economies. The volatility of oil prices, and the prospects of long-term downward pressures due to the shale revolution, have fed the need for industrial diversification. And the demands of fast-growing populations, shortly after the Arab Spring unseated a number of neighbouring regimes, has created a social imperative to invest in sectors like power, water and education.

Luckily, GCC governments have strong allies on their side. Developers and contractors, which saw their traditional markets squeezed as a result of the global downturn, still have excess capacity and offer tight prices. What’s more, credit taps have recently reopened: on top of the fresh liquidity brought by the GCC’s nascent public markets, European banks and Export Credit Agencies, the Gulf’s traditional financiers, are proving very active in the region once again.

But more now needs to be done to get another set of crucial players on board – private investors. Bankers based in the region reckon there will be so much demand on GCC balance sheets, and such a thirst for foreign expertise, that governments will have no choice but to seek external partners. Yet industry insiders tell us that beyond the water and electricity sectors, Public-Private Partnership (PPP) frameworks remain largely untested. A level playing field between incumbents and outsiders is sometimes missing, they say.

Some initiatives have also backtracked. A plan to bid out the construction of Saudi Arabia’s first private refining facility was finally cancelled – with Saudi Aramco now in charge of developing the $7 billion facility – because it allegedly did not provide an economically viable proposition for the private sector. “Sometimes the issue is that governments themselves don’t want to be committed,” an analyst based in the region told us, noting that more robust availability-based mechanisms were probably needed.

And then there are issues linked to raw materials, which some fear could soon be in short supply, together with concerns over migrant workers and human rights, which have grown louder as the region raises its international profile and could play their part in deterring foreign investment.

GCC nations are in a better position than most to meet their infrastructure needs. But to ensure their construction push keeps running beyond half time, they now need to make the game fairer for everyone.