The road to growth – infrastructure investment in the Middle East

15 July 2014



Many countries in the Middle East are seeing rapid economic growth, population expansion and urbanisation. As Timetric reports, governments in the region are investing heavily in infrastructure, and road and rail in particular, to support these developments.


The development of infrastructure around the Middle East region is gaining traction, and this is particularly true of Algeria.

The infrastructure construction market accounted for 39.7% of the Algerian construction industry in 2012 and was worth $13.6 billion. The market was the fastest-growing construction sector in Algeria with a review-period compound annual growth rate (CAGR) of 14.5%.

Infrastructure development in the country has not kept up with population increase, so the government has undertaken large infrastructure construction projects as part of the current development plan for the 2010-14 period.

The road infrastructure category was the largest infrastructure construction category in 2012, accounting for 31.9% of the market and valuing $4.3 billion.

One of the largest public works projects in the world, the East-West Highway - a six-lane, 1,200km toll highway located in the north of the country - was launched in 2007 with an estimated investment of $11.4 billion. The project is expected to be completed by the end of 2013. The category is expected to record a CAGR of 6.7% over the forecast period, to value $6.0 billion in 2017.

The rail infrastructure category accounted for 14.8% of the infrastructure construction market in 2012 and is set to receive particular attention. The network currently spans 4,200km, and the government announced a plan to expand the total length to 12,000km by 2017. An $87-billion, 1,300km-long high-speed east-west line from Tunisia to Morocco has been announced, and plans to modernise the existing network are also in place. The sector is expected to be the fastest growing in infrastructure construction over the forecast period.

In order to diversify the heavily energy-reliant economy, Algeria is looking to develop traditional industries such as agriculture and services. To attract foreign investment, create jobs, increase mobility and enhance economic growth, the government has invested $286 billion in basic infrastructure for the 2010-14 period, which includes energy, transport, telecoms and public housing.

However, these projects have advanced slower than expected, with poor planning and widespread corruption accounting for the modest progress. The Algerian media accuse foreign companies of paying bribes to political figures and employees in higher posts to ensure that they obtain contracts. These issues will need to be tackled to make sure the large investments bear proportionate results.

Kuwait

Infrastructure construction is the largest market in the Kuwaiti construction industry, accounting for a 51.2% share of the total industry value in 2012. Increased government investments, the adoption of the build-operate-transfer model and participation in the private sector through public-private partnerships helped an increase in infrastructure construction activity during the review period. Infrastructure construction is expected to continue to expand and value $6.6 billion by 2017

Energy and communications infrastructure was the largest category in the market, with a 40.6% share of the total industry value in 2012. Output stood at $2.1 billion in 2012, having posted a review-period CAGR of 2.7%.

"Kuwait plans to make a $100-billion investment in the energy sector to expand its existing production capacity and meet the rising demand."

Owing to its heavily subsidised cost, energy in Kuwait has one of the world's highest per-capita consumption rates. The government plans to make a $100-billion investment in the energy sector to expand its existing oil production capacity and meet the rising demand for gas. This includes developments such as the Clean Fuel Project, the Gas Train 5 Project and a new Acid Gas Removal Project.

Road infrastructure was the second-largest category within the Kuwaiti infrastructure construction market, with a 32.2% share of the value in 2012. This category recorded a CAGR of 3.0% during the review period to value $1.7 billion in 2012. The total number of vehicles on the road increased from 1.0 million in 2012 to 1.7 million in 2013, indicating the need for more roads. The category is expected to record a forecast-period CAGR of 4.8% to value $2.1 billion in 2017

One of the most prominent projects for infrastructural development in Kuwait is the development of the metro and rail transport network. In October 2012, the government announced a $7-billion metro network, with construction projected to be completed by 2020. This will cover an area of 160km and will comprise 69 stations on three lines.

Other infrastructure projects have been announced or are currently under way. For instance, the construction of the $487-million port by Turkish group STFA was announced in January 2013. The port is expected to have the capacity to hold 70 oil tankers and be completed in 2015.

Oman

Infrastructure construction was the largest market in the construction industry in 2012, with a value of $4.2 billion and accounting for a share of 43.8%. The market recorded a CAGR of 4.7% during the review period and is expected to expand at a brisk pace over the forecast period, registering a CAGR of 15.7%. New road, rail, airport, energy and water projects are under construction, and the present five-year plan (2011-15) has prioritised infrastructure development with an allocation of $16 billion.

The energy and communications infrastructure category constituted the largest share of the infrastructure construction market in 2012, with 68.6%. The category valued $2.9 billion in 2012, registering a CAGR of 4.4% during the review period. Production of electricity increased by 6.4% as the rising population and increasing demand for electricity is forcing Oman to develop its energy infrastructure. Investments in the country's large downstream oil and gas activities are expanding the sector, leading to a forecast-period CAGR of 5.5%.

Road infrastructure was the second-largest category within the market in 2012, accounting for a 19.1% share. The category is anticipated to record a CAGR of 5.2% over the forecast period to value $1.0 billion in 2017, with growth driven by construction of new roads and the doubling of the width of existing roads.

In July 2013, Oman Oil Company announced a project to establish a new petrochemical facility and expand one of its existing refineries. This will help to increase supply in the country, reducing dependence on imports and generating higher revenues from exports. A 300km pipeline, projected to be operational in 2018, for transporting gas will be installed between the Fahud and Sohar industrial ports to reduce tanker traffic in Muscat, creating a strong base for rapid growth in the economy.

The Omani Ministry of Transport and Communications announced in November 2013 that it would be awarding contracts worth $1.9 billion for the construction of new roads. In early 2013, the government outlined plans to build a $1.0 billion Diba-Lima-Khasab road project through Oman's Musandam governorate.

The Oman Rail Project, which will begin construction this year, is designed to connect to various ports, industrial areas and neighbouring countries. A section of this rail network is likely to be operational by 2018, and it will boost the economy by helping logistics and trade, which are largely dependent on oil exports.

Qatar

Infrastructure construction was the largest market in the industry, accounting for 50.7% of its value in 2012. The market grew at a CAGR of 0.9% during the review period to value $8.7 billion in 2012. The Qatari Government's total projected expenditure for 2013-14 was $58.0 billion. Spending on the road and rail networks is expected to account for 30.0% of this figure, as the country aims to expand its transport infrastructure. Over the forecast period, the market is expected to grow at a CAGR of 7.9%, to value $12.7 billion by 2017.

Road infrastructure was the second-largest category in the infrastructure construction market during the review period and valued $1.0 billion in 2012. It is expected to register a forecast-period CAGR of 2.1% to value $1.1 billion in 2017. Qatar has a traffic congestion problem, requiring the government to invest more in road infrastructure development. Road construction will therefore continue to grow over the forecast period in order to tackle this issue.

The Doha Metro is an important part of Qatar's ambitious infrastructure project. Qatar Rail announced in July 2013 that construction of the $8.2-billion first phase will begin in the first quarter of 2014 and finish in 2019.

Saudi Arabia

Infrastructure construction was the largest market in the Saudi Arabian construction industry in 2012, accounting for a 40.5% share and valued at $24.3 billion, following a review-period CAGR of 7.7%. In 2013, the Saudi Arabian Government announced a plan to invest $77.0 billion for improvements to roads, bridges and railways.

With a 54.2% share and a value of $13.2 billion, energy and communications infrastructure was the largest category within the infrastructure construction market in 2012. In April 2013, the Ministry of Electricity awarded $79.9 billion for energy projects, which are expected to be completed by 2022. The demand for electricity in the country is rising due to rapid population growth, prompting the government to announce a plan in September 2013 to invest $29.3 billion to enhance electricity generation capacity and improve power infrastructure.

Road infrastructure was the second-largest category in the market during the review period, accounting for a 23.9% share and valuing $5.8 billion. In June 2013, the Ministry of Transport allocated $200.0 million for road maintenance, and, in January 2013, the government announced an investment of $2.9 billion on new road construction projects. The Ministry of Transport set aside $3.0 billion for 389 new road projects in various parts of the country in February 2013. Other activities include the expansion and modernisation of King Abdulaziz International Airport in Jeddah, refurbishment of Medina Airport, and improvements to the Holy Mosque in Mecca.

Turkey

Infrastructure construction was the second-largest market in the Turkish construction industry in 2012, accounting for a 31.2% share and valuing $23.4 billion, registering a review-period CAGR of 10.6%. Turkey's strategic location between Europe and Asia, its expanding population, robust economic growth and cross-border trade flow are expected to remain the key drivers of infrastructure development in the country. Turkey also intends to enhance its transport infrastructure to improve its global trade and economic position. These factors are anticipated to support the market to record a CAGR of 9.4% over the forecast period, to value $36.5 billion by 2017.

Road infrastructure was the largest and fastest-growing category in the infrastructure construction market during the review period, accounting for a 37.0% share in 2012, valuing $8.7 billion and registering a CAGR of 11.4%. The category is anticipated to expand at a CAGR of 9.3% over the forecast period. The government has invested heavily in roads, increasing the number of divided highways from 6,100km in 2003 to 21,000km by 2012, upping the number of provinces connected by them from six to 74. Plans are in place to increase the network of motorways by an additional 5,250km by 2023 with the support of private partnerships.

With a 28.0% share and a value of $6.5 billion, the energy and communications infrastructure category was the second-largest in the infrastructure construction market in 2012. Owing to rapid urbanisation and population growth, electricity demand in Turkey is rising, which is expected to prompt significant government and private investment.

The rail infrastructure category valued $2.5 billion in 2012, registering a CAGR of 10.9% during the review period and is anticipated to record a forecast-period CAGR of 9.0%. A series of high-speed rail networks are being built to help reduce road congestion, with a number of projects already attracting the attention of prominent global construction companies. The government plans to increase the network of high-speed rail lines from 888km in 2011 to 10,000km by 2023.

"Turkey’s strategic location, expanding population and robust economic growth are expected to remain key drivers of infrastructure development."

Turkey's location has also contributed to substantial investments in infrastructure, as the need to improve rail and road systems remains a priority to facilitate better connectivity with neighbouring countries, and to promote trade and business.

Turkey's foreign trade in 2011 totalled $375.0 billion, and the Ministry of Trade plans to achieve a value of $1.0 trillion by 2030. To achieve this, a considerable investment in infrastructure will be required.

UAE

Infrastructure construction was the largest market in the construction industry during the review period, constituting a 28.5% share of the industry and valuing $23.1 billion in 2012.

Expansion in the market will be supported by maintenance and investment in infrastructure, and the government's plans to invest in nuclear plants as it bids to increase its share to 25.0% of the total nuclear energy supply by 2020.

Rail infrastructure construction is expected to record healthy growth over the forecast period with an expected CAGR of 9.3%. Output in the segment stood at $2.2 billion in 2012, having grown at a review-period CAGR of 1.9%. A total of $25.0 billion will be invested on rail infrastructure, and the category is expected to reach a value of $3.5 billion by 2017

In September 2013, Abu Dhabi's Executive Council approved a $1.0 billion budget to improve the Al Mafraq-Al Ghuwaifat road, with the project expected to be completed by 2017

An initial outlay of $535.0 million will also be allocated to add a new section on the Dubai-Abu Dhabi highway. In 2012, the UAE Government announced plans to invest $74.0 million in the modernisation of road infrastructure in the country. This includes the construction of the 14.0km Al Yabsa bypass road with a budget outlay of $53.3 million; the development of internal roads in Fujairah and Dibba at a cost of $17.4 million with the aim of connecting the Shaikh Khalifa Road and the Al Hail industrial area with Fujairah Port; and a 10.5km road network with an estimated budget of $3.0 million in the new residential area of Umm Al Quwain.

These projects will support the growth of the road infrastructure category over the forecast period.

Source: Timetric
Source: Timetric


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