By Adrian Pritchard, construction industry specialist, Nash Fitzwilliams
"Missions Impossible" was the expression used at the 2012 MEED Arabian World Construction Summit to describe the challenge of delivering against the massive investment in construction being planned in the Middle East over the foreseeable future.
It is now a commonly held view that the Arab Spring has only been good for the construction sector, where the need for the oil wealth to "trickle down" is now clearly recognised. The largest opportunity by amount invested is in Saudi Arabia where the Government is focussed on country-wide infrastructure investment, and, like many other of the oil-rich countries, on diversification of income streams.
Annual investment has been put at considerably above $150bn and strong fundamentals, such as the rapid population growth, underpin this. Importantly, in Saudi, as elsewhere in the region, this construction boom is mostly non-speculative (in contrast to the Dubai boom) but driven by such fundamentals as population growth and/ or welfare.
Qatar has a huge amount of construction to complete (infrastructure, stadia, accommodation etc.) as it prepares for the 2022 World Cup - and is now in the running for the 2020 Olympic Games. The supply challenges are considerable and this will inevitably also benefit the wider region.
In the UAE, there is set to be a steady but strong increase in investment, mostly, as elsewhere, in publicly funded projects, but also, in a measured way, in private. For example, in spite of the very considerable recent investment in hotels in Dubai, hotel occupancy reached 81.8% in 2011 driving further investment in tourism.
Iraq, Libya offer 'extraordinary' construction opportunities
Beyond the Gulf, the wider Middle East is now offering extraordinary opportunity with Iraq and Libya presenting two fascinating examples. MEED hosted Iraq's passionate Minister for Construction and Housing who very persuasively made the case for global construction participants to travel to the country and participate in the reconstruction.
While this is the most upbeat I have seen the Middle Eastern construction sector since 2007/8, for western companies the challenge is of new very strong competition from the Far East. The Koreans in particular are driving forcefully into the market and pricing is very keen.
This means that for Western companies to play a role they need to show clear innovation and differentiation versus this competition. For example, in the case of the huge public investment in housing in Saudi Arabia, my sense is that success will be driven by identifying clear cost saving techniques rather than trying to persuade the Government to pay more for "added features".
Of course there are other challenges, not least the political risk, however where Western economies are characterised by massive indebtedness and austerity, the Gulf economies in particular have huge cash surpluses (Iraq and Libya are ramping up oil production) and all have an unequivocal intention to invest massively in construction. That is a very good start.