Business Outlook

PROJECTS
MEED Projects
The region’s leading
projects tracking service.
Projects market supply chain
Gain access at:
www.meedprojects.com
hopes for positive change
With the past few years painting a gloomy picture in the
projects market, the hope is that 2019 will bring improvement

I
t is said that it is always darkest just
before the dawn. In the case of the
GCC projects market, we can only
hope that this is case because with
the data from 2018 now collated,
the market can surely not get any worse.
The value of projects awarded for the
whole of last year was just $97bn, accord-
ing to MEED Projects. This marks a 22
per cent fall on the $124bn of deals let in
2017, making 2018 the worst year for the
GCC projects market since at least 2004.
Deal decline
There was a decline in the value of new
deals in all GCC states. The UAE remains
the largest individual projects market,
with $44.5bn of new contracts in 2018,
a fall of just under $5bn on 2017. Saudi
Arabia, traditionally the largest and most
diverse regional projects market, declined
by just under $3bn to $26.4bn. Kuwait
and Oman both experienced a more than
50 per cent fall in deals let to just $5.6bn
and $5.1bn, respectively.
From a sector perspective, it was a sim-
ilarly gloomy picture. With the exception
of water, all key project sectors recorded
a lower total value of awards year-on-year.
Some $45.8bn of contracts were signed
in the construction sector in 2018 com-
pared with $76.6bn in 2014. In transport
it was even worse, with the sector having
declined by more than two-thirds over the
past five years from $35.2bn in 2014 to
just $11.8bn last year.
The numbers are particularly disap-
pointing given that other metrics pointed
to a more positive year. After all, the oil
price averaged more than $72 a barrel in
2018 compared with just $50 a barrel in
2015-16, government expenditure was
up on the previous year, while each state
made all the right noises about increases
in the pace of project spending.
So what went wrong? This is a question
to which there is no straightforward an-
swer. Analysis of historical data highlights
that it takes at least 18 months for chang-
es in the oil price to have an impact on

GCC CONTRACT AWARDS BY SECTOR, 2014-18

$bn
80
70
60
50
40
30
20
10
0
Chemical Construction Gas Industrial Oil Power Transport Water

2014 2015 2016 2017 2018

Source: MEED Projects

78 \ MEED Business Review

overall project spending levels. This was
demonstrated as recently as 2015 when Gulf Projects Index
crude was already well on the way down,
but contract awards hit a near record falls to $3.92tn
$178bn. It was not until 2016, some 18

T
months after oil prices started falling, that he Gulf Projects jects index. Other new
project activity substantially declined. Index value fell projects include the
Project budgets and expenditure sign- by 1.36 per cent expansion of Saudi Ara-
off are often made well before revenues to $3.92tn on the week mco’s Berri field water
tighten. Conversely, it takes time for in- ending 11 January, injection system and a
creased revenues to translate into budget- although part of that new hospital in Riyadh
ary decisions on new projects. A positive change can be attributed owned by Sabic.
implication of this is that the steady rise in to an audit of MEED Several projects in the
oil prices over the past year should result Projects’ database. UAE were completed,
in greater project activity in 2019. Only Iraq and Saudi including the $2.25bn
Arabia performed Al-Dabbiya field at
Slow private growth positively, gaining 3.1 Adnoc’s northeast Bab
The lack of growth in the private sector in per cent and 0.7 per field phase 3. Budgets
the development of regional projects has cent, respectively. Iraq’s for certain projects were
been another impediment to the market’s gain hinged on a budget revised downward, in-
performance. Dubai has shown that it is revision – from $1.5bn cluding for Abu Dhabi’s
possible for a projects market to be sus- to $12bn – of the South Al-Reem Island and the
tained by private or quasi-private entities Integrated Project, Al-Raha Beach devel-
that are not dependent on government owned by Basra Oil opment. New projects
financing. But there has been little pro- Company, ExxonMobil include the planned
gress made in reforming the procurement and PetroChina. expansion of Dubai
and project development ecosystem to In Saudi Arabia, sev- International Financial
delink organisations from the government eral new schemes led Centre and the Alree-
or create self-funding companies. by the $500m Rabigh man mixed-use develop-
The decline in project market spending oil conversion project, ment in Abu Dhabi.
has also been compounded by issues were added to its pro- Jennifer Aguinaldo
unique to some states. Kuwait, for exam-
ple, sometimes faces barriers for political,
not financial reasons. GULF PROJECTS INDEX
Regardless, the industry has to be Value of projects planned or under way ($bn)
hopeful. Initial signs are positive: Riyadh 1,600
announced a record $295bn 2019 budget 1,400
on the back of higher projected oil earn- 1,200
1,000
ings; the UAE’s federal budget is also the
800
highest ever set, growing 17 per cent to 600
more than $16bn; while Oman’s expendi- 400
200
tures are set to increase by more than 3
0
per cent, to $33.5bn. 09 10 11 12 13 14 15 16 17 18 019
20 20 20 20 20 20 20 20 20 20 2
Of course, higher budgetary expendi- n
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ture does not necessarily mean project
spending will rise, as 2018 demonstrated. UAE Kuwait Iraq Bahrain
Saudi Arabia Iran Oman
But it is indicative of a general trend that
will offer encouragement to the belea- Source: MEED Projects
guered projects market supply chain. Read updates through the month on:
The hope is it cannot get any worse. www.meed.com/classifications/gulf-projects-index
Ed James

MEED Business Review / 79