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MENA Construction Boom: Restructuring the Region

Fiscal year 2005 was a year of major investments and important new initiatives for the Middle East and North Africa. Development rate was frequent in all sectors giving a promising view of the future for many years to count. Nevertheless, the increasing oil prices (crude oil was trading at USD 69.2 at the time of writing this report) were the major factor shaping the overall situation. Whether in the commercial; industrial; banking; stock or construction sectors, investors have been attracted to recruit immense amounts of money, significantly manifested in the huge projects being accomplished. On the official level, various governments in the region are genuinely utilizing these gains through investing in the local market, developing the infrastructure and supporting the growth of export -oriented manufacturing companies.

To begin with the investments, in FY04, major investments were committed in the North African region mainly. The focus of the investments was on financial sector (including micro and small business and housing); manufacturing (with emphasis on the building materials sector); and oil and gas. Rounding out the sectors’ range were investments in the infrastructure and information technology. These investments covered Egypt, Algeria, and Tunisia. From another side, Libya is arising as one of the most promising market; at the beginning of 2005 a 43 per cent revenue growth was anticipated as it looks to capitalize on major new business opportunities in Libya.

The Gulf States represent one of the most important markets in the world today for construction and engineering companies. All countries in the GCC region, especially Saudi Arabia and the United Arab Emirates, have been witness to the mega-projects in the infrastructure sector that required both private as well as foreign investments. In 2004, imports into the Gulf region rose by 15%-20% on average, thus reflecting bullish business confidence and higher private spending.

Construction sector investments in Saudi Arabia were the largest among other countries in MENA region. The simulative 2005 budget announced on the back of the robust oil prices has provided a fillip to the sector which has already seen strong growth in the past year with huge real estate and industrial projects. The kingdom recorded a 2004 budget surplus of SR 98 billion ($26.1 billion) for 2004 and set a balanced budget for 2005 fiscal with revenues and expenditures projected at SR 280 billion ($74.6 billion). The 2005 fiscal budget has doubled the spending on new projects in Saudi Arabia, with allocations set at SR 75.5 billion (USD 20.1322 billion).

Over the last 20 years, Dubai and Abu Dhabi, the two largest emirates among the seven which comprise the UAE, have been propelled in path of rapid economic expansion on an impressive scale. Developments in the infrastructure, energy, real estates, and IT sectors make the UAE in particular a prime market for international contractors wishing to do business within the Middle East. The growth is fully supported by the UAE government, whose commitment is pioneering in the Middle East, and is seen by many as a best practice model for many other governments in the region.

In the Levant, the development of public transport and Real Estate projects took the big share. To speak of Lebanon, the total value of works completed in the roads and highways sector, covering all Lebanese regions was about One Billion USD with another One Billion remains allocated for this sector. The roads’ (international, main and local roads) rehabilitation and development plan is to be implemented over the period of ten years, partially funded by the World Bank. From another side, the property sector has been fuelled with the increasing oil prices. In this respect, the biggest share of foreign investments in Jordan went to the property sector, which has recorded a noticeable growth of 20% while in Lebanon, where the property sector has always been important, a mixture of local, expatriate and Gulf Arab funds has been fuelling the sector and among the currently undertakes program we mention the USD 3.6 billion multi-year project of the Council for Development and Reconstruction.

Obviously, the MENA region, while enjoying a construction boom, is in front of a critical stage that needs precise planning, wise management, and up-to-date approaches that enable the private and public sectors to seize all opportunities, follow the stemming and fading trends and attain maximum profits. It’s meaningless to say here that tough decisions have to be made by the governments and effectiveness of the trade and commercial legislative bodies must be increased to enable those generating economic legislations that meet the requirements of the developing market.

Sources: Global Investment House, Arab British Business, Lebanese Council for Development & Reconstruction (CDR), International Finance Corporation (World Bank Group), ACW’s Archive 2005