Does the Middle East have a reliance on infrastructure?

Timon Singh

Infrastructure investment has been key all over the Middle East in the past year; Abu Dhabi is investing US$1 trillion into modernising every aspect of its infrastructure, while the likes of Bahrain, Qatar and Oman are similarly updating their networks from transport to power.

However, as the Dubai Debt Crisis showed, too much investment in sectors like construction can backfire on emirates and Middle Eastern countries. With that in mind, Infrastructure MENA asks, is the Middle East overly reliant on infrastructure investment?

For decades, various Middle Eastern countries have relied on their natural resources to keep them financially secure. Saudi Arabia and Abu Dhabi in the UAE, for example, have seen a majority of their wealth come from its oil exports. Other emirates such as Dubai for example, do not have oil exports or energy wealth to fall back on, and thus have focused their efforts on turning their countries into strategic business and tourism hubs; a source of income that is not finite.

Again using Dubai as an example, the emirate has invested heavily in a metro system, business cities and major sports complexes in order to participate in massive money generators such as the Grand Prix, the Football World Cup and the Summer Olympics.

However this focus on construction has a price, as the debt crisis shows.

Sector recovery

While certain parts of the Middle East have recovered faster than others, building firms are still having a hard time in areas like Dubai and as such, have expanded across borders. However as many are based in Dubai, riding out the current economy is the main concern for many firms.

However, while Dubai may have built its wealth on lavish construction projects and high-class hotels, the emirate is not about to be deserted as a former playground for architects, now put out to pasture.

Speaking in February, Sanzio Vaienti, global sales director at Soilmec, an Italian based company which manufactures drilling and piling machinery, said, "Dubai is a very important market to us. However recently due to the downturn it has not done so well and it probably won't pick up until the later end of this year We made a 70 percent loss in 2009 in the UAE. Globally we made a 50 percent loss."

However our countries in the region are undaunted by the current slump and have continued to invest heavily in infrastructure.

Infrastructure investment

According to the Gulf Co-operation Council (GCC) last month, over US$2 trillion worth of infrastructure plans are been planned in the region. Edmund O'Sullivan, chairman of MEED Events said at the time that "in 2009, almost US$52 billion worth of contracts were awarded in the GCC region and we expect this level to rise in 2010. The total value of infrastructure contracts increased by 11 percent to US$15 billion in 2009, from US$13 billion in 2008. There are significant opportunities in key areas such as infrastructure, transportation and housing and they will continue to lead the construction industry for years to come."

He is not wrong.

In order to attract foreign investors and service the national economy, Oman has announced that they will spend US$268.5 million on roads, aviation and sea lands projects. Kuwait has likewise stated that it intends to invest over US$108 billion over the next four years into new cities and ports. However it is Abu Dhabi that has picked up the "infrastructure investment" ball and run with it.

With plans to invest over US$1 trillion into projects such as the US$22 billion Masdar City project, billed as the first zero-carbon, zero-waste city and the Khalifa City project, itself the single biggest project in the capital and has a budget of US$40 billion, Abu Dhabi sees infrastructure investment as the main way to wean its economy off oil.

Once reserves run dry, the UAE is hoping to become a business, economic and tourism hub like Dubai, pre-debt crisis. Not just that, but in the aftermath of the global recession, reviving growth is a way to create jobs, lower the costs of running businesses and attract more foreign investment.

The capital of the UAE has not been shy in splashing its money on massive projects and currently has ten civil projects in process worth US$208 billion. Of course with such construction aims, comes great power needs and as a result, Abu Dhabi's energy demand is set to triple over the next five year.

Of course, when you're trying to diversify away from finite oil resources, this presents quite the problem, and therein lies the whole crux of the matter.

If the likes of Abu Dhabi, Dubai, Qatar and Oman are planning for a future when they can't rely on oil resources, how are they going to run the likes of the Shuweihat power plant? Of course, the UAE has plans to develop a nuclear power program, but if they're planning for a world without oil, with aims to becoming a tourist hub (and bolstering their aviation network and infrastructure to cope with such growth), how is anyone going to be able to get there in a world without fuel?

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Oman investing in infrastructure | Saudi Arabia puts $53bn into water projects | $2 trillion GCC construction projects planned