How reduction in oil prices has impacted economic growth in GCC countries is no secret. And, there could be no escape for the six countries - Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain, and Oman - which currently hold 30 per cent of the world´s proven oil reserves.
That said, the GCC economies is set for a projected growth this year - by around 3.7 per cent - that could be high compared to emerging markets, but is lower than the region´s average growth rate of 5.8 per cent between 2000 and 2011.
While one would have expected low oil prices to directly hit the regional infrastructure market, seems like the GCC governments have decided to ignore the slump and move in a positive direction. Their plans to increase budgetary allocation will certainly see an increase in infrastructure activities along with an increase in job creation, economic growth and diversification.
However, fund is the ultimate ´protagonist´ for the execution of infrastructure activities, to which, alternative sources beyond treasuries and bank debt, including capital markets and private investment, are now being explored. Could be a smart move, and here is why: A report by Standard & Poor´s Ratings Services (S&P) estimates that the GCC governments need $604 billion to fund projects through 2019, including $100 billion on infrastructure. Planned capital spending is much lower: about $330 billion, with $50 billion for infrastructure.
A Ventures Onsite report in 2015 emphasised on the immense reserves of the region´s sovereign wealth funds, highlighting their capabilities to invest in infrastructure projects, even with budget deficits brought on by low oil prices. And, GCC governments since last year have been open to welcoming private sector investment. While the Ventures Onsite report expects this trend to continue for a few years now, I see this as a decision taken in the right direction as it will be in the interest of executing the many ongoing and planned infrastructure projects.
It is certainly intriguing to see how each country is coping with the low oil and gas prices in terms of spending on construction and infrastructure projects. GCC countries are on the move - Kuwait has plans to finance half of the capital expenditure under its new development plan through the PPP model; Dubai has passed a new law to encourage PPPs to fund new infrastructure projects; Bahrain´s Vision 2030 also focuses on the private sector as the engine of infrastructure growth.
What´s more, UAE´s infrastructure is reportedly found to be the third most competitive in the world, ranking first for roads, second for ports and third for airports. Bahrain occupies the 21st position across 100 countries, and Oman, Qatar, Saudi Arabia and Kuwait ranked 25th, 26th, 29th and 67th, respectively (as per reports in 2014). The year 2015 saw Saudi Arabia taking the lead with 31 per cent in terms of projects awarded. This was followed by Qatar with 28 per cent, Kuwait with 18 per cent, the UAE with 12 per cent, Oman with 10 per cent and Bahrain with 1 per cent.
Saudi Arabia´s success could be a result of the investment made by the government in major infrastructure projects, including the upgradation of the kingdom´s railway network. This along with Qatar and the UAE take the lead with a total planned investment of $106 billion for various rail projects alone within their countries. With this, our Cover Story in this edition would surely be of your interest. The focus is on the Rail and Road Infrastructure with a listing of over 30 upcoming projects in each railways and roads.
So, while the low oil prices do add to the grief, government initiatives to push infrastructure are certainly bringing all smiles.