Construction generates jobs, builds infrastructure and mitigates social unrest
A consequence of the Arab Spring has been an upsurge in infrastructure development throughout the region. It is debatable whether or not this is due to governments ensuring that the basic needs of their populations are catered for, so as to pre-empt social unrest, or whether it is a result of a general shift of emphasis in the construction industry due to the downturn. In reality, it is probably a little bit of both.
However, one has to beware of generalisations, and the situation is certainly more complicated than the above suggests. Look at Qatar: not only is it faced with the demands of hosting the World Cup in 2022, but it has to transform Doha into a modern city in order to get there. Fortunately Qatar already has its 2030 Vision in place, which has given direction to its long-term development as well as putting the World Cup requirements into a more manageable context.
Look at Saudi Arabia: not only has it announced a project to build the world’s tallest building, it is also faced with a chronic housing and utility shortage in terms of its local population, as well as a rising number of religious tourists to Makkah, which is itself being overhauled and redeveloped. How Saudi Arabia contends with the supply chain and logistics challenges of these various demands, as well as the impact of its Nitaqat programme on the labour pool, will be interesting to watch. Already there are constraints in terms of cement and grumbles about Saudisation quotas.
Many consultants and contractors are deployed in both Qatar and Saudi Arabia, as these are the most viable growth areas in the region at present, but this does present its own challenges in terms of resource allocation and priorities. Do you ignore Saudi Arabia at the expense of Qatar, or vice versa? Or do you establish a toehold in both and wait to see which balls will need to be juggled?
What is undeniable is how important the construction industry remains in terms of revving the economic engine of countries, especially post-downturn. A classic example is South Africa, which saw a boom in infrastructure development prior to the World Cup, then a dip afterwards. President Jacob Zuma has just announced 43 infrastructure projects totaling $428bn over the next three years. It hopes that this will generate 50,000 to 100,000 jobs, which is critical in a country faced with a 30% unemployment rate.
Qatar and Saudi Arabia, of course, have huge sovereign wealth funds to tap into. South Africa has confirmed that while the bulk of the funds needed will come from the national fiscus, “the private sector will be called upon to ensure that various forms of financing were explored to fund the build process.” In addition, public entities such as Eskom (electricity) and Transet (rail) will finance their investments from internally-generated surpluses and borrowing from capital markets. While the role of the private sector in financing infrastructure in the Middle East has been limited due to the availability of large sovereign funds, the need to expedite service delivery will likely mean the private sector assumes an increasingly important role.