$1.6T Projects In Limbo – Zawya

Posted on May 19, 2011 by

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Close to $1.6-trillion worth of projects are cancelled or are on hold in the Middle East and East North African market, with $800-billion in the UAE alone, according to Citibank. 

The statistics are a reflection of the hangover of the leveraged days in the region when billion dollar projects were announced virtually every other day.

The excessive number of projects ruined many real estate markets in the region after the global financial crisis, as funding evaporated leading to defaults and pain for investors. Many regional banks and developers still carry the scars of that era’s unbridled enthusiasm.

After a period of calm and consolidation, projects were slowly coming back on line in the region in last 2010, but now they face delays due to Arab uprising that has spread across the region.

Not surprisingly, Egypt has suddenly popped up as a key destination of cancelled and delayed projects on account of its recent political and economic turmoil.

“Egypt has shown a 32% decline in total delayed and cancelled projects. This is split as a 36% decline in the former and a 6% increase in the latter,” says Citibank in a report. “This would indicate to us that, post the protests, the Egyptian government is still looking to move ahead with project spend and development.”

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Egypt has major infrastructure needs and requires 550 housing units per day Read: Realty Bites but with the government cancelling and reviewing a number of projects by foreign and domestic real estate developers, more projects are expected to be in limbo in the North African country.

Interestingly, while $512-billion of the $1.6-trillion projects in limbo are cancelled, a staggering $1.1 trillion projects could well come online at some point in the future.

Not that there is a shortage of projects in the works. In the Gulf alone, $1.9 trillion projects are under way, although it has fallen 18% from last year. If we include projects in Iran and Iraq to the mix, the total regional construction comes to an impressive $2.5-trillion.

 
 
One scenario would be to establish a PROJECT CLEARING HOUSE, wherein all…  

 
by SHELDON JACOBS

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Construction in the UAE (-35%) and Kuwait (-43%) has fallen year-on-year, which is not surprising given that many developers and institutions still have not recovered from the property crash of 2008.

Saudi Arabia’s total value of projects under way is up 8%, to over $660-billion, or 37% of the MENA projects in dollar terms.

Don’t Miss: Saudi Arabia’s $700-billion Project Bonanza

Citibank expects the Kingdom to retain its leadership position given that it has the largest pipeline within the main markets, and its pipeline of new projects has grown to $175-billion.

The $130-billion investment spend announced by the Saudi King is set to inflate that figure. Among other projects, the decrees include the building of 500,000 housing units, of which 15,000 were approved just last week. The $130-billion is in addition to the $385-billion already announced by the Saudi government for the 2010-2014 plan.

In addition, “Saudi Arabia also dominates preliminary stage projects, i.e. those at the exploration, feasibility and design stages which are not certain enough to be included in the pipeline. Saudi Arabia now has just over $200-billion of projects under consideration,” notes Citibank.

Saudi Arabia awarded close to $50-billion worth of projects in the first quarter of 2011, according to NCB Capital. “The ongoing priorities to grow the kingdom’s economic and social infra-structure as was set-forth in the 2011 budget has allowed the construction sector to continue its impressive growth,” notes NCB Capital.

“The value of awarded contracts was the result of several mega-projects being awarded in sectors such as the transportation, oil & gas and power sectors.”

The UAE has just under $600-billion worth of projects under way, with another $130-billion under consideration, according to Citibank.

Meanwhile, Iraq has seen a slowdown from a high of 58% in March to 23% growth in April. “Iran has also declined to -14% (versus  -2% in March). This may be due to recent political developments in our view,” says Citi.

DON’T MISS: Iraq’s Moment

MENA states announced $17-billion worth of projects in April, with Saudi Arabia announcing $10-bllion, primarily in the petrochemical sector.

Despite the pain construction companies are going through, the industry remains crowded and is hurting margins. In April alone 22 projects were awarded to 21 different contractors with intense competition seen in infrastructure and energy sectors.

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Posted in: Middle East