Report examines United Arab Emirates infrastructure market conditions
Dec. 17, 2009 -- According to a new market report from BMI, governments of the gulf region, including the UAE's, have bolstered investments in infrastructure in an effort to cushion the blow to their economies...
Dec. 17, 2009 -- In an effort to cushion the blow to their economies governments of the region, including the UAE's, have bolstered investments in infrastructure. In Dubai, Dubai Electricity and Water Authority (DEWA) has embarked on a multi-billion dollar capital expenditure programme, while the government of Abu Dhabi is pushing ahead with its transport master plan.
As the dust settles, there is increasing optimism coming from the Gulf region on the momentum behind infrastructure projects, which seems to have been sustained in spite of the global financial turmoil. True, projects have faced delays and sponsors have departed (see, for instance, the case of Concourse 3 at the Dubai Airport), but the speed that infrastructure projects managed to get back on track is noteworthy (after just one month the Concourse 3 project had a new contractor). Therefore, we have significantly revised our outlook this quarter, adopting a more optimistic forecast for industry value growth in 2009 onwards.
The investments Abu Dhabi is making in infrastructure, in transport especially, and also ongoing infrastructure investments in Dubai, such as the metro, have not only survived the downturn, but have attracted the attention of international majors, which are seeking a safe haven in the UAE's (and certainly the wider Gulf region's) infrastructure markets. Such investments we believe will grease the wheels of the industry and propel it towards growth in 2009.
In BMI's Q309 UAE Infrastructure Report we forecast that the industry value real growth for 2009 will be 6.8%, compared with our previous forecast of 0.9%. As such, we forecast that industry value will reach AED86.7bn (US$23.6bn). A similar level of growth is expected for 2010, with value climbing up to AED95.9bn (US$26.1bn).
In addition, the positive effect of lower raw material prices cannot be overestimated. As raw material prices decline, developers in infrastructure and general construction may become more confident about long-term cost estimates, which in 2008 were constantly being revised as prices of steel and cement reached new heights.
However, we also stress that most of the developments in the infrastructure sector of late have been overwhelmingly government backed. As such, we maintain our assessment that that government-backed infrastructure spending will sustain the construction sector growth at a time when private investments are expected to decline.
We anticipate that bridge loans will become the modus operandi for the majority of the project-financing arrangements as investors take a much more circumspect approach to long-term commitments, at least while uncertainty is the state of play in the global financial markets.
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