Dubai, UAE 29 June 2014 - PwC launched its second Middle East capital project and infrastructure survey today. The survey finds a renewed optimism, with 75 percent of respondents expecting an increase in spending in the coming 12 months. This is largely driven by mega events, including Dubai Expo 2020 and Qatar World Cup 2022, as well as increased spending on social infrastructure including housing, education and healthcare.
However, this is only half the story – the results show that there is a ‘capacity crunch’ looming on the horizon, in other words, market capacity failing to keep pace with demand. PwC say there are two fundamental areas that will limit the ability to progress with project plans: people and financial resources.
There are already signs that these capacity constraints are beginning to impact project delivery - 95% of respondents say their projects are delayed, with a staggering 45% delayed by more than 6 months. However, client decision-making is also a big concern, with 35% of contractors citing it as the greatest challenge they face delivering projects.
“Whilst our survey shows a good dose of optimism, there is a capacity crunch looming which threatens the delivery of projects. It is already having an impact, we are seeing more delays on projects that are underway,” said Stephen Anderson, PwC’s Leader of Capital Projects and Infrastructure in the Middle East. “Broadly speaking these problems have been apparent in our region’s infrastructure sector for several years, but the increase in activity is making them more acute. They need to be urgently addressed if the region is to deliver on its ambitions”.
The ability to find skilled people – both in terms of quality and volume – was identified as a key challenge for both project owners and contractors. Difficulties securing funding are also expected to lead to project delays – our survey suggests that there simply isn’t enough funding available. The sheerscale of commitments is making private sector finance a more attractive, and indeed necessary, option for funding infrastructure projects.
Respondents identified the UAE as their top target for investing in capital projects and infrastructure, closely followed by Qatar and Saudi Arabia. Strong economic growth and budget surpluses in these countries provide the backbone for ambitious spending plans, as their governments continue to invest in economic diversification while at the same time spending to maintain or expand hydrocarbon and downstream petrochemical production.
However, optimism in the rest of the region is not as high, as political instability continues to affect confidence. The proportion of respondents to the survey saying they would be targeting projects in Egypt fell substantially compared to our last survey, and it remains to be seen if the election of El Sisi as President, along with announcements to expand infrastructure programmes, can restore confidence.
There has been a significant reduction in the number of projects being scaled back or cancelled due to funding constraints. Down 14% from the last survey, this is explained by the increasing role of private finance, as a staggering 83% stressed the importance of the private sector in financing projects. However, even though the banking sector and capital markets are in a bullish mood, there are growing concerns that rising demand will soon exceed the supply of capital, with 45% of respondents noting that funding constraints had resulted in projects being postponed or deferred last year.
The 2014 Capital Projects and Infrastructure survey was completed by 130 of our region’s most prominent project owners, developers, contractors, advisors, and financiers. PwC asked the respondents for their views on the challenges they faced in 2013 and early 2014, and their outlook for the coming 12 months.
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