2020 PwC Middle East Capital Projects and Infrastructure Survey

More private sector investment and a greater use of technology to improve productivity will become increasingly urgent in a post-COVID-19 world

52%

identified risk & change management as a key internal challenge when working on major projects
57%

identified delayed payments as a key external challenge when working on major projects
67%

believe digital innovation will disrupt the infrastructure market in the next two years
83%

of respondents agree on the importance of private sector funding

For better or worse, the pandemic is forcing change

Across the Middle East, the capital projects and infrastructure industry confronts a perilous market landscape. Public and private sector organisations were already challenged by sharply falling oil prices when COVID-19 struck, forcing many projects to be cancelled or temporarily placed on hold. As the region emerges from lockdown, strategic priorities have started to change, with investors and contractors conducting urgent portfolio reviews amid a severe economic downturn. Simply put, the industry will need to deliver “shovel-ready” projects, which deliver the maximum economic and social impact, more rapidly.

PwC’s latest Middle East Capital Projects and Infrastructure Survey, conducted between February and April 2020, captured the evolving sentiment of industry leaders as the pandemic progressively influenced their strategic thinking. We have divided the results between data gathered during a “pre-COVID-19” period before 3 March 2020, the time frame relevant to the Middle East, and a subsequent “during-COVID-19” period after 3 March 2020.

Our findings reveal how the economic shock delivered by COVID-19, compounded by lower oil prices, has compelled the industry to address long-standing issues such as lax project management and inadequate technology.

In this fragile funding environment, the overall message from the survey is clear:
Technology will be the major enabler for organisations as they cut costs and improve productivity in order to address the daunting challenges that lie ahead.

Key challenges facing the industry

Internal

More than half of respondents identified risk and change management as one of their organisation’s five most pressing internal challenges. Organisations in the region still have work to do to develop better business cases for projects at the pre-investment stage and ensure a clearly defined scope is agreed and detailed planning carried out before procurement starts. In this regard, it is notable that 50% of respondents cited poorly defined scope or inadequate design as the main reason for cost overruns, while 31% identified project schedules as one of their organisation’s top five improvement priorities for current and future projects.

Financial performance (40%) was ranked third as a major internal challenge, while 37% of respondents said funding and financing remained an issue. A significantly higher proportion of larger organisations (48%) felt funding and finance posed a greater internal challenge than smaller organisations (29%).

External

When respondents were asked to name their five leading external challenges, more than half identified delayed payment from clients. This proportion did not vary greatly between the pre 3 March and post 3 March results, underscoring the degree to which delayed payments are an enduring issue for the industry due to the length of supply chains. COVID-19 and associated lockdowns have further disrupted domestic and international supply chains, increasing the threat of insolvencies among both suppliers and contractors.

By contrast, there was a significant difference between the pre and post 3 March results regarding market volatility, ranked second (50%) in the overall survey as a major external challenge. Before 3 March, only 27% of respondents cited market volatility as a top-five challenge, but this proportion rose to 62% in the later period. Understandably, market changes – ranked 11th in the overall survey as the major reason for project delays during the past year – leapt to top place in the post 3 March 2020 responses.

Digital and tech are key drivers for change

Our technology findings provide the main cause for optimism about the industry’s prospects coming out of the lockdown, because the COVID-19 crisis appears to have impressed on many respondents the need to digitalise functions and operations.

Looking ahead, 67% of those surveyed believe digital innovation will either transform (29%) or effect significant change (38%) to the infrastructure market over the next two years.

Interestingly, one-third of those who responded post 3 March 2020 thought digital innovation would be transformational to the sector.

COVID-19 has also sharpened perceptions about which top-five new technologies that will have the most disruptive impact on the industry in the next two years and therefore need to be prioritised. Two-thirds (66%) of the post 3 March 2020 sample identified Artificial Intelligence (AI) and machine learning in their top five, compared with just 50% in the pre-COVID-19 sample. Furthermore, 60% of respondents are either planning to implement AI and machine learning in the next two years with 28% having done so across some or all of their operations against 32% of respondents who are still at the planning stage.

The need for alternative financing grows

As the survey results show, the impact of lower oil prices and the economic damage from COVID-19 has created a daunting financial landscape to navigate.

A large majority (83%) of respondents agree on the importance of private sector funding, in line with our 2018 survey (80%). Around the region, the past two years have witnessed a flurry of government initiatives to attract more private finance to bridge the funding gap and kickstart projects.

Conclusion

The COVID-19 pandemic, coinciding with falling oil prices, is forcing organisations across the region to address industry issues that were already significant when we conducted our previous survey in 2018. What has changed is that these challenges must be tackled in, what is, an unprecedented economic downturn, where survival will depend on making the correct strategic decisions and knowing where to prioritise and re-allocate capital. This represents a major challenge.

Based on the findings of our survey we believe the following measures are critical to success in what could be a prolonged, post-crisis downturn.

Simply waiting for better times to upgrade technology and address operational challenges is no longer an option.

The time for action is now.

About the survey

We surveyed 94 organisations based in the Middle East and on average operate in three countries across the region. Respondents included project owners, developers, contractors, external advisors and financiers, all with a key role in the Middle East’s major capital projects. More than half the respondents were at or above senior executive level - 22% were in C-suite positions and 33% were in Heads of Department or Senior Management roles.

The survey was conducted between February and April 2020. To measure the pandemic’s impact on the industry across the Middle East, we have compared selected results between a “pre-COVID-19” period before 3 March 2020, a time frame relevant to the Middle East and “during-COVID-19” period after 3 March 2020.

“Larger organisations” are defined as those with more than 500 employees, while “smaller organisations” fall below this level. Some 40% of some 40% of respondents were organisations that operate within the energies and utilities sector, 19% are engaged in urban development and 18% in transport.