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Middle East | Market report 2016

With ever-increasing uncertainty about oil prices, countries in the Middle East can no longer rely on this commodity as a main revenue stream for civil engineering schemes. 

However, the steady flow of new contract awards for infrastructure projects shows confidence in the market has not declined completely. 

While the narrative varies from country to country across the region, major infrastructure plans in the United Arab Emirates (UAE), for example, look unlikely to face significant delays. New Civil Engineer sister publication Meed Projects has forecast that the UAE will post $36.5bn-worth (£25.2bn) of infrastructure contract awards this year, down only marginally on the £25.8bn awarded in 2015. 

The overall outlook is far from doom and gloom in this “new oil era”, with many governments in the region now looking to strengthen market confidence by restructuring spending plans and looking at ways to diversify project financing. This move has resulted in a focus on public private partnerships (PPP).

Burj Khalifa

Burj Khalifa

Middle East: Reducing oil dependency

Speaking at the recent Meed “Financing Projects in New Oil Era” conference, Nick Prior, a partner in Deloitte’s UK financial advisory practice, admitted that PPP schemes are not always deemed to offer a beneficial finance model because they are perceived to be less flexible than traditional government funded methods and there is sometimes concern that the private sector will ultimately make excessive profit. 

However, he insists PPP schemes present a massive opportunity in the Middle East market and can be hugely beneficial when implemented correctly. 

“It’s not challenging [to use PPP schemes] but it is important to get it right,” he said. “If you don’t get it right you will undermine the credibility of the programme and the government’s ability to successfully deliver these projects.”

Financing projects

Joss Dare, head of the Middle East practice at law firm Ashurst, agrees that many governments in the region are actively looking more closely at their programmes for public infrastructure and plans for development because spending is being stretched. Dare is confident the dip in the price of oil is not necessarily a negative thing for infrastructure projects in the region.

He told New Civil Engineer that the tightening of budgets in some areas might, in fact, lead to a more disciplined approach to investment for major infrastructure schemes. 

“Capital does not necessarily engender discipline in terms of choosing which projects to do,” says Dare. 

middle east

middle east

“This isn’t just a Middle East point, but a world view; when things are on the up and there’s a big programme being produced, right at the core of that there are projects that probably should have been delivered a generation ago.

“What tends to happen, in my view, is that everyone gets excited and a bit carried away with additional projects that are a bit less central.”

In countries that have traditionally relied on oil revenues, it is inevitable that some projects that have yet to start might remain on hold for some time to come. 

“Sometimes that’s a shame and sometimes it’s fine,” says Dare.

PPP schemes present a massive opportunity in the Middle East market and can be hugely beneficial when implemented correctly

 He stresses, however, that it is essential to view the Middle East accurately as a group of different countries, not one collective state. As such, the effect of oil prices has varied greatly from country to country.

“Oil prices are really the issue of the day. However, it’s important to remember that the Middle East is not a place, it’s a lot of places under a generic banner, so the effects of macroeconomic events like that are not homogenous,” he explains. 

“If you’re in an oil exporting country then the price of that commodity obviously has a major impact; but if you’re not, it will still have an effect but it will be more diffused.”

While some of the other markets in the region have been struggling, the outlook for Dubai, where Dare is primarily based, remains positive.

“We have offerings in Abu Dhabi and Jeddah, in Saudi Arabia, but our main hub is in Dubai because it has very well developed infrastructure and a landscape that makes it easier to do business. It works really well as a business hub.”

Engineering change

The launch of high profile developments in the emirate this year alone, including the Dubai Tower and the Palm Gateway Tower, mark the confidence developers have in the market’s long-term prospects. Other major contracts set to be awarded later this year include the Dubai Metro’s Route 2020 extension and the Burj 2020 Tower, both set to be delivered by the end of the decade. The key challenge for Dubai will be maintaining this growth over the next five years and beyond, according to ICE UAE representative Mark Jamieson.

“Dubai has changed dramatically over the last 20 years – it is no longer inward looking,” he says. “The city is massively punching above its weight. However, it is now about consolidating this progress and UK business may very well have a role to play in this.”

If you’re in an oil exporting country then the price of that commodity obviously has a major impact

Jamieson insists that the ICE will have a vital role to play in working with other professional bodies in the region to see if and where Middle Eastern countries want input from the UK industry. As part of this, working with governments in the region to get some form of comprehensive accreditation is key to raising the status of engineers and the ICE, he says.

“Chartership used to be a key requirement when working on projects in the region. Unfortunately, this has waned significantly since the 1960s and 1970s,” comments Jamieson. 

“Before that period, you had to be a chartered civil engineer. When those sorts of requirements waned, so did our [ICE] influence.”

Turning tide for engineers

However, there are signs that the tide is turning on some of the higher profile schemes currently underway. Preparations for the 2022 Fifa World Cup tournament in Qatar, for example, have marked a positive change for chartered engineers.

Projects being undertaken ahead of the event require engineers to be registered with the Ministry of Municipalities Affairs and Urban Planning. However, the ICE’s UAE chapter has been working towards agreeing exemptions for chartered engineers.

“This is great because these sorts of exemptions mean there’s a value coming back for chartered engineers,” says Jamieson. “As a business, the plan is to grow the ICE in this region, so getting some form of accreditation or acknowledgement, ultimately from government, is key to us being able to transform the relationship that our members have with the wider community.”

Engineering status

Raising the status of engineering will inevitably impact the industry’s skills shortage, a key challenge faced by the profession in the region. 

“On a macro scale we realise there’s a shortage of engineers. Here, when we talk to the head of the Society of Engineers, they’ve got a shortage. The UK also has a shortage. There just isn’t the flow of people coming into the industry,” says Jamieson.

While many of the issues facing the market in the Middle East differ hugely from the UK, it is clear that the battle to attract the next generation of engineers is an international concern.

“We create some of the most amazing structures but we are not good at communicating it,” admits Jamieson. 

“It’s a really exciting time to go into the industry, but we need to learn to show how exciting it is. Our marketing skills need to improve. We need people to understand how cool what we do is.”

 

 

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