United Arab Emirates Infrastructure Report Q2 2014
Factors Driving Construction Industry Growth
- We have logged US$313bn of construction projects in our Key Projects Database across the infrastructure and residential and non-residential construction sectors. About US$212bn of this figure related to projects currently under construction - many of which have entered or re-entered that phase over the end of 2013 and H114. We highlight that our Key Project Database reveals a worryingly thin project pipeline, with only US$25.3bn in the tendering or pre-tender phase. Without the projects to replace ones currently under construction, the solid return to growth we are currently forecasting will not be sustainable.
- We continue to see increasing opportunities in the hospitality and tourism sectors. Tourism and tourismrelated projects has provided a welcome source of value for the construction industry over recent troubled years in the residential sector. We expect this to continue throughout 2014 and beyond as the UAE, most notably Dubai and Abu Dhabi, positions itself as a global business and tourism.
- Large-scale mass transit projects are under way across the UAE, with the first sections of the Abu Dhabi metro and light-rail network awaiting to be awarded and the extension of Dubai's metro expected to enter construction in 2014. The second phase of the US$11bn Etihad Railway Network - also part of the US $100bn GCC Railway Network - has entered the tendering phase.
- Although the nuclear power project in Abu Dhabi has been plagued by project delays and cost inflation, the second reactor is now under construction, and plans build a third and fourth reactor have been granted approval.
- The UAE continues to make headway with its push for renewable energy. The first phase of the Shams 1, 100MW solar plant was inaugurated in March. However, showing the importance of fuel price dynamics, in August, state-owned Dubai Electricity and Water Authority (DEWA) launched a tender for the construction of a new 1,200MW coal-fired power plant. What is particularly notable is it could potentially be the biggest clean coal-fired power plant in the Gulf when it is completed in 2021. With plans in place to deploy carbon capture and storage technology, which has not been developed in other regions in light of low coal prices, we note that the captured carbon could be used in Enhanced Oil Recovery (EOR). As a consequence, if the plant can be brought online, it would not only prove to be environmentally friendly, but may also help the UAE achieve a considerable return (by enabling the emirate to extract more oil) on the significant investment that would be needed to bring such a large-scale CCS project online.
- Indicative of the newfound confidence in the UAE construction market, UAE-based Arabtec Holding signed a memorandum of understanding (MoU) with its shareholder Aabar Investments to design and build 37 towers in the UAE, under a deal worth AED22.44bn (US$6.1bn). Arabtec will build nine mixeduse towers at developer Tomouh's City of Lights project and a further four mixed-use towers elsewhere on Al Reem Island in Abu Dhabi. The firm will also build 14 residential towers as well as a five-star hotel in Abu Dhabi. In Dubai, the firm will build six hotel towers and serviced apartments in the Aljaddaf district and three mixed-use towers in Business Bay. The construction of the 37 projects is expected to start in 2014 and is scheduled to be complete by 2020.
BMI View: 2014 should be the year in which the UAE's construction industry returns to solid growth as 2013 saw the reactivation of numerous delayed projects and the award of many new ventures. Dubai's real estate market is looking strong and more sustainable than was the case before the 2008 crash and Abu Dhabi's market seems to have bottomed out. We also note the risk of the 'funding cliff' within Dubai's financial sector is being addressed and we do not expect there to be a dramatic tightening of liquidity over the coming year. We have also upgraded our medium-term growth forecasts in light of Dubai winning the 2020 Expo.
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