GULF STATES CONSTRUCTION MARKET REPORT INTELLIGENCE FOURTH QUARTER 2011 FEATURING THE ECONOMIST INTELLIGENCE UNIT WHERE TO NOW FOR THE GULF?
OFFICES AROUND THE WORLDOCEANIA EMEA ASIA AMERICASAUSTRALIA MIDDLE EAST CHINA CANADAAdelaide Abu Dhabi Beijing CalgaryBrisbane Doha ChengduCairns Dubai CARIBBEAN ChongqingCanberra Muscat Barbados DalianDarwin Riyadh Grand Cayman GuangzhouGold Coast Guiyang UK USAMelbourne Haikou Birchwood/Warrington Boise, IDNewcastle Hangzhou Birmingham Boston, MANorthern NSW Hong Kong Bristol Denver, COPerth Macau London Hagåtña, GUSunshine Coast Nanjing Manchester Hilo, HISydney Shanghai Newcastle Honolulu, HITownsville Shenyang Sheffield Kennewick, WAWestern Sydney Shenzhen Welwyn Garden City Las Vegas, NV Tianjin Los Angeles, CANEW ZEALAND Wokingham Wuhan Monroe, WAAuckland EUROPE Wuxi New York, NYChristchurch RLB|EuroAlliance Xian Orlando, FLOtago Austria Zhuhai Phoenix, AZPalmerston NorthTauranga Belgium Portland, OR IndiaWellington Bulgaria San Francisco, CA Mumbai Czech Republic Seattle, WA Estonia INDONESIA Tucson, AZ France Jakarta Waikoloa, HI Germany Washington, DC Greece MALAYSIA Hungary Kota Kinabalu Ireland Kuala Lumpur Italy PHILIPPINES Kazakhstan Cebu Latvia Davao Luxembourg Manila Malta Netherlands SINGAPORE Norway Singapore Poland Portugal SOUTH KOREA Romania Seoul Russia Spain THAILAND Sweden Bangkok Slovakia VIETNAM Slovenia Switzerland Turkey UkraineCover: City skyline, DubaiDisclaimer: While the information in this publication is believed to be correct at the time of publishing, no responsibility is accepted for itsaccuracy. Persons desiring to utilise any information appearing in the publication should verify its applicability to their specific circumstances.Cost information in this publication is indicative and for general guidance only and is based on rates as at Fourth Quarter 2011.
INDEPENDENT CONSULTANTSLOCAL KNOWLEDGE AND EXPERTISEGLOBAL NETWORKRIDER LEVETT THE GULF THE ECONOMISTBUCKNALL STATES REPORT INTELLIGENCE UNITRider Levett Bucknall are The Rider Levett Bucknall Gulf The Gulf States Report exclusivelyglobal property market and States Report is published twice- includes “Where to Now for theconstruction cost consultants yearly and provides detailed local Gulf?” authored by the Economistwith offices located throughout property and construction market Intelligence Unit from thethe Gulf Region. intelligence and data. renowned The Economist Group.Rider Levett Bucknall, through professional excellence, proven performance and innovation, continues to growas one of the world’s most active and advanced construction and property advisors. Major clients rely uponRider Levett Bucknall for advice and direction on controlling, monitoring and reducing cost and construction time– the elements so crucial to successful project completion.Our strength lies in proven ability to combine local knowledge and expertise with access to the information, technologyand human resources of our global network. At all times we can provide the personnel to handle peak workloads, andthe specialist skills to meet diverse requirements.Rider Levett Bucknall is the vital link between the building owner, investor, financier, design team and constructioncompany, providing independent and unbiased advice on all matters of cost significance throughout the life cycle of awide variety of projects. We act for the client throughout a project to ensure maximum value for investment.Rider Levett Bucknall places enormous importance on research and development, and a substantial proportion of ourrevenue is devoted to this end. Our clients are guaranteed the benefits of the most advanced and effective technicalmethods and procedures. We remain at the forefront of our profession by taking the initiative to introduce new andimproved methods to achieve results.Our projects in the Gulf States and abroad continue to signify the dramatic pace of technological advancement. Theyrequire the highest level of skill, experience and planning. They contribute to our growth in innovation and research,new services and techniques, and to our global knowledge bank of experience. A recent example is the Abu DhabiNational Exhibitions Company (ADNEC) Arena. This joint operation between our UK office (pre-contract services) andGulf States office (post-contract services) is destined to host spectacular events on the world stage.We look forward to working with you to respond to new changes in the construction industry with the sameuninterrupted, positive and progressive approach we’ve delivered to our clients for more than 225 years.Visit rlb.com
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GULF STATES REPORT MARKET BahrainINTELLIGENCE Bahrains economy continues to reel under socio-political unrest dating However, the actual deficit will most likely end up being less, as authorities back to mid-February. Effects include have prepared the budget using $80 a drop in economic activity, apart per barrel of oil. It is widely expected from a higher budget deficit. that oil prices will average just above $100 per barrel this year. Bahrain’s Chamber of Commerce and Industry estimates that the unrest One additional source of income is caused economic damage of up to the promised economic assistance of $2 billion (approximately 750m BHD). $10 billion by the Gulf Cooperation This is a sizable amount, by virtue Council (GCC) countries. They have of equalling 9.5 per cent of gross promised $10 billion to Bahrain and domestic product (GDP). Bahrain has Oman over ten years to help the a nominal GDP of $21 billion. countries cope with the unrest. On a positive note, stronger spending Ostensibly, the economic costs relate should help Bahrain maintain an to damage occurring to several economic growth rate of around four economic sectors, notably retail, per cent. Stronger spending and hospitality and events. Reflecting the hence GDP growth helped convince uncertainty, some locals have chosen Standard & Poor to remove the to limit their spending to essentials, negative outlook from Bahrains long- and where possible delay purchases and short-term sovereign ratings of durable goods. one notch to A-/A-2 with a negative Also, the hospitality sector is outlook. suffering from an overall drop in Another victim of the socio-political the number of visitors, in particular unrest relates to raising fresh from neighbouring Saudi Arabia, doubts on the planned causeway simply to avoid being caught up in link with Qatar. This issue came to street violence. Thousands of Saudi light recently following the virtual nationals tend to cross the causeway cancellation of a joint Qatar/Bahrain during the weekend, partly to enjoy insurance firm. Key investors in the the liberal lifestyle in Bahrain. firm attributed the decision to a lack Additional losses concern the of progress on the planned causeway cancellation of events, such as the linking Qatar and Bahrain. hosting of Formula One. The ruling The 40km causeway is to cost body of F1 has dropped Bahrain from more than $3 billion. Yet political the 2011 calendar due to the political differences rather than funding seem unrest. The next time Bahrain hosts to be the primary cause for the lack F1 is in a distant November 2012. F1 is of real progress. Looking back, the a contributor to Bahrains economy two countries settled a decade-long through spending on ticket sales, TV oil border dispute in 2001 thanks coverage, transport, accommodation, only to a ruling by the International food and beverage, merchandise and Court of Justice. And only recently, souvenirs and other leisure activities. Qatar-based Al Jazeera added to the Another casualty relates to the unease by airing a programme on the widening fiscal shortfall. Recently, the problems in Bahrain. authorities added $860 million to the All told, economic costs related to 2011 budget to help cover a hike in political unrest stand to rise further, salaries and pensions. This will raise which is not good for Bahrain. total spending to a record $9.1 billion in 2011. Nevertheless, stronger spending increases the deficit to $3.1 billion, or one third of total spending. This level of shortfall contradicts a condition of the Gulf Monetary Union project, which restricts the deficit to three 1 per cent of GDP.
GULF STATES REPORT MARKET KuwaitINTELLIGENCE The IMF forecasts that Kuwaits The outlook for Kuwaits property economy will grow steadily sector remains reasonable, with throughout 2011 as a result of the the strength of the wider economy government implementing its underpinning the sector. The total development plan and the global volume of real estate transactions recovery supporting demand for oil, in the country rose by 5.3% quarter- together with the higher oil prices. on-quarter in Q2. This result follows Real GDP of the worlds 4th largest steady growth in the sector since oil exporter is projected to grow by mid-2009, where the greatest growth 5.2% this year, slightly down on the has been in residential property, due IMFs April projection of 5.3%. to government housing distribution. Overall transaction volume is forecast Analysts polled by Reuters earlier this to continue to rise throughout 2011. year expected economic output to grow by up to 4% this year in Kuwait, The government is attempting which has seen only limited public to direct investment in the non- protests in the political unrest that hydrocarbon sector, targeting a host has swept other parts of the Middle of new infrastructure projects, along East. with investment in healthcare and education. Plans also include the Government expenditure, excluding construction of the business hub, energy subsidies and social security Silk City, at an estimated cost of recapitalisation, is estimated to have US$77bn, as well as a new railway increased by 21.5%. Expenditure and metro system. In addition to increased in the second half of the this, the government has already fiscal year 2010/2011, with a cash- begun the construction of three more for-food social grant accounting for hospitals and 15 new clinics. half of the increase. Moderate fiscal stimulus is still appropriate at this time. Kuwait’s economic outlook remains robust, with a strong energy sector combined with a government willing to spend massively on infrastructure projects, underpinning our positive view on growth potential in 2011. This research believes that Kuwaits economy will be only minimally affected by the political tensions that erupted in the start of 2011 and forecasts growth to remain robust at 3.4%, averaging 4.0% through to 2015. 2
GULF STATES REPORT MARKET OmanINTELLIGENCE GDP growth is forecast to slow to International uncertainty and 4.6% this year, from an estimated market volatility are still affecting 5.5% in 2010, with a further slowdown the property market in Oman but to 4.2% in 2012. Strong growth in growth prospects are improving for oil and gas production will lift oil the longer term and the sector is GDP by 4.8% this year, while non- expected to rebound slowly over the oil GDP is forecast to increase by a coming years. Integrated Tourism respectable 4.5%. Despite the impact Complex projects such as The Wave of continued protests on business and Muscat Hills remain in demand confidence and tourism, non-oil GDP due to the quality of housing and will benefit from surging oil prices modern design. (up 42%) and a boost from public spending, including GCC aid. Despite Analysts report that there are some an additional spending package of signs of increasing stability in the US$2.6bn, the budget is forecast residential leasing market, but further to move into a surplus of some softening of rental values can be 6.7% of GDP in 2011 from a deficit expected in the short to medium of 2% of GDP last year. This reflects term, particularly as the supply of an oil price forecast of US$113 per new apartments comes into the barrel compared with the oil price market. The long term outlook is assumption in the budget of US$58 that the market should start to show per barrel. Inflation is forecast at just signs of recovery as the economy below 4% both this year and next. continues to expand. With Brent crude prices having The population of Oman has grown, hovered between $92 and $127 per with approximately 73 per cent of the barrel since the beginning of the population now living in urban areas. year, Oman’s government spending The result has been an increasing should rise to 9.2 billion rials ($23.9 need for housing designed for, and billion) this year, slightly higher affordable to, the local population in than the expected 8.1 billion rials. western areas of the city, such as Al The Sultanate plans to increase Khoud and Seeb. government spending by a further Several developers have picked up on 9 percent in 2012 to finance these trends and there is increasing construction projects and create development of affordable housing in more jobs for nationals. these areas. The government’s plan to spend The pace of development in the a massive RO 42.71bn during the retail sector had slowed significantly, Eighth Five-Year Plan period (2011- and according to reports, it would 2015) will see 37.7 percent of the total appear that the appetite for further budget funnelled into infrastructure large-scale retail space has been development. satiated to a large degree in the The continued weakness of the US short to medium term. Reasons for dollar, to which the Omani Rial is this include the fact that levels of pegged, has had an inflationary per capita disposable income are effect on materials, which are mostly relatively low in comparison to other imported. This has further reduced GCC countries, and that Muscat is the margins of developers, who not seen as a shopping destination, continue to absorb the impacts of unlike Dubai. wage increases and transportation costs. 3
GULF STATES REPORT MARKET QatarINTELLIGENCE Qatar’s economy is predicted Qatar’s construction market to continue its rapid growth continues to show favourable signs, trend through the rest of 2011, with clear evidence of new projects with increases in GDP per capita underway in Doha. Below are some expected at around 20%. The main of the major government funded drivers for the recent rapid growth projects currently under design/ come from the ongoing increase construction in Qatar: in production and exports of LNG, oil, petrochemicals and related • Qatar’s US$14 billion international industries. LNG production targets airport due to open in 2011 with are on programme to be met at the capacity for 24 million passengers. end of 2011 and the growth rate is • New city areas (Lusail), port and then expected to reduce to a more road infrastructure with associated modest, but steady, increase of 3 to utility services. 4% per annum from 2012 to 2015. • Major urban regeneration projects, Although Qatar is currently riding on such as the Musheireb project. a massive hydrocarbons expansion boom, which is driving growth • Rail transport systems, linking rates, economic diversity is seen as Qatar to neighbouring countries. fundamental to securing long-term stability in the local economy. • Doha Metro system, a US$ 3 billion scheme with 85km of track General market inflation peaked connecting Musheireb, West Bay in 2008 at 15.5%, subsequently and Lusail. crashing to -5% in 2009 as a result of the economic downturn. • US$ 20 billion on road networks Although returning to positive levels including the new Qatar / Bahrain in 2010 the percentage increase causeway and multi lane road remained low at around 1%. Inflation tunnels linking existing areas of is expected to rise and stabilise Doha. between 3 and 4% per annum from In addition to the government 2011 to 2015. funded projects, new retail centres, Qatar benefited, in the first quarter healthcare facilities and residential of 2011, from higher oil and gas prices communities have also been released adding to the economy growth and to the market. funding the diversification strategy. With the announcement of Qatar as Qatar allocated QAR 35.5 billion of the host nation for the 2022 World its 2010/2011 budget to infrastructure Cup, it is no surprise that there is a projects, which constituted 30% of certain optimism being felt within the total budget expenditure. Less the Qatar construction market. With than half way through the 2010/2011 the associated spend in the sector financial year the Qatari budget hit expected to be in the region of US$ a surplus of over 19 billion Riyals, 50 billion there is a lot to be done in predominantly due to increased gas a relatively short period of time. production and oil prices trading significantly above that assumed by In addition to the 12 stadia, the government. First quarter 2011 oil additional hotels and other World prices broke the US$100 per barrel Cup specific requirements, some mark as a result of the widespread previously planned projects will unrest in the Middle East. be accelerated to be ready for the Event, including the new Doha port; a US$7 billion project previously due for completion in 2023. The new port will allow cruise ships to be used to 5 accommodate fans during the games.
GULF STATES REPORT MARKET UAEINTELLIGENCE The UAEs economy, which is the Tourism, which is one of the UAEs second largest in the Middle East, prime economic sectors, is also is in recovery mode, despite the increasing strongly. The Emirates increasingly uncertain regional biggest hotel group, Jumeirah, states environment. This is primarily due that occupancy and room rates are to the high oil prices and strong back to 2007 levels as a result of demand from traditional trading a 9% growth in tourist numbers in partners, which is boosting growth 2011. This is mainly due to the unrest in non-hydrocarbon GDP from 2.1% in other part of the Middle East and in 2010 to 3.3% in 2011. The UAE Northern Africa where tourists are economy is projected to pick up regarding the UAE as a safe haven, sharply by around 5% over the next free from any uprisings. five years, with real GDP rebounding to almost 3.6% in 2011, from 2.1% in The Arab unrest has also boosted 2010 and 1.6% in 2009. the financial services sector, which suffered badly in the credit crunch. In March 2011, the International Many banking services have Monetary Fund, projected UAE relocated from Manama in Bahrain to growth for 2011 at around 3.3%, but Dubai. Bahrain was Dubais closest has revised this upwards to to 3.5% rival in this sector. In addition, new citing Dubais recovery, massive banks from the BRICSA countries spending by Abu Dhabi and high oil (Brazil, Russia, India, China and South prices. Africa) have begun to set up facilities in UAE. Bank deposits have climbed New figures for the key UAE sectors to their highest level in more than of transport, tourism and trade are two years. encouraging. In May 2011, Emirates Airline, Dubais best known brand, announced a 52% increase in profits to US$1.5 billion for the year to 31 March 2011, compared to US$964 million in 2010. It also recently successfully marketed a US$1 billion bond. 6
GULF STATES REPORT MARKETINTELLIGENCE Economic growth has been so strong Retail malls are still experiencing recently that MSCI, the economic some vacancies, but these are quickly index provider, is now examining snapped up by other retailers. whether to re classify the UAE from "frontier" to "emerging market" by Abu Dhabi has been set to the end of 2011. An upgrade would outperform Dubai over the coming attract new liquidity to the UAEs years, given the formers large bourses and encourage investment. scale investment plans targeting the infrastructure sector, as well as Interestingly, Dubai has been named the ongoing concerns surrounding "Middle East City of the Future Dubais lingering debt repayment 2010-2011" by fD Magazine, based schedule. However, a number of on its popularity as a foreign direct Dubais debts are being resolved investment destination. This is a at this time and Abu Dhabi has strong testament to its economic shown signs of slowing down its fundamentals and growth potential. development so that it maintains The study looked at 46 cities under sustainable levels. six categories - economic potential, human resources, cost effectiveness, quality of life, infrastructure and business friendliness. The property real estate sector remains under pressure in Dubai, with the over supply situation continuing in certain asset classes, especially residential apartments and offices. The prices have stabilised in certain residential sectors and banks are now starting to ease lending conditions, which is contributing to an increase in sales activities. Rentals continue to fall in the lower to medium classes. In Abu Dhabi, there is still a shortage of residential and office space, but there is a large amount of supply coming onto the market over the next few years. 7
GULF STATES REPORT MARKET Saudi ArabiaINTELLIGENCE The construction sector in Saudi Hospitals and healthcare facilities Arabia is projected to achieve a 4% have received SR68.7 billion funding growth by the end of the year and from the Health Ministry to enhance the sector’s annual development medical health facilities throughout is expected to be maintained at a the Kingdom equating to a 12.3 per similar rate until 2015. Presently, cent increase over the previous Saudi’s investment in construction year. Infrastructure pertaining to accounts for 31 per cent of the MENA transportation and municipal services region’s total. The top three sectors for the provision of 23,000 miles receiving the most investment are of additional roads, traffic easing construction, infrastructure and projects and expansion of aviation power. networks, have received circa SAR 50 billion. Saudi Arabia’s construction sector recorded a significant leap in Private sector credit has continued the first quarter of 2011, with the to track higher, albeit gradually, as value of contracts awarded by the the Kingdom’s well-capitalised and government increasing by more than liquid banks respond to increasing five times that of the same period of demand from an expanding private last year. In recent years, record high sector. Official data shows that oil prices and large oil revenue have bank lending to the private sector made it possible for the construction grew by 6.9 per cent in the twelve industry to employ extra liquidity for months to April leading a multitude its development. of private construction investment opportunities. The impact of the recent Arab Spring has been varied throughout The Construction Contracts Index the gulf region. In the Kingdom this (CCI) reached 225.5 points, an has led the government to pledge increase of 79.02 base points in the investment in infrastructure and first quarter, reflecting the high value affordable housing, to which 50 of awarded contracts resulting in a per cent of Saudi Arabia’s stimulus strong start to the year. package of SAR 500billion will be allocated, providing 500,000 new Following on from strong homes. Saudi Arabia is likely to see construction growth, consumption inflation slow in the medium – to of iron and steel in the Kingdom long term as government spending reached 16 million tonnes in 2010. The provides more homes and increases Saudi Arabian Steel Industry forecast the limit on loans at the Mortgage that, by 2013, steel consumption Development Fund. will have significantly increased and prices will soar. Presently, the steel The country has maintained a strong industry of Saudi Arabia is highly sustainable demand for infrastructure import-oriented and steel imports projects, as a direct result of the were estimated at 4 million metric growing Saudi national populations tons in 2010. Further, it is anticipated demographics, 66 per cent of the that the share of imported steel population being under 25 years old. will witness an upward trend in the coming years. 9
GULF STATES REPORT CONSTRUCTION MARKET ACTIVITY CYCLE MODEL PEAK GROWTH PEAK DECLINE ZONE PEAK ZONE ZONE MID GROWTH MID ZONE MID DECLINE ZONE ZONE TROUGH TROUGH DECLINE GROWTH ZONE TROUGH ZONE ZONELOCATION Houses Apartments Offices Industrial Retail Hotel CivilAbu DhabiBahrainDohaDubaiKuwaitOmanRiyadh Market Sector Movement Number of Instances - GULF Barometer – Gulf Tally 100% 25 90% 80% 20 70% NUMBER OF INSTANCES 60% 15 50% 40% 10 30% 20% 5 10% 0% 0 HOUSES APARTMENTS OFFICES INDUSTRIAL RETAIL HOTEL CIVIL PEAK ZONE MID ZONE TROUGH ZONE PEAK ZONE MID ZONE TROUGH ZONE 11
GULF STATES REPORT MARKET DATACONSTRUCTION RATES The following data represents estimates of current building costs in the respective market. Costs may vary as a consequence of factors such as site conditions, climatic conditions, standards of specification, market conditions etc. Costs are per square metre of gross floor area. Offices Buildings (incl Fitout) Retail Industrial LOCATION Premium A Grade Mall Strip Shops Warehouse Low High Low High Low High Low High Low HighABU DHABI AED 6,700 8,000 5,700 6,900 4,800 6,500 3,500 4,500 1,800 2,700BAHRAIN BHD 525 650 425 550 375 475 225 300 125 200DOHA QAR 7,000 8,500 6,000 7,200 5,000 6,000 3,500 4,500 2,000 3,200DUBAI AED 6,500 7,800 5,500 6,700 4,600 6,300 3,500 4,500 1,800 2,600Jeddah SAR 4,650 6,550 3,550 5,375 2,800 4,650 2,650 4,850 1,750 2,400KUWAIT KWD 375 475 325 425 275 375 175 225 100 150OMAN OMR 605 725 510 625 430 585 325 420 165 240RIYADH SAR 4,500 6,400 3,450 5,200 2,670 4,500 2,500 3,750 1,650 2,300 Car Parking Hotels (incl Fitout) Hospital Residential LOCATION Multi-Storey Basement 5 Star 3 Star General Multi-Storey Low High Low High Low High Low High Low High Low HighABU DHABI AED 1,500 3,500 2,750 4,500 9,000 12,000 7,500 9,000 7,500 10,100 4,700 6,500BAHRAIN BHD 125 300 250 450 675 850 775 925 775 1,050 350 450DOHA QAR 2,000 4,000 3,000 5,000 9,500 11,000 7,500 9,000 8,000 10,500 5,500 7,000DUBAI AED 1,500 3,500 2,750 4,500 9,000 12,000 7,300 8,900 7,400 9,800 4,500 6,300Jeddah SAR 1,475 1,900 1,950 2,900 5,800 6,800 3,950 4,900 5,800 6,800 3,400 4,700KUWAIT KWD 100 250 200 350 500 700 550 675 550 750 300 400OMAN OMR 140 325 255 420 835 1,115 680 830 690 910 420 585RIYADH SAR 1,350 1,750 1,875 2,800 5,625 6,750 3,950 4,800 5,625 6,750 3,200 4,500 12
GULF STATES REPORT MARKET DATA Construction Cost Relativities ABU DHABI 110 DOHA 110 DUBAI 107 JEDDAH 106 RIYADH 100 BAHRAIN 97 OMAN 93 KUWAIT 82Construction Cost Indices 2006 2007 2008 2009 2010 2011 (F) 2012 (F) 2013 (F) Movements Bahrain 86.7 97.9 104.8 106.9 109.0 113.8 119.4 125.2 Kuwait 75.0 81.9 88.0 90.2 92.0 96.1 101.4 106.3 Oman 77.0 87.9 97.6 101.0 105.0 108.2 111.4 117.0 Doha 73.2 96.6 115.9 121.1 122.4 128.9 138.8 147.3 Riyadh 93.0 101.1 108.6 111.3 113.6 116.4 119.9 125.9 UAE 84.9 101.8 117.1 119.5 120.6 126.1 132.8 139.7 % Movement 2006 2007 2008 2009 2010 2011 (F) 2012 (F) 2013 (F) Bahrain 7.0% 13.0% 7.0% 2.0% 2.0% 4.4% 4.9% 4.9% Kuwait 6.5% 9.2% 7.5% 2.5% 2.0% 4.4% 5.5% 4.9% Oman 8.2% 14.1% 11.0% 3.5% 4.0% 3.0% 3.0% 5.0% Doha 21.4% 32.0% 20.0% 4.5% 1.0% 5.3% 7.7% 6.1% Riyadh 4.2% 8.7% 7.5% 2.5% 2.0% 2.5% 3.0% 5.0% UAE 15.0% 20.0% 15.0% 2.0% 1.0% 4.5% 5.3% 5.2% (F) FORECAST Notes 1. Indexation in this edition of the Gulf Report provides a direct relativity comparison between Locations. 2. Index numbers have been re-based to align the Gulf Report with the index base of the suite of Rider Levett Bucknall Reports. This process of re-basing has not altered or affected the relativities shown in the current Report. 13
GULF STATES REPORT IRAQ IRAN KUWAIT PERSIAN GULF BAHRAIN QATAR GULF OF OMAN UNITED ARAB EMIRATES OMAN SAUDI ARABIARED SEA ARABIAN SEA YEMEN GULF OF ADEN 14
GULF STATES REPORTBAHRAIN QATARGDP (2010) : US$ 22.7 billion GDP (2010) : US$ 129.5 billionGDP Growth (Year on Year) : +4.1% GDP Growth (Year on Year) : +16.3%Inflation (2010) : +2.0% Inflation (2010) : -2.4%Oil Production (2011 Feb, NOGA) : 40,000 bpd Oil Production (2011 2Q, IEA Oil Report) : 0.8 million bpdPopulation (2010) : 1.1 million Population (2010) : 1.7 millionPopulation Growth (Year on Year) : +6.5% Population Growth (Year on Year) : +3.7%IRAN saudi arabiaGDP (2010) : US$ 357.2 billion GDP (2010) : US$ 443.7 billionGDP Growth (Year on Year) : +1.0% GDP Growth (Year on Year) : +3.7%Inflation (2010) : +12.5% Inflation (2010) : +5.4%Oil Production (2011 2Q, IEA Oil Report) : 3.7 million bpd Oil Production (2011 2Q, IEA Oil Report) : 8.9 million bpdPopulation (2010) : 75.4 million Population (2010) : 26.1 millionPopulation Growth (Year on Year) : +1.7% Population Growth (Year on Year) : +2.3%IRAQ UNITED ARAB EMIRATESGDP (2010) : US$ 82.2 billion GDP (2010) : US$ 301.9 billionGDP Growth (Year on Year) : +0.8% GDP Growth (Year on Year) : +3.2%Inflation (2010) : +5.1% Inflation (2010) : +0.9%Oil Production (2011 2Q, IEA Oil Report) : 2.7 million bpd Oil Production (2011 2Q, IEA Oil Report) : 2.5 million bpdPopulation (2010) : 32.0 million Population (2010) : 5.1 millionPopulation Growth (Year on Year) : +2.6% Population Growth (Year on Year) : +3.0%KUWAIT YEMENGDP (2010) : US$ 131.3 billion GDP (2010) : US$ 31.3 billionGDP Growth (Year on Year) : +2.0% GDP Growth (Year on Year) : +8.0%Inflation (2010) : +4.1% Inflation (2010) : +12.1%Oil Production (2011 2Q, IEA Oil Report) : 2.2 million bpd Oil Production (2011 2Q, IEA Oil Report) : 0.1 million bpdPopulation (2010) : 3.6 million Population (2010) : 24.4 millionPopulation Growth (Year on Year) : +2.0% Population Growth (Year on Year) : +3.0% Sources: International Monetary Fund (IMF)OMAN National Oil and Gas Authority (NOGA)GDP (2010) : US$ 55.6 billion International Energy Agency (IEA) - Oil Market Report GDP Growth (Year on Year) : +4.2%Inflation (2010) : +3.3%Oil Production (2011 2Q, IEA Oil Report) : 0.9 million bpdPopulation (2010) : 3.0 millionPopulation Growth (Year on Year) : +3.4% 15
WHERE TO NOWFOR THE GULF? Caution The political turmoil across the Middle East has had a limited direct impact on the Gulf Arab states, with the important exception of Bahrain. Overall, reigns in the the combination of a continuous political premium on crude oil prices and Gulfs former business perceptions of the Gulf as a relatively safe haven has been beneficial for the regions economic prospects. However, there has been no return to hotspots the boom times of the 2005-08 period, as both business and government are exercising a degree of caution. Abu Dhabis "hibernation" In the wake of the Dubai debt crisis Such is the opacity of government at the end of 2009 it was commonly operations in Abu Dhabi (as in most assumed that Abu Dhabi would take countries in the Gulf) that it has been advantage of the situation to press hard to detect any explicit change in ahead with its own development policy in response to these pressures. plans, which had hitherto been However, there have been several overshadowed by the headline- signs pointing to a shift to a more grabbing exploits of its neighbouring conservative approach. emirate. In 2007 Abu Dhabi released One of the more striking was a its “Vision 2030” document, which comment in the prospectus issued envisaged rapid growth of the non-oil by the Tourism Development & economy based on the promotion of Investment Company (TDIC), a 100% manufacturing alongside high-end government-owned venture whose tourism and real estate and initiatives projects include the Louvre and such as the carbon-free Masdar City. Guggenheim museums on Saadiyat Unlike Dubai, Abu Dhabi apparently Island. The prospectus was part of its faced no financial constraints in initial approach to the market in June pursuing this vision, based on its for a US$3bn medium-term note abundant oil export revenue and borrowing. hundreds of billions of dollars of In an apparent effort to reassure external assets. However, over the prospective investors in these notes, past 18 months it has become clear TDIC said that it had decided to rein that Abu Dhabi has been affected by in its capital spending plans through several of the symptoms that caused "selectively hibernating, delaying or the Dubai crisis, in particular the scaling-back certain projects". This collapse in property prices and the would have the effect of reducing its excessive borrowing of government- capital expenditure in 2011 by almost related entities (GREs). Having bailed one-third to Dh13.4bn (US$3.65bn) out Dubai to the tune of US$20bn, from Dh18.6bn. TDIC emphasised that the Abu Dhabi government faced this "hibernation" would not affect the prospect of having to perform projects that had already started. a similar rescue mission for its own corporations. TDICs debt stood at just below US$3bn at end-2010, and the Other worries for the Abu Dhabi company has run up increasing government include the stalling net losses in the past three years, of the recovery of the global with the shortfall in 2010 doubling economy, which will hit its worldwide year on year to Dh1.15bn. The investments, and the burden of prospectus stated clearly that the supporting the UAEs poorer new notes would not be guaranteed northern emirates, which have a by the Abu Dhabi government, relatively high proportion of nationals but at the same time it made clear among their population. that it would continue to receive substantial financial support from the government. As of September 1st, TDIC had not yet issued any of the new debt instruments. 17
WHERE TO NOWFOR THE GULF? The travails of TDIC pale into Among the new appointments to insignificance compared with those Mubadalas top table was Abdul- of Abu Dhabis highest-profile real Hamid Mohammed Saeed, the chief estate developer, Aldar Properties, executive of First Gulf Bank. Some which racked up losses of Dh12.5bn commentators have noted that the in 2010, and has been kept afloat bank is chaired by Sheikh Hazza thanks to a massive bailout package bin Zayed al-Nahyan, a member of from the Abu Dhabi government. the ruling family whose influence This included Dh19.4bn in cash appears to be in the ascendant. It is inflows through asset sales to not clear whether this is in any way and reimbursements from the to the detriment of the Crown Prince, government for infrastructure Mohammed bin Zayed al-Nahyan, spending on Yas Island (site of the who has been the main driver of Abu recently opened Ferrari World theme Dhabis ambitious development plans park). The government has also over the past few years, or whether bought Dh5.5bn worth of houses and it is a matter of the ruling family land from Aldar, and put in a further deciding collectively on a more Dh2.8bn through a bond placement prudent approach. with the 100% government- owned Mubadala Development At the other end of the food chain, Company, which is the largest single the tighter management of Abu shareholder in Aldar. Dhabis finances has been felt by suppliers and contractors, who An IMF study found that Aldars have seen a marked slowdown in financial performance in terms of new orders and a deterioration in return on equity in 2010 was the payment conditions. Abu Dhabi second-worst among regional real clients—both governmental and estates companies (bottom of the quasi-governmental—have a pile was another UAE developer, reputation for being slow to honour Union Properties), and that the payments, but the situation is aggregate performance of UAE real said to have got worse in recent estate GREs, excluding Dubai-based months. The most common form Emaar Properties, showed a return of payment guarantee in UAE on equity of -5.9% compared with a business is a post-dated cheque. positive return of 3.3% on average This is regarded as more secure for regional peers from Saudi Arabia, than a letter of guarantee because Qatar and Egypt. of the stiff legal penalties imposed for failing to honour a cheque. Other straws in the wind suggesting However, contractors are becoming a more restrained approach to increasingly reluctant to issue post- development projects include dated cheques to their own sub- changes in the boards of these GREs. contractors and suppliers because Ahmed Ali al-Sayegh was replaced in of their concerns about the risk of April as chairman of Aldar by Ali Eid prolonged delays in getting paid by al-Muhairi; Sayegh also subsequently their own clients. lost his place on the Mubadala board. 18
WHERE TO NOWFOR THE GULF? Debts in perspective The scale of Abu Dhabis debt The change of pace in Abu Dhabi problems—and indeed of does not mean that development the slowdown in project and has ground to a halt. In a sign of the development work—should not be enduring commitment to the broad overstated. The nominal value of goals of "Vision 2030", the Abu the debt of Abu Dhabis GREs is Dhabi government is preparing for US$92.4bn, according to the tally the official opening of the Sowwah included by the IMF in its Article Island scheme. Sowwah Island had IV consultation report issued in been designed to provide a hub for May this year. This is bigger than financial-sector companies and other the US$76.9bn owed by Dubais big businesses servicing them on a GREs. However, Dubais total debt scale to match some of the world’s of US$113bn is higher than the top financial centres. US$104bn owed by Abu Dhabi (and includes more than US$20bn owed The migration of companies to by the government of Dubai to Abu Sowwah from other premises started Dhabi), and Abu Dhabis debt as as soon as the first two buildings in a proportion of 2010 GDP is 55%, Sowwah Square opened earlier this compared with 103% for Dubai. year. One of the downsides of the scheme is that the migration to the Abu Dhabis fiscal position is also new office space on Sowwah will put much more secure than that of its more pressure on already subdued neighbour. Its total government commercial rents in central Abu revenue is expected to be about Dhabi City as well as on rival new US$77bn in 2011, thanks to an oil locations such as Reem Island and price likely to average about US$110 Saadiyat Island. per barrel of Brent, and the budget will be more or less balanced. The Dubai government, by contrast, is expected to get revenue of only US$12.3bn in 2011 and will run a deficit of 1.4% of GDP (effectively subsidised by Abu Dhabis refinancing of a significant portion of its debt). UAE: gross public and publicly held debt (US$bn) Maturing in 2011 2012 Beyond Total Abu Dhabi government 0.4 1.3 9.9 11.6 Abu Dhabi GREs 16.6 9.3 66.4 92.4 Total Abu Dhabi 17.1 10.6 76.4 104.0 % of Abu Dhabi 2010 GDP 8.9 5.5 54.8 Dubai government (a) 5.6 1.6 28.9 36.0 Dubai GREs 10.4 13.6 52.9 76.9 Total Dubai 16.0 15.2 81.7 113.0 % of Dubai and N. Emirates 2010 GDP 14.5 13.8 102.6 Other emirates 0.9 0.3 4.0 5.2 Federal government 19.1 Total UAE 33.1 25.8 158.1 236.0 % of UAE 2010 GDP 11.0 8.5 78.2 (a) Including GRE debt guaranteed by Dubai government. Source: IMF Article IV report, May 2011 19
WHERE TO NOWFOR THE GULF? Whether Sowwah Island can The chief shortcoming of the new realise its ambition to become business and financial district is a new financial centre servicing the lack of transparent rules on the region is also in question. The jurisdiction and its own courts. It Abu Dhabi Securities Exchange is often pointed out that Sowwah (ADX) is the anchor tenant for the Island should model its legal set up development and will be housed on imperfect, but working solutions in a landmark building in Sowwah adopted by the Dubai International Square. The construction of the Financial Centre (DIFC). While new ADX building has already the DIFC’s legal system had to be enticed several banks, including the adjusted since the centre opened in National Bank of Abu Dhabi and Al 2005, especially as the system came Hilal Bank, into buying land on the under stress with debt-restructuring island and building offices there. procedures and the property crash, it Several other investment banks, law has provided an effective framework firms, private equity groups and within which to handle complex brokerage companies are also said issues. to be considering setting up their headquarters on the island. Apart from the new impressive headquarters, ADX will also have advanced information-transfer technology in the new location, offering greater speed and security for investors. Servers transferring data will be placed as close as possible to the exchange to minimize the time lag and allow almost instantaneous trades. The new data protection and transfer systems are believed to provide an additional pull for trading companies choosing to settle on Sowwah. 20
WHERE TO NOWFOR THE GULF? No clear winners from the Arab Spring fall-out The plans drawn up by Abu Dhabi In this respect, Qatar can be seen as and Dubai prior to the global a net gainer from the Arab Spring. financial crisis were based on However, with a national population optimistic assumptions for the of only 240,000 and the highest growth in trade and investment flows per-capita income in the world, in the Middle East and in the wider Qatar has the least cause among world economy. The trimming of its Gulf peers to worry about the the two emirates plans since then risk of revolutionary contagion. has been an inevitable consequence The UAE has a more complicated of the sharp change in sentiment domestic political scene, with family and the growing realisation that the and tribal rivalries needing to be effects of the credit crunch and the kept under control in seven emirates subsequent recession will be long- and solidarity between the emirates lasting. The upheavals around the having to be preserved. Arab world have added a further cause for concern. The UAE’s rulers also have to take into account the grievances of less The popular movements against Arab privileged Emiratis and resentment dictators have struck a chord with among sections of the population at the younger generation in the Gulf, the predominance of expatriates in although only in Bahrain and, to a the population mix (only about one much lesser extent, Oman, have there in seven residents is a national). In been any real efforts to emulate the addition, there is a risk that searching Tahrir Square protesters. Political questions might be put by young leaders in the Gulf have shown radicals about the management ambivalence in their responses, of the UAEs resources and the seemingly unsure whether to reasons for its accumulation of such welcome change and line up with high amounts of debt. This array the winning side, or whether to try of concerns provides part of the to turn back a destructive tide that explanation for Abu Dhabis decision could overwhelm the entire political to take the pedal off its development establishment across the Arab world. accelerator, and for the efforts being made to widen political debate The Qatari royal family has adapted through expanding the electoral better than most to the new realities, college for the Federal National in particular through its decision to Council. become heavily involved in the NATO operation against the Qadhafi regime Saudi Arabias response to the in Libya. The UAE also committed Arab revolutionary movements has forces to the Libya operation, but, been primarily economic, with the diplomatically, it was overshadowed king approving two development by its Gulf neighbour. This partly spending packages worth US$130bn reflects the strong emphasis that in total. A significant portion of this Qatar had placed on being heavily has been allocated to beefing up engaged in regional political issues the internal security forces; much as part of its drive to outdo Dubai in of the remainder has been directed projecting its influence and turning towards addressing socio-economic the name of the state into a global problems, in particular youth brand. unemployment among Saudis and the chronic shortage of affordable housing. 21
WHERE TO NOWFOR THE GULF? Nationals-vs-expats in Gulf demographics 2010 Saudi Arabia UAE Qatar m % m % m % Total population 27.1 100% 6.7 100% 1.7 100% Nationals 18.7 69% 1.0 15% 0.24 14% Expatriates 8.4 31% 5.7 85% 1.46 86% Note: The UAEs National Bureau of Statistics has estimated the total population to have been 8.26m in mid-2010, of which 11.4% were nationals; the EIU has a lower total, reflecting doubts about the assumptions underlying the official estimates. Source: Economist Intelligence Unit estimates derived from national census data. The reaction of the Saudi royal family One of these will be the chemicals clearly betrays their recognition and plastics industry. This will be built of the potential for popular unrest on the platform of petrochemicals, in the kingdom. However, at the a sector in which Saudi Arabia same time, Saudi Arabias relatively already has a commanding global large national population by Gulf presence through Saudi Basic standards—about 19m out of a Industries Corporation (Sabic), total regional population of 27m in newly established affiliates of Saudi 2010—offers it a better opportunity Aramco, the national oil company, for nationally focused economic and a number of smaller, private, diversification than in the other ventures. Gulf Arab states. The ambitious development plans of Qatar and In July the industry took a major step Abu Dhabi, for example, are aimed forward with the announcement by ultimately at creating high-value Dow Chemical and Saudi Aramco jobs for locals, but would inevitably that they had taken their final suck in more expatriate labour and investment decision for a US$20bn further distort the demographic venture to produce petrochemicals balance towards expatriates. and a large range of chemicals and Similar considerations are bound plastics at a new plant in Jubail. to apply in Saudi Arabia, but to This venture, named Sadara, has a less pronounced extent as the been under discussion for four years kinds of jobs that Saudis are already and has gone through a number of prepared to accept are much more permutations. Its launch means that diversified—even menial—than is the Saudi Arabia now has the chance to case for Qataris and Emiratis. make a major shift to higher value- added products and more labour- The Saudi government faces long- intensive activities fed ultimately by term issues of fiscal sustainability, its huge resources of oil and gas. with one recent projection by a Saudi banks research team showing that Saudi Arabia is vulnerable to similar on current trends Saudi Arabia would political upheavals as those that need an oil price of over US$300/ have occurred elsewhere in the barrel (in todays dollars) in 2030 to Arab world. However, its economic balance its budget. In reality, Saudi position, bolstered by a large Arabia is likely to have developed windfall from higher oil prices and sufficient alternative revenue production (as it has boosted output This article was contributed by streams by that time to make such to compensate for the loss of Libyan David Butter, Regional Director, projections meaningless. crude) provides it with a solid buffer Middle East & North Africa to protect it from these political risks. and ViewsWire Editor, Middle East,with the Economist Intelligence Unit 22
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