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From the Editor

THE GREAT RESET

ith the number of cases and deaths from Covid-19 rising across the region and around the world at the end of 2020, we are still in midst of a global tragedy. The pandemic that has defined 2020 will continue to have a major impact on everybody throughout 2021, and into 2022. But despite this, the end of 2020 and the start of a new year is bringing a genuine sense of a fresh start. The roll-out of vaccines in December 2020 combined with the recovery in business activity in the final quarter of the year suggest that we are at the beginning of the end of the pandemic, and that while we are not yet out of the woods, we can start looking forward. For companies in the Middle East, however, the outlook is mixed. The recovery in global growth is great news for travel, trade and consumer spending. Increased energy demand will boost crude oil prices, and boost sales of refined oil products and petrochemicals. Tech companies will thrive on the back of an expanding digital economy and the roll-out of 5G, artificial intelligence and other data technologies will meet a growing demand for smart, and green, capabilities. But for the regionâ&#x20AC;&#x2122;s projects industry, while 2021 will see an uplift in contract awards compared with 2020, it is set to be another extremely challenging year. Even with strengthening oil prices, stressed government budgets and increased spending on Covid-19 support measures will curb spending on projects. Meanwhile, the downturn in demand for property will suppress real estate projects. The focus for the projects industry is to identify the opportunities being created by the changing needs of project sponsors: the need for reducing carbon footprint; the smart assets that maximise the whole life value of the project; the need for financing; and the value of local content. At the same time, projects owners and sponsors need to take steps to support and nurture their essential supply chains.

Richard Thompson is Editorial Director of MEED and has more than a decade of experience covering business and economics in the Middle East and North Africa. E: richard.thompson@meed.com Twitter: @MEEDEditor

â&#x20AC;&#x153;While 2021 will see an uplift in contract awards compared with 2020, it is set to be another extremely challenging yearâ&#x20AC;?

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YB 2021 / 3

Contents OUTLOOK

Projects

Policy

The post-Covid-19 projects market will be very different to the market before 2020

FOREIGN POLICY

Priorities remain the same despite changes in leadership If effective vaccines are rapidly developed and distributed then demand for oil could return rapidly, exerting upward pressure on global crude prices

Economy

Diversification, security and fiscal management shape 2021agenda

Oil prices

Predictions of rising global demand come amid vaccine optimism

US policy

Joe Biden’s win in the 2020 US presidential elections will lead to a marked change in the US’ approach to the region

China

Global pandemic bolsters collaboration between regional governments and China

Saudi Arabia

While Riyadh’s actions overseas have raised eyebrows, its foreign policy remains much the same

4 \ YB 2020

INFRASTRUCTURE

Protracted recovery outlook poses steep challenge

Construction

Downstream

UTILITIES

Power

Crisis strengthens government resolve to pursue energy sector diversification efforts

Challenging outlook as market fragments

Manufacturing

Projects pipeline grows in line with diversification goals

TOURISM

104

DUBAI EXPO 2020

Sustainable financing solutions gain ground

Travel experts look to 2021 for potential recovery

COUNTRY PROFILES

Postponement has not curbed enthusiasm for the event

Focus on securing water supplies intensifies

Green funding

Road to expo

FINANCE

Water 66

Hospitality

116-129

Mena databank

Data from the Middle East and North Africa region

110

Banking

Regional lenders trudge into a tougher year

Capital markets Equities and listings hit by coronavirus slump

OIL & GAS

Upstream

Governments move ahead with unconventional projects

“Even if we maximise our cost cutting, we still won’t have a financially sustainable industry in 2021” YB 2020 \ 5

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Policy Outlook

GOVERNMENTS FOCUS ON LONG-TERM GOALS The primary goals of policymakers in the Middle East and North Africa remain economic diversification, fiscal discipline and security

2022

Proposed start date for the introduction of income tax in Oman

20 January Inauguration of Joe Biden as the new US president

8 \ YB 2020

change in the direction of policy in the region in 2021. The new leaders in Kuwait, Oman and Bahrain in 2020 all represent votes for stability. Meanwhile, the appointments of new prime ministers in Iraq and Lebanon, where a new approach is needed to tackle deep political and economic crises, have introduced no changes yet. Accelerating goals With the primary goals of governments across the region remaining firmly fixed on delivering economic diversification, maintaining strict fiscal discipline and ensuring security, the biggest impact the new leaderships could have will be an acceleration of existing initiatives.

PHOTOGRAPH: KUNA

ith new leaders taking office in Bahrain, Iraq, Jordan, Kuwait, Oman, Lebanon, and Tunisia in 2020, in addition to a new prime minister in Algeria in late December 2019, the new year starts with a significantly changed roll call of leaders in the Middle East and North Africa (Mena) region from 12 months earlier. Faced with deep economic challenges as a result of low oil prices and the Covid-19 pandemic, as well as rising geopolitical tensions in the Gulf and in the East Mediterranean, the introduction of new leadership could be seen as a sign of change. In reality, there will be no fundamental

While the primary economic goal for all governments is to get activity back to normal as quickly as possible, the priority remains on overcoming the Covid-19 health crisis. This will see continued spending on ensuring there is adequate healthcare capacity, and strict monitoring and control of cases in order to limit new waves of infection. As vaccines become available, governments will seek to acquire and distribute the treatments as quickly as possible, prioritising the most vulnerable groups. The ongoing focus on healthcare will continue to divert government spending away from traditional areas and will see further cuts to ministry budgets and capital spending on projects. The need to develop infrastructure to support investment and diversification plans, while maintaining strict fiscal discipline, will see governments accelerate the privatisation of state assets, and also tap private finance for government projects through public-private partnerships (PPPs). Saudi Arabia and the UAE, in particular, will see progress made on PPP projects in 2021. Governments and other project sponsors will increasingly seek new and alternative sources of funding for projects, and 2021 will see increased sovereign debt issuance on the international markets, as well as the development of local debt capital markets. Export credit finance will be an important enabler for projects, providing working capital to companies. The focus on rebalancing government finances in the face of weaker oil revenues will see increases in taxes in 2021 and 2022, with increases in VAT levels possible, along with rising government fees in other areas. The proposal to introduce income tax in Oman in 2022 sets a precedent in the GCC that other finance ministries are sure to be watching closely.

The drive to diversify will see growing focus on attracting foreign investment in target sectors such as manufacturing and tourism. GCC states will continue to push the development of manufacturing capacity through the development of downstream clusters around anchor industries such as steel, aluminium and petrochemicals. In addition, the UAE and Saudi Arabia will seek to accelerate inward investment in hi-tech industries such as aerospace and defence, food and water security, biotechnology and life sciences, mobility, and clean energy. A vital part of the diversification story is the need to reduce the dependence on expatriate workers and international suppliers. This will see a continuing push for higher levels of local content and employment on projects and in supply chains. Thus far, the in-country value drive has been led by the national oil companies. Increasingly, this will spread across other areas of the economy. Foreign policy The most significant change in policy in the region is likely to come from the US, where the inauguration of political veteran Joe Biden as president on 20 January will herald a new approach to the region after four years of political outsider Donald Trump. Regional foreign policy will centre on security as the US continues its military disengagement from the region. For Arab states, particularly Saudi Arabia and the UAE, this will mean continuing efforts to exert influence on the international stage to counter the growing influence of Iran in the Gulf and Turkey in the Mediterranean. In this, close collaboration with Israel will be critical and will be increasingly done in public. Riyadh and Abu Dhabi will also work with the US to find a diplomatic solution to the war in Yemen and to resolve the GCC dispute. Richard Thompson

â&#x20AC;&#x153;The drive to diversify will see growing focus on attracting foreign investment in target sectors such as manufacturing and tourismâ&#x20AC;? YB 2020 \ 9

Economy

WEAK REGIONAL GROWTH LOOKS SET TO PERSIST Between a gradual non-oil recovery and persisting low global oil prices, the Middle East and North Africa region faces a tough year in 2021

ithout equivocation, the events of 2020 have been hugely impactful on the economies of the Middle East and North Africa (Mena) region, coming at a time of pre-existing fiscal fragility, insipid growth by global standards and mounting social unrest over perceptions of the slow pace of government action. With the expected continuation of the Covid-19 crisis, as well as its impact on global oil prices, the likelihood of a swift, near-term recovery from the effects of the pandemic has receded, and most regional economies now face a return to relatively weak growth, but with expanded debt burdens.

10 \ YB 2020

By the latest estimations of the IMF, the Mena region saw a real GDP contraction of about 5 per cent in 2020, and is projected to experience 3.2 per cent real GDP growth in 2021, representing a stabilisation of the economy, but far from a full recovery of 2020â&#x20AC;&#x2122;s lost output. Weaker recovery The IMF projections also show the Mena region performing more poorly than the global average, with the world expecting a real GDP drop of 4.4 per cent in 2020 followed by 5.2 per cent real GDP growth in 2021 â&#x20AC;&#x201C; both a less severe decline in 2020 and more meaningful recovery in 2021 than seen in the regional outlook.

REAL GDP GROWTH ACROSS MENA REGION (%) 6 4 2 0 -2 -4 -6 -8

2019

2020

2021

-10 -12

Algeria

Bahrain

Egypt

Iraq

Jordan

Kuwait

Morocco

Oman

GCC other

Saudi Arabia

Tunisia

UAE

Source: IMF

As noted by Jan Friederich, senior director at the US’ Fitch Ratings: “The [Mena] region will see a return to growth in 2021, but the recovery will be dampened by fiscal consolidation efforts after a sharp rise in debt in 2020 and, in the case of oil exporters, by continued Opec+ oil production quotas. “The balance sheets of oil exporters will continue to deteriorate, although for higher-rated GCC sovereigns, they still remain very strong. Political dynamics also complicate consolidation efforts in non-oil exporting sovereigns in the region.” Regional variables Saudi Arabia, the only regional economy to receive a mid-year update, notably improved its outlook in October, with the IMF forecasting a 5.4 per cent real GDP contraction for the kingdom in 2020, compared with the June forecast of a 6.8 per cent real GDP contraction. Saudi Arabia’s forecast of 3.1 per cent real GDP growth in 2021, meanwhile, did not improve, reflecting the ongoing problem that weaker oil prices represent

for oil-exporting economies, in addition to the challenge of stimulating a non-oil recovery as the Covid-19 crisis recedes. The outlook for the UAE is projected to be slightly bleaker than the Mena average, with the IMF forecasting a real GDP decline of 6.6 per cent in 2020, and anticipating a real GDP growth rate of only 1.3 per cent in 2021. This weaker growth forecast comes despite the IMF earlier in the year recognising the UAE as having one of the region’s best responses to the pandemic in terms of its safety measures and delivery of testing capacity. It also comes despite the moving of the Dubai Expo 2020 event, which had originally been expected to deliver additional growth to the economy of the emirate and the wider UAE, into 2021. IMF regional director Jihad Azour highlighted the fact the UAE’s diversification, connectivity and strong links have left its non-oil economy especially vulnerable to the contraction in the global economy due to the severe impacts to trade, transport and tourism.

Decline in Mena region’s real GDP in 2020, according to latest IMF forecast

3.2%

Growth in Mena region’s real GDP in 2021, according to latest IMF forecast

YB 2020 \ 11

Economy

FISCAL BREAKEVEN OIL PRICES IN 2021 ($ a barrel) 160 140 120 100 80 60 40 20 0

Algeria

Bahrain

Iraq

Kuwait

Oman

Saudi Arabia

UAE EIA oil price projection for 2021

REAL OIL AND NON-OIL GDP GROWTH IN 2021 (%)

Oil GDP

Non-oil GDP

-2

-4

Algeria

Bahrain

Iraq

Kuwait

Oman

Saudi Arabia

UAE

EIA=Energy Information Administration. Source: IMF

In a regional exception, Egypt has been projected by the IMF to defy global trends and become the only Mena country to exhibit a positive real GDP growth rate, at 3.5 per cent, in 2020. The IMF’s Azour credited Egypt’s positive outlook on a range of robust responses by the government, including the central bank’s slashing of interest rates by 300 base points in April, followed by 50 further basis points in September. The IMF itself also support-

12 \ YB 2020

ed Egypt with a $2.8bn rapid finance facility in April and a further $5.2bn loan in June. The very worst-affected countries in the region in terms of real GDP growth have been Iraq and Oman, both heavily oil-dependent nations, which are forecast by the IMF to see their real GDP contract by 12 per cent and 10 per cent respectively in 2020. Oman is alone in having a negative forecast for 2021, when real GDP is expected to contract by a further 0.55 per cent. Kuwait’s economy, expected to contract by 8 per cent in 2020, is forecast to see the second-slowest recovery in 2021, with a forecast real GDP growth rate of 0.65 per cent. Underlying the growth assumptions for many Mena economies for 2021 is a modest increase in average oil prices for the year. The IMF assumed an oil price of $41.7 a barrel in 2020, and expects a price of $46.7 a barrel in 2021, averaging UK Brent, Dubai Fateh and West Texas Intermediate crude prices and futures. The EIA expects Brent crude specifically to average $46.6 a barrel in 2021, up from an average of $40.6 in 2020, while other estimates such as those of the US’ Citi and Goldman Sachs place the Brent crude price for 2021 considerably higher, at $54 and $55 a barrel respectively. Oil price impact Oil exporters in the region have faced particularly dire straits due to the twin impact of Covid-19 and low oil prices on both the non-oil and oil components of their economies. Among the major oil exporters in the Mena region, the IMF estimates that real GDP has contracted by 6.6 per cent in 2020. The IMF then projects a slightly higher rate of real GDP growth, at 3.4 per cent, for oil producers in the coming year – slightly above the regional average in 2021, but hardly compensation for the additional 1.6 per cent decline in 2020.

FISCAL BALANCE ACROSS MENA REGION (% of GDP) 6 4

2019

2020

-4 -6 -8 -10 -12 -14 -16 -18 -20

Algeria Bahrain Egypt

Iraq

Jordan Kuwait Moroc- Oman co

GCC Saudi Tunisia other Arabia

UAE

GENERAL GOVERNMENT GROSS DEBT IN 2020

Iraq

Jordan Kuwait Moroc- Oman co

36.9

84.8 33.4

68.1

81.5

76.9 19.3

68.3

86.6

88.4

128.3

(% of GDP)

Algeria Bahrain Egypt

Debt issuance Much of this additional unplanned spending has been paid for through additional debt issuance. In the GCC and Jordan, the equivalent of an estimated $50bn in hard currency bonds was issued in 2020, representing “about 26 per cent of all sovereign hard currency issuance in emerging markets” for the year, according to UK-based business analysis firm Tellimer. A July report by the US’ S&P, meanwhile, projected the total additional financing needed in the GCC for the year at $180bn, combining an $80bn rundown on assets with a $100bn increase in government debt levels. Looking

2021

-2

57.2

The task faced by Mena oil producers in managing their economic recovery from Covid-19 amid a protracted period of low oil prices is causing a heightened level of strain on government budgets, much as in the aftermath of the collapse of oil prices in 2014. Then, as now, the spike in fiscal deficits among oil producers set in motion a range of austerity measures including the slashing of budgets for capital-intensive project schemes. In 2020, similar effects have been at play, including notable cuts to ministry budgets in countries such as Oman and Kuwait, where the governments are particularly dependent on oil revenues. Despite such efforts, the fiscal deficits of many countries have risen considerably and, perhaps more importantly, are expected to remain elevated for the foreseeable future. From a fiscal perspective, Covid-19 has not been a one-year event, but one with lasting ramifications for government budgets as a result of emergency healthcare spending and fiscal stimulus programmes. From a position of a modest fiscal deficit in 2019, at 3.6 per cent of GDP, the Mena region has seen its imbalance weaken to 8.6 per cent in 2020, and a higher fiscal deficit of 6.5 per cent is then expected to be maintained through into 2021, according to the IMF.

GCC other

Saudi Tunisia Arabia

UAE

Source: IMF

forward, S&P projected that debt issuance will meet about 60 per cent of the $490bn financing requirement in 202023, based on recent financing trends and the dwindling of regional assets. These numbers highlight the significant financing challenges potentially facing the region, particularly as the historically stellar credit ratings of many GCC governments begin to come under pressure in the face of persisting oil price weakness and high fiscal deficits. The uncertainty of the outlook for regional recovery was reflagged as recently as 8 December 2020, when a Fitch

YB 2020 \ 13

Economy

GROWTH OF GOVERNMENT DEBT IN 2020

2.8 Algeria Bahrain Egypt

9.7

12.4

10.6

11.9

11.1 7.5

10.4

10.9

18.5

21.4

24.9

(Percentage points)

Iraq

Jordan Kuwait Moroc- Oman co

GCC other

Saudi Tunisia Arabia

UAE

Source: IMF

“There remains a broad policy consensus among Mena governments that economic diversification plans must not be derailed” 14 \ YB 2020

Ratings report assigned a negative credit outlook to five Mena sovereigns: Iraq, Jordan, Tunisia, Oman and, most critically, Saudi Arabia. Among the concerns presented by Fitch for these five countries is the risk of “social backlash against fiscal consolidation” and reform efforts. While Iraq and Oman have been on a negative ratings trajectory for several years, and Jordan and Tunisia face severe non-oil economic weakness, the gloomy perspective on the credit-worthiness of Saudi Arabia – the region’s largest economy – is an especially worrying sign. The risk of a credit downgrade could also have a long-term impact on Riyadh’s fiscal position as it continues to partially finance the additional capital requirements of its economic reform programme and megaproject development schemes through debt. In 2020 alone, the kigdom is estimated to have increased the scale of its debt burden by 10.6 per cent of its GDP, according to the IMF, although it should be noted that this singular leap is not expected to be repeated in subsequent years, and remains at the lower end of the amount of additional debt accrued by sovereigns in the region. Bahrain, Morocco, Oman and Tunisia have all separately been downgraded by credit rating agencies over the course of

the year, further hampering any prospective debt issuance by these sovereigns. Despite the glum indicators, most Mena sovereigns will register improving growth and fiscal and external balances in 2021 as economies bounce back from the coronavirus shock and oil prices recover. In MEED’s assessment of the recovery potential of regional economies, the highly rated and financially supported GCC sovereigns are generally expected to perform better in 2021 than the wider region, with the exception of Egypt. Regional economies in a notably weaker position than the regional average include Algeria, Iran, Iraq and Lebanon, without mentioning Libya, Syria and Yemen, all of which remain war zones. Balancing act Across the region, however, balance sheets will continue to deteriorate despite efforts to mitigate the impact of the pandemic on financial sustainability, and this will force governments into an even trickier balancing act in their attempts to square fiscal consolidation with necessary fiscal reforms and economic diversification efforts. Despite the “improvement in economic indicators” and “better-than-expected” growth, the IMF’s Azour noted the challenges ahead, not least in the need to continue deepening structural reforms. At the same time as all of these concerns are broached, there remains a broad policy consensus among governments in the region that economic diversification plans must not be derailed by current events. Indeed, if anything, the disruption of 2020 has lent yet further weight to the proposition that Mena economies need to develop greater resilience to economic shocks. All in all, 2021 will make for a tricky year for regional governments to navigate, and in which the decisions that are made could ultimately have implications for years or even decades to come. John Bambridge

Oil Prices Outlook

Oil price expected to move higher in 2021 Expectations of rising global demand come amid optimism over Covid-19 vaccine SPOT PRICES FOR BRENT CRUDE OIL ($ A BARREL) ($) 140 120 100 80 60 40 20

Ja n Ap 20 r 10 Ju 201 l 0 O 20 ct 10 Ja 20 n 10 Ap 20 r 11 Ju 201 l 1 O 20 c 1 Ja t 2 1 n 01 Ap 20 1 r 12 Ju 201 l 2 O 20 ct 12 Ja 20 n 12 Ap 20 r 13 Ju 201 l 3 O 20 ct 13 Ja 20 n 13 Ap 20 r 14 Ju 201 l 4 O 20 ct 14 Ja 20 n 14 Ap 20 r 15 Ju 201 l 5 O 20 ct 15 Ja 20 n 15 Ap 20 r 16 Ju 201 l 6 O 20 ct 16 Ja 20 n 16 Ap 20 r 17 Ju 201 l 7 O 20 ct 17 Ja 20 n 17 Ap 20 r 18 Ju 201 l 8 O 20 ct 18 Ja 20 n 18 Ap 20 r 19 Ju 201 l 9 O 20 c 1 Ja t 2 9 n 019 Ap 20 r 20 Ju 202 l2 0 02 0

Source: EIA

O $46.6

EIA forecast for average Brent crude price for a barrel in 2021

28%

Decrease in EIA average Brent crude price forecast for 2021 compared with average price in 2019

16 \ YB 2021

il analysts are expecting global crude prices to move higher in 2021 amid increasing optimism about the viability of Covid-19 vaccines. Forecasts made by the USâ&#x20AC;&#x2122; Energy Information Administration (EIA) as well as US investment banks Goldman Sachs and Citi are all expecting the average crude price to be higher in 2021 compared with 2020. While analysts expect the average price to be higher in 2021, they generally expect it to remain relatively subdued as the economic impact of the Covid-19 pandemic continues to weigh on demand. The EIA expects Brent crude to average $46.6 dollars a barrel in 2021, up from an average of $40.6 in 2020. The expected average price for Brent

crude in 2021 remains 28 per cent lower than the average price in 2019, which was $64.3. Travel restrictions Restrictions put in place in 2020 to try to control the pandemic paralysed parts of the global economy, leading to a dramatic drop in both oil demand and prices. While most analysts say average prices will be higher in 2021 compared with 2020, opinions on when prices will rise and by how much are divided. An easing of lockdown measures in the third quarter of 2020 helped global demand improve, but many now fear a surge in Covid-19 cases could derail the recovery. On 9 November 2020, Citi cut its 2021 oil price forecasts after figures showed

a larger-than-expected rise in Covid-19 cases. The bank cut its 2021 Brent crude price outlook by $5 to $54. It also cut its forecast for West Texas Intermediate (WTI) crude by $5, lowering it to $49. Citi cited renewed lockdowns and curfews in major European economies as part of the reason behind the reduced optimism. In its note, Citi said prices would be supported by Opec+ measures designed to restrict global oil supplies. On 11 November 2020, Opec published a report where it cut its outlook for global oil demand for the remainder of 2020 and 2021, citing a weaker-thanexpected economic outlook and a surge in coronavirus cases. The group now expects world oil demand to contract by about 9.8 million barrels a day (b/d) yearon-year in 2020. That reflects a downward revision of 0.3 million barrels from Opec’s previous assessment in October. For 2021, Opec said oil demand growth will rise by 6.2 million b/d on an annual basis, representing a downward revision of another 0.3 million barrels from its October report. The group has steadily lowered its oil demand outlook for 2021 from an initial expectation of 7 million b/d in July. In its report, Opec said: “These downward revisions mainly take into account downward adjustments to the economic outlook in OECD economies due to Covid-19 containment measures, with the accompanying adverse impacts on transportation and industrial fuel demand through mid-2021. “As Covid-19 infection cases continued to rise during October in the US and Europe, forcing governments to reintroduce … restrictive measures, various fuels including transportation fuel are thought to bear the brunt going forward.” Pharmaceutical companies US-based Pfizer and Germany’s BioNTech said in November 2020 that early results showed their vaccine candidate was more than 90 per cent effective in preventing Covid19 infections. This was followed by an announcement on 16 November from

US-based Moderna, which said its vaccine was almost 95 per cent effective. On 23 November, the results of a third anti-Covid-19 vaccine were announced. Developed by AstraZeneca, a BritishSwedish pharmaceutical company, and Oxford University, the vaccine was reported to be 70 per cent effective. Various factors Despite the positive progress, experts have warned that risks remain with regard to oil demand. On 11 November, Opec warned: “The structural impact of the pandemic on various sectors, especially the transportation sector, will linger well into 2021.” On 10 November, Goldman Sachs cut its 2021 oil price forecasts amid rising numbers of Covid-19 cases in Europe and the US. It lowered its price forecast for Brent from $59.4 a barrel to $55 a barrel and lowered its price for WTI from $55.9 to $52.8. This remains higher than the prices forecast by the EIA and Citi. Goldman Sachs said the surge in Covid-19 cases in Europe and the US only represented a “speed bump” before a potential vaccine and continued supply cuts by top producers tightened market fundamentals. The bank said the “winter speed bump” would delay prices returning to $65 a barrel. Goldman Sachs now expects prices of $65 a barrel in early 2022. Previously it was expecting $65 a barrel in autumn 2021. The bank pointed to the impact of the 2020 US presidential election and decisions made by the new president as a factor that will affect oil prices along with decisions made by Opec. Although there is no doubt oil prices will be affected by a wide range of factors over the course of 2021, the dominant factor that markets will respond to is likely to be the pandemic. If effective vaccines are rapidly developed and distributed then demand for oil could return rapidly, exerting upward pressure on global crude prices.

“While analysts expect the average price to be higher in 2021, they generally expect it to remain relatively subdued”

Wil Crisp

YB 2021 \ 17

Agenda

THE GULF’S FISCAL SPACE SHRINKS

This article first appeared in the November 2020 issue of MEED Business Review

By John Bambridge

The setback dealt by Covid-19 to regional fiscal reform efforts will cast a long shadow over future budgets

PROJECTED GCC FISCAL BALANCES, 2019-20 % of GDP 10 5 0 -5 -10 -15 -20

Bahrain Kuwait

2019

2020

Source: IMF

18 \ YB 2021

Oman

Other GCC

Saudi Arabia

UAE

he Covid-19 pandemic has thrown the world into deep uncertainty, in many countries resulting in a period of extraordinary fiscal profligacy characterised by emergency stimulus spending in the face of falling revenue. The widespread use of stimulus by governments worldwide to prop up banking systems and provide much-needed relief to businesses and job markets has become a necessity driven by the unprecedented nature of the year’s events. In the Gulf, and among all oil-producing nations worldwide, the crisis has hit doubly hard, affecting both oil prices and the non-oil economy. As in 2014, when a Saudi-led oil price war triggered a slide in global oil prices from more than $100 a barrel to less than $60 a barrel, the fall in oil prices to about $40 a barrel as a result of the pandemic has had far-reaching fiscal consequences.

The IMF’s director for the Middle East and Central Asia, Jihad Azour, has noted that the pandemic could inflict “deeper and more persistent economic scarring than previous recessions” in the Middle East given its economic vulnerabilities, and cautioned that output might “return to trend, only after a decade”. Expanding deficits In the GCC, by reducing energy-derived revenue, the crisis has derailed near-term capital spending on projects, as well as efforts by regional governments to rein in costs and eliminate their fiscal deficits. Instead, fiscal deficits in the GCC have rapidly expanded from a weighted average of 1.9 per cent in 2019, based on IMF figures, to 9.2 per cent in 2020. This situation is comparable to the rise in regional fiscal imbalance between 2014 and 2016, when the average

Escalating fiscal deficits have led Oman, Kuwait and Saudi Arabia to announce cuts to their planned spending for this year

see a reduction of 7 per cent in its total expenditure. Sovereign debt in the region as a proportion of GDP is meanwhile projected to rise by a weighted average of 29 per cent by the end of 2020, according to IMF data, where debt levels had previously only been expected to rise by about 4 per cent. In Saudi Arabia, which makes up nearly half of the GCC economy, debt as a proportion of GDP is projected to rise from 22.8 per cent in 2019 to 33.4 per cent by the end of 2020.

fiscal deficit rose to about 10 per cent. According to Azour, “Some countries will incur their highest deficit in 20 years. In turn, higher deficit will raise their burdens, eroding fiscal space in some countries.” Over the course of 2020, sharply rising fiscal deficits have forced most GCC governments to make cuts to their planned expenditure. In May, the Omani government, for

New fiscal reality The wholly altered new reality will require a radical re-assessment of expenditure, revenue collection and fiscal and economic reform measures in the region. Regional fiscal targets will have to be revised. Saudi Arabia, for instance, had been planning to eliminate its fiscal deficit by 2023, and was considered to be on track, according to the latest assessments by institutions such as the IMF, but will now likely have to reassess this target

“Sharply rising fiscal deficits have forced most GCC governments to make cuts to their planned expenditure” instance, cut ministry budgets by about 15 per cent. In Kuwait, the government slashed its budget for the 2020/21 fiscal year by 20 per cent in response to the crisis. Saudi Arabia has presented a planned 2021 budget that will

in the face of far lower than anticipated oil prices. This time last year, when the price of Brent crude oil was once again hovering around the $60-a-barrel mark, the more bullish commodity analysts were eyeing near-term

potential future prices in the $75- or $80-a-barrel range. The new reality is a Brent oil price likely closer to $50 a barrel in 2021. The weakened fiscal situation of the GCC has significantly increased the external finance need of the block, both for those members with and without substantial assets, since, in any case, much of the region’s sovereign assets are locked up in the form of illiquid foreign holdings rather than readily accessible cash reserves. As immediate financing needs have exceeded the levels that could comfortably be accommodated by the limited pools of fiscal reserves and liquid government assets, the year has, as a result, seen one of the GCC’s most prolific chapters of external debt financing. In July, ratings agency S&P estimated the total financing need of the GCC amid the Covid-19 crisis at $180bn, including an $80bn run-down in government assets and a record-high $100bn in debt financing. As of late October, the London-based Capital Economics calculated that $40bn-worth of foreign currency-denominated sovereign bonds had already been issued in 2020, with nearly the same amount again issued in local currency. For oil exporters in the GCC, the bleakest news is that global oil prices are likely to remain subdued at the very least for the duration of 2021 as the world continues to wrestle with the impact of Covid-linked restrictions on movement pending the manufacture and

YB 2021 \ 19

Agenda

distribution of vaccines to the most vulnerable groups. By impacting the performance of the entire global economy, the pandemic has both weakened the long-term outlook for the oil price and, according to some analysts, may have brought forward the date of peak oil – though there remains considerable debate on this point. At the extreme end of these projections, maritime classification bureau DNV has suggested that “oil use may never again exceed 2019 levels”, and that “although energy demand will pick up again from 2021 […], for the remaining years to 2050, annual global energy demand will fluctuate some 6-8 per cent lower.” Two of the four scenarios presented in BP’s 2020 Statistical Review of World Energy also indicate that the global market for crude might “never recover from the coronavirus pandemic”, though its business-as-usual scenario sees oil demand peaking around 2025 and only declining significantly after 2030. In a significant development, oil producers’ group Opec also acknowledged that oil demand is likely to peak before 2050, with its 2020 World Oil Outlook settling on a date somewhere between 2035 and 2040. What the variability of these projections for peak oil demand shows is the degree to which the Covid-19 pandemic has raised the level of uncertainty for oil exporters and therefore raised the stakes for the GCC countries should they mismanage their spending. One of the most serious dilem-

20 \ YB 2021

PROJECTED GCC GROSS GOVERNMENT DEBT, 2019-20 % of GDP 140 120

2019

100

2020

80 60 40 20 0

Bahrain

Kuwait

Oman

Other GCC

Saudi Arabia

UAE

Source: IMF

“The pandemic has weakened the longterm outlook for the oil price and may have brought forward the date of peak oil” mas for a number of countries in the GCC is how to reconcile rising current expenditure with the desire to rein in budget deficits, and all the while maintain capital spending on infrastructure and strategic projects. Spending priorities As in the rest of the Middle East, the GCC countries with the lowest proportions of foreign workers are facing spiralling public wage bills as a result of decades-long strategies to boost employment by expanding the government sector. In Kuwait, for instance, the public wage bill is running at close to 90 per cent of the average government revenue over the last five years due to the lower-than-anticipated oil prices. Should oil prices continue to remain relatively subdued, as current projections suggest, Bahrain, Kuwait, Oman and Saudi Arabia will all face significant pressure from their public wage bills, and unless the issue is tackled, this will require cuts to fall dispropor-

tionately on forward-looking capital spending. Given the politically thorny nature of public wage bills, the issue will likely take some time to address, bringing GCC governments back to the need for additional budget financing in the form of further external debt, and particularly local and foreign-currency denominated bonds and sukuk. GCC countries will also continue their efforts to encourage foreign direct investment and private sector finance in the economy, including through the use of public-private partnership frameworks both to finance fresh infrastructure development and to derive capital from existing assets. The severe impact on government reserves and debt levels in 2020 as a result of the Covid-19 pandemic has nevertheless significantly reduced the fiscal room for manoeuvre in the GCC, and this will force its leaders to face the difficult decisions far sooner than expected.

SPENDING SQUEEZE Lower oil prices have pushed Saudi Arabia to cut its planned budget for 2021, and the rest of the GCC will face large deficits if they fail to follow suit

SAUDI ARABIA BUDGET

2020

2021

EXPENDITURE

$2.85bn DEFICIT

-7%

-10.6% DEBT

$265bn DEFICIT

-6.0%

33.4%

DEBT

34.3%

EXPECTED GCC BUDGETS IN 2021 BAHRAIN

KUWAIT

OMAN

OTHER GCC

UAE

EXPENDITURE

$11.9bn DEFICIT DEBT

-9.2% 131%

$75.2bn DEFICIT DEBT

-10.7% 36.6%

$32.2bn DEFICIT DEBT

-16.8% 88.7%

$50.3bn 3.3% 60.6%

SURPLUS DEBT

$134bn -5.1% 38.2%

DEFICIT DEBT

Deficit and debt figures are in % of GDP. Sources: Saudi government, IMF, MEED

Agenda

THE HUNT FOR PROJECTS

This article first appeared in the October 2020 issue of MEED Business Review

By Richard Thompson

The region’s post Covid-19 projects market will be very different to the market before 2020

MENA PROJECTS UNDER TENDERING, 30 SEPT 2020

Gas Transport Power Oil Construction Chemicals Water Industrial TOTAL

Value of projects under tendering ($bn) 56,201 54,100 44,391 44,044 33,929 22,060 21,742 3,494 279,961

Mena=Middle East and North Africa. Source: MEED Projects

22 \ YB 2021

Share of projects under tendering (%) 20.1 19.3 15.9 15.7 12.1 7.9 7.8 1.2

t has been a challenging few years for the Middle East and North Africa (Mena) projects industry. Government austerity measures in place since 2015 saw the value of contract awards in the region fall to under $148bn in 2019, down 37 per cent from their peak of $234bn in 2014. But even after five years of downsizing, rethinking and restructuring, no-one was prepared for 2020 and Covid-19. While the year started brightly enough with news of construction contract awards on several of Saudi Arabia’s Vision 2030 ‘gigaprojects’, a 50 per cent fall in oil prices in March coupled with the disruption of lockdowns led project contract awards to slump 20 per cent in the first six months of 2020, compared to the same period in 2019. In total, about $50.4bnworth of project contracts

were awarded across the Mena region in the first half of 2020, down from $62.7bn of awards in the first six months of 2019. The UAE market in particular suffered, falling 34 per cent to about $10.9bn of awards, as Dubai’s real estate projects market stalled. But all of the region’s major markets have struggled. Awards in Saudi Arabia were down 16 per cent to about $13.2bn, while awards in Egypt fell 9.2 per cent to $6.1bn. The slump in awards has not been evenly spread. While the values of construction project awards fell 25.5 per cent to about $16.7bn in the first six months of 2020, and transport awards fell 24.3 per cent to about 8.3bn, the value of oil, gas and petrochemicals contract awards rose 4 per cent to about $13.4bn. Power and water project contract awards fell 21.4 per cent to about $10.5bn. Future prospects So, what can project companies expect in 2021? The regional opportunity remains vast: about $900bnworth of projects are currently under way across the Mena region, with another $3.4tn at some stage of planning. The region’s finances are stretched, however. It is estimated that the region is facing a $100bn shortfall in the funding it requires to meet its infrastructure needs. With Covid-19 adding to the fiscal pressure facing governments, the pace of progress will be slower and companies under increased pressure to lower prices.

SCOUTING OPPORTUNITY

-8 5. 6%

-6 4. 7%

$40.2bn KEY PROJECT

JORDAN

$21bn

-7 9. 8%

$70.6bn

-3 8. 4%

North Kuwait oil and Jurassic gas projects

MOROCCO

$5.9bn KEY PROJECT

OMAN

$41.7bn KEY PROJECT

OTHER GCC

$83.1bn

Duqm petrochemicals complex

-5 7.5 %

Casablanca tramway extension project

-4 8. 3%

KUWAIT

KEY PROJECTS

King Hussein Bridge terminal and freight yard

KEY PROJECT

SAUDI ARABIA

$271.3bn KEY PROJECTS

Ras Laffan LNG processing trains

TUNISIA

$11bn

Renewable energy programme (Redpo) 2&3

-6 3. 4%

0. 8%

$91.3bn

National high-speed railway; Cairo Metro

KEY PROJECTS

Iraq strategic crude oil export pipeline

EGYPT

KEY PROJECTS

Public transport programme; Manama Metro

Ahnet/Rhoude elKrouf oil field projects

IRAQ

$11.1bn

KEY PROJECTS

-5 7.4 %

$8.6bn

KEY PROJECTS

BAHRAIN

-2 3. 7%

ALGERIA

24 .8 %

0. 9%

As regional project activity takes a hit under Covid-19, MEED looks to the markets with near-term potential in the form of projects under design or in the bidding phase

KEY PROJECT

UAE

$160.4bn KEY PROJECTS

Enfidha deepwater port

UZ1000/Hail and Ghasha developments

KEY Change in project contract awards in the six months from March to August 2020 compared with the same six-month period in 2019 In the design or bidding phase Source: MEED Projects

Oil, gas and petrochemicals

Transport

Power

Agenda

MENA PROJECTS UNDER TENDERING, 30 SEPT 2020

Saudi Arabia is by far the biggest projects market in the region with about $1.4tn-worth of projects planned or under way. Of these, about $330bn of projects are under construction. This leaves an active pipeline of about $1.1tn-worth of projects that are planned but not yet awarded. The critical calculation is how many of these projects will be brought to the market by the end of 2021. While some of the projects in design will be ready for tendering in the next 12-15 month, most of them will not be. The majority of projects awarded in Saudi Arabia in 2021 will come from the $58.4bn of projects that were at some stage of tendering at the end of September 2020. With about $23.2bn-worth of projects in tendering, the power sector accounts for about 40 per cent of projects likely to be awarded in Saudi Arabia in the coming year and will provide many high-value opportunities, particularly in renewables. Water, oil and gas and transport each account for about 15 per cent of the projects under tender. Construction projects account for about 13 per cent. The regional picture is somewhat different. With $100bn of projects currently

24 \ YB 2021

at the tendering stage, the oil and gas sector accounts for almost 36 per cent of all projects currently under tendering in the Mena region. The UAE has the biggest pipeline of oil and gas projects contracts being tendered with $28.6bn of contracts, including $18bn of gas projects. Transport infrastructure projects, including airports, rail and ports, make up the second-biggest portion of projects being tendered at the end of September with about $54bnworth of projects, 19 per cent of the pipeline of projects under tender. With $44.4bn of projects under tender, the power sector accounts for about 16 per cent of the market. New normal Submitting the lowest bid price will remain a critical factor in winning work in the region. But other factors increasingly will come into play. Growing focus on energy efficiency and reducing carbon dioxide emissions require that projects be more sustainable, while the increasing fiscal pressure will see governments seeking new and alternative sources of finance, including through public-private partnerships (PPP) and export credit support. The localisation of content is an important trend in many

Saudi Arabia UAE Other GCC Oman Iraq Kuwait Egypt Jordan Tunisia Morocco Lebanon Algeria Bahrain Iran Libya Syria TOTAL

Value of projects under tendering ($bn) 58,402 54,274 53,227 27,801 26,285 20,815 16,601 5,791 5,083 3,135 3,010 2,872 1,439 774 390 62 279,961

Share of projects under tendering (%) 20.9 19.4 19.0 9.9 9.4 7.4 5.9 2.1 1.8 1.1 1.1 1.0 0.5 0.3 0.1 0.0

Mena=Middle East and North Africa. Source: MEED Projects

markets, including in the UAE and Saudi Arabia. This puts pressure on companies to set up local subsidiaries and use a lot of local employment and materials. The demand for lower bid prices will put pressure on contractors to increase efficiency and is likely to encourage greater use of pre-manufactured components and modular design. The outlook for the Mena projects market depends heavily on the spread of Covid-19, and the speed of the economic recovery. While a significant proportion of the slump in contract awards can be attributed to deferred spending decisions as a result of pandemic-related uncertainty, some projects will disappear forever. The longer the crisis continues, the greater the number of projects that will be cancelled.

Projects

FOCUS TURNS TO AFRICA Value of contracts awarded on the continent hit a record high of just under $140bn in 2019 thanks to strong economic growth

EED Projects, the leading projects tracking platform, has announced its extension of coverage into Sub-Saharan Africa. The online subscription service now fully covers more than 7,000 projects across all 54 countries in Africa, making it by far the world’s largest database of infrastructure developments on the continent. This expansion was driven by increasing demand from subscribers seeking new project opportunities in developing economies outside their traditional markets in the GCC and wider Middle East.

Expanding market “The Africa projects market has grown from strength to strength, more than doubling from $48bn of awards in 2011 to $137bn last year,” says Ed James, MEED Projects’ director of content and analysis. With declining project activity levels in the GCC due to the impact of Covid-19 and lower oil prices, interest in the African continent has particularly accelerated this

year. “In the wake of this sharp fall in contract awards in the region, many contractors, consultants and suppliers have no choice but to look further afield for new opportunities, and Africa represents the obvious market for them,” says James. At just over $120bn Nigeria is the largest projects market in Sub-Sa-

bique’s first liquefied natural gas project and the $5bn Grand Ethiopian Renaissance Dam, which is currently making headlines due its geopolitical and economic impact. Construction is the largest single sector with more than $246bn of deals let since 2011, comprising about 26 per cent of all projects

“Propelled by booming economies and fastgrowing populations, Africa’s projects market is increasingly attracting international firms” haran Africa by value of projects awarded in the past 10 years. Africa’s most populous country is also its largest hydrocarbons producer, with oil exports helping to fund investments in infrastructure such as the under-construction $11bn Lagos to Calabar railway line. Mozambique, Ethiopia and Kenya are the next three biggest markets, with each signing between $21bn and $29bn of work in the past decade. Their notable active projects include the estimated $20bn programme to build Mozam-

over the period. Transport schemes such as roads, airports and railways have seen $234bn of contracts, closely followed by power projects at $209bn. The gas, oil and industrial sectors have also constituted a large proportion of spending. Going forward, there is a pipeline of more than $1.7tn of future projects. Nigeria is again the largest future market with at least $422bn of planned and unawarded projects, followed by Egypt at just under $215bn, South Africa at $186bn and then Tanzania at $122bn.

YB 2019 \ 25

US Elections

Brief biography 20 Jan 2009

How Biden will reshape US policy in the Middle East

2001-03 Chairman of Senate Foreign Relations Committee, a post he held again in 2007-09

Joe Biden’s win in the 2020 US presidential elections will lead to a marked change in the US’ approach to the region

J This article first appeared in the December 2020 issue of MEED Business Review

26 \ YB 2021

Sworn in as 47th vice-president of the US. Serves two terms under President Barack Obama

1987-95 Chairman of the Senate Committee on the Judiciary 19732009

Six terms as US senator for Delaware

1970-72 Serves on the New Castle County Council in Delaware 1968-70 Defence attorney for criminal cases in Wilmington, Delaware

By Richard Thompson oe Biden’s victory in the 2020 US presidential elections will lead to a significant change in the US’ approach to the Middle East in terms of tone. But it is unlikely to deliver any radical shifts in US policy in the region. While the Middle East remains important to US interests in terms of energy and security, it is no longer the priority it once was. Since 2011, when President Barack Obama ‘pivoted’ US foreign policy towards Asia-Pacific, China has been the number one item on America’s international agenda. This will not change any time soon. As US energy self-sufficiency has grown, Middle East oil has diminished in its significance to Washington. Meanwhile, the deep scars from US interventions in the region during George W Bush’s post-9/11 resurgence in neo conservatism mean there is no appetite on either side of the US political spectrum for a return to direct military engagement in the region.

But despite its downgrade, the Middle East remains important to US interests and President-elect Biden inherits a host of challenging issues for the US in the region. Trump’s transactions Throughout his presidency, Donald Trump’s ‘America First’ approach to international relations has seen him view other countries and international organisations through a transactional lens. Under his administration, US relations have largely been shaped by his personal relationships with leaders and by what deals he could secure for US companies. President Trump frequently saw multilateralism as harmful to US interests and removed the US from the Paris Climate Change Agreement, the Trans Pacific Partnership, the World Health Organisation and the North American Free Trade Agreement, while criticising US allies in Nato.

“Where Trump brought a business approach to the US’ international relations, Biden will seek a return to multilateral diplomacy” In the Middle East, Trump built strong relationships with leaders in Riyadh, Cairo and Tel Aviv as he sought to counter rising Iranian influence across the region, while also securing deals for US defence contractors. In 2018, he removed the US from the Obama-era international Joint Comprehensive Plan of Action (JCPOA) to limit Iran’s nuclear programme. At the same time, he implemented tough economic sanctions and targeted retaliatory strikes to exert maximum pressure on Iran. Trump’s support for Tel Aviv looks to have killed off Palestinian ambitions for meaningful independence.

Although Trump’s proposed Middle East peace plan launched in January 2020 was universally panned as unfair and unviable, the normalisation of diplomatic relations between Israel and the UAE, Bahrain and Sudan represents major successes for Israel and a new reality for the Palestinians. Trump’s decision in 2018 to move the US embassy from Tel Aviv to Jerusalem sent a clear message as to where he saw US priorities. Trump’s declaration in 2019 that Islamic State in Iraq & Syria (Isis) had been defeated and the subsequent withdrawal of the majority of US troops from Syria and Iraq saw the

president upholding his commitment to removing, or at least significantly reducing, the US from entanglements in the Middle East. His critics, however, saw it as a betrayal of US allies in the region, particularly Syrian and Iraqi Kurds, and also opening the path for increased Russian influence in the Middle East. Biden diplomacy President Biden will bring a different style to the one followed by Trump over the past four years. Where Trump’s approach has centred on unilateral deal-making, Biden’s Middle East policy will see a return to multilateral diplomacy to reduce geopolitical tensions between Riyadh and Tehran, and to counter a resurgence in Islamic extremism. Biden will also seek to use US influence to pressure Middle East leaders to increase humanitarian effort in

YB 2021 \ 27

US Elections

Yemen and other conflict areas, and to promote human rights and other democratic freedoms. Iran will feature at the top of Biden’s regional agenda. The president-elect has said he intends to re-enter the JCPOA, so long as Iran complies with the terms of the agreement. This will see the US once again lining up with the UK, France and Germany to pursue diplomatic efforts with Iran. In return, Tehran will demand an easing of economic sanctions, and possibly even some reparations, which will potentially open up new busines opportunities in the region. But it will be a tough negotiation for the new US president, who will face strong opposition from Republicans at home, and from Israel, Saudi Arabia and the UAE in the region. Biden will also require the commitment of Saudi Arabia and the UAE as he seeks to de-escalate regional tensions between Iran and the GCC, particularly in Iraq and Yemen. Riyadh will be at the forefront of regional diplomatic efforts as it seeks to strengthen relations with the new incumbent of the White House. The Biden administration will provide a less supportive stance to Saudi Arabia and the UAE in Yemen than has been seen over the past four years. He will use US influence to accelerate Riyadh and Abu Dhabi’s efforts to find a diplomatic resolution to the war in Yemen, which is a humanitarian crisis and a political and military quagmire. Israel/Palestine Biden supports a two-state solution in Palestine, and will increase US aid to the Palestinians. He will seek to curtail the annexation of Palestinian territory by Israel. But Washington’s support for Israel will not waver and he is not likely to reverse Trump’s recognition of Israeli sovereignty over Jerusalem and the Golan Heights. Biden will be

28 \ YB 2021

Cairo to respect human rights and democratic freedoms. Biden is unlikely to change Washington’s course in Syria and Iraq, where the US retains a small military presence. Biden will not pursue a more aggressive approach in Syria. This will see Russia increase its influence.

There is no doubt that President Trump has changed the region

keen to see further normalising of relations between Arab states and Tel Aviv. The most unpredictable and treacherous waters for Biden may well be found in the East Mediterranean, where conflict is building between Turkey, Syria, Israel, Egypt and the UAE. Not to mention the EU. Ankara is seeking to increase Turkish influence around the Mediterranean in Libya, in the East Mediterranean and in Syria. At the same time, President Erdogan is rolling back individual freedoms and cracking down on

Trump legacy In only four years, President Trump has left a huge imprint on the Middle East. And much of the change that he has brought about cannot be undone. In many cases, such as with Israel and Iran, Trump has perhaps taken steps that more traditional politicians or diplomats may have wished for, but would have been unable to deliver. The biggest lesson of the Trump era in the Middle East, and around the world, is that US foreign policy will no longer be seen to be consistent. Politicians now know that US policy can change radically every four years, and that allies can suddenly find themselves isolated, while foes, such as North Korea, can become apparent friends. Despite Biden’s likely efforts to restore diplomatic normalcy, the legacy of four years of Trumpism is likely

“Re-entering the JCPOA will see the US again lining up with the UK, France and Germany to pursue diplomatic efforts with Iran” opponents. As a Nato ally, the US is committed to supporting Turkey, but Biden will also seek to put pressure on Ankara to improve its respect for human rights and democracy. The government of President Abdul Fattah al-Sisi in Egypt is another close ally of the US that has become increasingly tough in its treatment of opponents and journalists. Biden will likely use US military aid and financial support as a lever to increase pressure on

to be increasing unilateralism from US allies across the region as they seek to protect their interests in the face of the growing influence of Russia, China and Iran. It also could undermine efforts for multilateral action to combat terrorism and extremism. As Biden figures out how to exert his will around the world, he might come to view the threat of a Trump return in 2024 as the biggest incentive for people to work with him.

Calling on expert evidence HKA offers expert services in risk mitigation and dispute resolution in the capital projects and infrastructure sector

Daniel Jackson, Director of HKA

Key takeaways: ■ Proactive case manage-

ment in arbitration boosts the value of expert evidence

■ Article 257 of the UAE

Penal Code is a not-sogentle reminder of the importance of sourcing experts with integrity

■ Parties may benefit from

including the right for Tribunals to award legal and expert fees in the arbitration agreement or terms of reference

In partnership with

How can tribunals and lawyers get the best out of expert evidence? Proactive case management in arbitration can increase the value of expert evidence by narrowing the differences between experts prior to the hearing. A skilled expert will attempt to achieve this independently; however, where the Tribunal provides a common set of questions or parameters, the risk of misalignment of the experts’ methodologies or in the application of data is substantially reduced. Asking experts to produce a joint report to set out the matters agreed and disagreed upon can also extract value from expert evidence. If needed, reply reports should then be sought to set out what their opinions would be if the opposing expert’s principles and methodologies were accepted by the Tribunal. These methods encourage experts to combine their efforts in reaching consensus, and allow the Tribunal and lawyers to focus on the material contentious matters. Equally, expert witness conferencing, or ‘hot-tubbing, enables each expert to engage with the tribunal and each other regarding differences in opinions. In complex arbitrations, this approach is effective in facilitating deeper examination of the contentious issues and gaining transparency in the experts’ perspectives. Are there any barriers to the efficient use of expert evidence or sourcing of expert witnesses in tribunals? Partiality on behalf of the expert has long been a problem for the efficient use of expert evidence in arbitration. This often derives from the expert developing an

PARTNERSHIP PUBLISHING

unconscious bias in favour of the party that appointed them. Not only does this prejudice the credibility of the expert, but it undermines his/her parties’ case. It can be said that the financial benefit of frequently working for the same party may amount to an expert owning a financial interest in the arbitration’s outcome. In my experience, Tribunals are well equipped to identify partisan experts and attach the appropriate weight to any evidence suspected of being presented with bias. The obligation to act impartially is crystallised in Article 257 of the UAE Penal Code, which provides that an expert may be subject to criminal prosecution if he/ she confirms untruths in evidence. This acts as a reminder of the expert’s duty to the Tribunal and emphasises the importance of sourcing experts with integrity. At HKA, we place significant emphasis on the duties of our 500+ experts. Whether providing expert advisory, expert determination or expert witness services, HKA offers the unique, multi-disciplinary service that combines quantum, engineering, delay, disruption, damages and government contracts analysis. Where do the costs of calling on expert evidence fall in tribunals in the region? Institutional rules such as DIFC-LCIA Rules of Arbitration, UNCITRAL Rules and ICC Rules confer powers to the Tribunal to award legal and experts’ fees. However, this power is not to be assumed in the rules of all institutions. The DIAC Rules of Arbitration, for example, allow the Tribunal to award the “costs of the arbitration”; however, the definition does not extend to expenses incurred in preparing pleadings. The power of Tribunals to award legal costs in DIAC arbitrations is an issue which has often been contested before the UAE Courts, and in some cases legal and expert fees have been disallowed. Therefore, parties may benefit from including the right for Tribunals to award legal and expert fees in the arbitration agreement or terms of reference.

REALIGNING THE STARS As US President-elect Joe Biden’s transition team prepares to enter the White House in January, the Middle East eyes the potential geopolitical implications

BIDEN POLICY EXPECTATIONS

Return to the terms of the Joint Comprehensive Plan of Action still adhered to by the US’ European allies

Return to the Paris Climate Agreement and advance of a $1.7tn plan to stimulate a greener US economy

Reversal of Trump’s ‘Muslim ban’ on entry from seven countries Broad restoration of US diplomatic normalcy in the region despite the disruption of Trump era policy

Hardening of stance toward human rights violators in the region

Retrenchment of stance on Israel and cooling of relations with Prime Minister Netanyahu’s government

Easing of Iran sanctions and renewal of diplomacy with Tehran

Pushback against Turkey’s President Erdogan over regional conflict

Departure from the ‘maximum pressure’ campaign against Iran

Return to multilateral diplomacy to reduce geopolitical tensions, such as between Riyadh and Tehran

Greater pressure on Egypt’s President Al-Sisi to respect free speech

US pressure on Middle East leaders to improve humanitarian efforts in Yemen and other conflict areas

Return to US promotion of human rights and democratic freedoms

A LIFETIME IN POLITICS Biden graduates from the University of Delaware

1942 Born on 20 November in Scranton, Pennsylvania

Source: MEED

1965

Elected as a councillor in New Castle County

1968 Graduates from the College of Law at Syracuse University

1969

1972 Biden’s first wife Neilia and their one-year-old daughter are killed in a car crash on 18 December

Biden is sworn in as a junior US senator for Delaware after defeating the Republican incumbent

1973

Joins the Senate Judiciary Committee, on which he will serve until 1997

1975

1981

Pressures the US government to intervene in Bosnia, later leading to Nato engagement

Biden suffers a brain aneurysm and pulmonary embolism

1987

1988

1991

1992

Marries his second and current wife, Jill Jacobs

Runs for 1988 Democratic Votes against presidential nomination, authorising the Gulf War but later withdraws Votes in favour of the Co-sponsors a bill calling Spearheads the 1994 Crime use of military force for intervention in Kosovo Bill and Violence Against in Iraq with John McCain Women Act

Biden runs again for president before joining Barack Obama’s ticket

2008

2006

2002

Joins the Senate Foreign Relations Committee Obama and Biden secure a second term

2012

2001 Supports the war in Afghanistan

Biden’s eldest son, Beau Biden, dies from a recurring brain cancer

2014 The emergence of Isis in Iraq leads to the re-engagement of the US in Iraq

1999

2015

1997

1994

Now a critic of the war, Biden advocates for the federalisation of Iraq Biden runs for US president for the third time

2016

2019

2020

Donald Trump wins the US presidential election by securing 306 electoral votes

Biden wins the US presidential election with 50.8% of the popular vote and a projected 306 electoral votes

REGIONAL RESPONSE TO THE US ELECTION Reactions to Biden’s victory from the Middle East have been generally positive, although a number of governments have reason to either be concerned or cautious diplomatically about the power shift Egyptian President Abdul Fattah al-Sisi was the first Arab leader to congratulate Biden, who said on the campaign trail that there would be “no more blank cheques” for the leader

The UAE’s Crown Prince Mohammed bin Zayed offered swift congratulations amid reports that the UAE has been in contact with Biden since early this year

King Salman and Crown Prince Mohammed bin Salman took 24 hours to issue a statement congratulating Biden, reflecting concern in Riyadh at the election result

Lebanese President Michel Aoun was the second Arab leader to congratulate Biden, reflecting Lebanon’s interest in resetting relations after a particularly frictious period

Palestinian President Mahmoud Abbas waited more than 12 hours to congratulate Biden, despite the perceived harm done by President Trump to the Palestinian cause

Iranian officials refrained from congratulating Biden and instead issued statements welcoming Trump’s defeat and positing hope for a rebalancing of relations

King Abdullah of Jordan, a long-time US ally, was quick to congratulate Biden, who he will hope can restore funding to the UN agency for Palestinian refugees

Israeli Prime Minister Benjamin Netanyahu waited 12 hours before responding to the election result, drawing criticism domestically for the potential harm of the diplomatic snub

China

Washington’s increasingly hands-off approach to the Middle East has led to China’s footprint in the region growing

PANDEMIC BOLSTERS SINO-ARAB COOPERATION Regional governments are increasing collaboration with China despite shifting global economic and political landscapes

T This article first appeared in the August 2020 issue of MEED Business Review

32 \ YB 2021

he Covid-19 pandemic has deepened the level of cooperation between China and its strategic partners in the Middle East and North Africa (Mena) region. In March, Abu Dhabi opened the world’s largest Covid-19 testing facility outside China, built within 14 days by a joint venture of Beijing Genome Institute (BGI) and Abu Dhabi-based artificial intelligence firm Group 42 (G42). The following month, Saudi Arabia announced a SR995m ($265m) deal with BGI for 9 million Covid-19 tests and six laboratories with a capacity to conduct 10,000 tests a day. In June, Sinopharm China National Biotec Group and G42 started phase three clinical trials of a Covid-19 inactivated vaccine in the UAE. Iran, meanwhile, forged a 25-year economic and security partnership with China. Economics and geography define the relationship between Mena countries and China, and this has been aided by Washington’s increasingly hands-off

approach in the region. Several Mena countries have also become de-facto members of the Belt and Road Initiative (BRI), which aims to revive the ancient Silk Road by building a network of rail, maritime, energy and internet infrastructure across Asia, Europe and Africa. Trade flow “The end game for China is a deep, multi-faceted presence in a strategically important region,” explains assistant professor of political science at Abu Dhabi’s Zayed University, Jonathan Fulton. “China needs energy and it needs to pass through the Middle East to make the BRI work.” China has focused some 10 per cent of its global investments in the Arab Middle East and North Africa in the past 15 years. According to the American Enterprise Institute, China’s investments and construction contracts in the region totalled $198bn between 2005 and 2020, peaking at $26.6bn in 2018.

The recipients of the biggest investments are Saudi Arabia ($38.6bn), the UAE ($33.3bn), Egypt ($27.2bn) and Iraq ($24bn). Energy is the top investment sector, accounting for more than $90bn, followed by transport ($38bn), real estate ($33bn) and utilities ($12bn). China’s growing role in the Mena region could potentially carry repercussions for its relationship with Washington. It has been reported, for instance, that US embassy staff in Abu Dhabi cited potential privacy issues after refusing to undergo Covid-19 tests at a facility built by a Chinese/UAE joint venture and using Chinese technology. The majority of telecoms firms in the region are rolling out fifth generation (5G) mobile networks using Huawei Technology’s 5G networking equipment, despite the US and a growing number of countries blacklisting the Chinese firm due to corporate espionage allegations, which Huawei has repeatedly denied. 5G technology will play a key role in implementing all future digitalisation initiatives, from electricity grids and automated vehicles to telemedicine and surveillance, all of which are vital to economic growth and effective governance. However, growing Chinese-Arab cooperation does not necessarily have to threaten relationships between Mena countries and the West, says Fulton. “If economic relations with China contribute to regional development and stability, they are beneficial,” he tells MEED. “Competition is good, and perhaps it will force external countries that have traditionally had more influence in the Middle East to re-evaluate their approaches.”

CHINA INVESTMENT AND CONSTRUCTION CONTRACTS IN ARAB MENA $m Source: American Enterprise Institute and The Heritage Foundation

Chinese finance and contractors have become omnipresent across the Mena region, from port, railway, solar park and tall tower projects in the UAE, to the economic zones, ports, electricity grids and railways in Egypt, Oman and Saudi Arabia. All these projects – which dovetail with long-term economic visions – also strategically align with the BRI’s objectives. China likewise has ambitions to be a global leader in renewables and digital technology, areas that attract great interest in the region, particularly with the need to build knowledge-based economies.

“The end game for China is a deep, multifaceted presence in a strategically important region”

Hong Kong On 6 July, the ninth ministerial conference of the China-Arab States Cooperation Forum took place via video link. Participants agreed to collaborate to defeat Covid-19, uphold multilateralism and improve global governance, and advance BRI cooperation. Both sides also agreed to “defend fairness and justice”, which translates to China continuing to “stand firmly with the Palestinian and the Arab people”, and Arab countries supporting China’s position on Hong Kong, Xinjiang, Taiwan and “other matters that are China’s internal affairs”. The reciprocal policies can be seen as one of the political benefits of working with China, which does not come with the same kind of pressures that Mena countries get from the West, according to Fulton. “They are not going to pressure a country’s leaders for political reform, or a free media, or human rights issues, and they expect the same from countries they work with.” Jennifer Aguinaldo

30,000 25,000

Energy Tourism

Transport Agriculture

Real estate Logistics

Utilities Health

Chemicals Other

Metals

20,000 15,000 10,000 5,000 0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

YB 2021 \ 33

Saudi Foreign Policy

RIYADH’S FOREIGN POLICY WEATHERS CHANGING WORLD Saudi Arabia’s political actions overseas have raised eyebrows recently, but its foreign policy remains much the same as always

This article first appeared in the October 2020 issue of MEED Business Review

34 \ YB 2021

he late King Faisal, before he became crown prince and then king in 1964, was Saudi Arabia’s first foreign minister. He held the position from 1930 until he was assassinated in 1975. His replacement, Prince Saud al-Faisal, was the kingdom’s foreign minister until stepping down due to ill health in April 2015, three months before his death. Since then, the kingdom has had no fewer than three foreign ministers: Adel al-Jubeir, now a minister of state in the Foreign Ministry; former Finance Minister Ibrahim al-Assaf; and, from October 2019, Prince Faisal bin Farhan al-Saud, a former royal court adviser. But change at the top has not been echoed in Saudi Arabia’s core interna-

tional policies, which were defined by King Faisal and maintained by his son. Thinly populated, located in a turbulent locale and master of the region’s greatest oil reserves, Saudi Arabia – since it was unified as a single kingdom in 1932 – has put security first. That required a close relationship with a protective global power, which was initially the UK and, since 1945, has been the US. US elections Presidential elections are critical moments for Saudi Arabia’s leaders, who attach vital importance to personal contacts with the occupant of the White House. There was delight in Riyadh in 2017 when President Donald Trump chose the kingdom for his first overseas

visit. Crown Prince Mohammed bin Salman was lionised across the US in a high-profile tour the next year. The stakes in 2020 remain high. Riyadh objected to President Barack Obama’s rapprochement with Iran and was appalled by his support of the uprising against Egyptian President Hosni Mubarak in 2011. These emotions colour attitudes towards the Democrat candidate Joe Biden, Obama’s vice-president for eight years. Nevertheless, the kingdom is prepared for change in Washington and may even welcome it as a fresh start. Trump’s refusal to respond to the September 2019 attack on the Abqaiq oil complex tipped Saudi Arabia’s view of his presidency from disappointment into disillusionment. This was distilled in King Salman’s telephone call with Trump on 7 September, in which he said Saudi Arabia wants a fair deal between Israel and the Palestinians based on the Arab Peace Initiative. Originally a Saudi Arabian plan, it calls for Israeli withdrawal from occupied territories, a Palestinian state with Jerusalem as its capital and a just settlement for Palestinian refugees. It was a rejection of what has been so far revealed of Trump’s Middle East peace plan and a signal to Biden of a longstanding Saudi Arabian priority. But there are signs of change in Saudi Arabia’s international policies that reflect the realities of a changing world. “The kingdom is becoming more self-reliant,” says former British ambassador to Saudi Arabia, Sir William Patey. “This is in reaction to change in US policy in the Middle East. Washington might not be as dependable as it has been in the past.” This has been expressed since King Salman succeeded to the throne in January 2015, and in the kingdom’s actions in Yemen. The interest in its southern neighbour is long-standing and comprehensible. But there is little evidence of an exit strategy for a costly intervention that has damaged its international reputation.

Another example was the detention of Lebanon’s then prime minister Saad Hariri during a visit to the kingdom in November 2017. He was forced to announce his resignation, although that was later withdrawn. Lebanon has since descended further into financial and political turmoil. Examples of greater regional proactivity include Saudi Arabia’s support for Khalifa Haftar in the Libyan civil war.

“The kingdom is prepared for change in Washington and may even welcome it as a fresh start”

Continuity in uncertain times But these departures are exceptions, not a new rule. The kingdom’s leadership of the Islamic world remains intact. That, in turn, underpins its support for the Palestinian position about Jerusalem and other Muslim causes. The tacit approval of the UAE’s decision to normalise relations with Israel is seen as a pragmatic response to regional realities, and particularly the challenge from Iran, rather than something new. There is also continuity in Saudi’s oil diplomacy. Faced by tumbling consumption due to Covid-19 and soaring non-Opec production, the kingdom aggressively increased output in March. The result was unprecedented price volatility and a new agreement among Opec and non-Opec nations including Russia the following month. Oil prices in 2020 will be about 30 per cent lower than in 2019, but Saudi Arabia’s influence on its direction is probably greater now than this time last year. The kingdom’s oil power delivers dividends well beyond the energy industry. In 2019, it became China’s largest foreign petroleum supplier. There is growing Chinese investment and activity in the kingdom. This is expressing itself in closer relations between Riyadh and Beijing, although this too has been happening for decades. Saudi’s foreign policy is changing, but simultaneously remains essentially the same. In uncertain times, this is not only comforting. It is probably right. Edmund O’Sullivan

YB 2021 \ 35

Dubai Expo 2020

EXPO 2020 FORGES AHEAD WITH CONFIDENCE The postponement of the expo has not curbed enthusiasm to gather the world in a celebration of technology and interconnectivity

W End 2019 Majority of Expo-led construction completed

$100,000 Maximum emergency relief funding provided by Expo Live programme to support Global Innovation partners

36 \ YB 2021

hen Expo 2020 officially confirmed its year-long delay on 4 May 2020, the Covid-19 virus held the upper hand on global economies. Healthcare services across the world were under immense pressure and there seemed to be no end in sight. By the end of 2020, the situation was quite different. The virus is still around, and many nations are experiencing a second wave of infections. But two things have changed: The first is that governments, businesses and individuals have learned to better cope with the ‘invisible’ enemy. The second is that there is now an increasingly clear path towards the manufacture and distribution of vaccines, and several leading

examples are on the cusp of being rolled out on mass. Reassess, readapt The postponement of Expo 2020 has been taken in its stride. Despite the difficult decision to make, the organisers were quick to respond to the challenge and readapt their plans, while supporting participants to do the same. “France welcomes the one-year postponement as the priority is protecting public health and safety,” said France commissioner-general Erik Linquier in an interview with MEED on 27 May. “Once this pandemic is behind us, it will be crucial as a global community for us to bring all the nations together

in one place in order to create cohesion and unity – pooling all energies, innovations and solutions to environmental, social, economic and health challenges.” At the expo site, strict measures were introduced given the mammoth workforce deployed. Testing facilities were set up by the Dubai Health Authority and early detection of the virus was supported. Sanitisation procedures and cleanliness guidelines were intensified and worker welfare teams worked closely with contractors and consultants. The majority of the Expo-led construction including the iconic Al-Wasl Plaza was complete by the end of 2019, and fit-out works and landscaping of the public realms have continued throughout 2020. The Expo metro station has been inaugurated and finishing works are under way on the Dubai Exhibition & Conference Centre. As companies in the UAE followed work-from-home directives, Expo 2020 employees also shifted to remote working using solutions provided by its official digital network partner, US-based Cisco. Expo 2020 currently has the largest deployment of Cisco’s Webex videoconferencing and filesharing platform in the UAE. Participant commitments Country pavilions have steadily risen upwards, and many nations announced plans to complete exterior construction by the end of 2020 and finalise the fitout and exhibit installations in 2021. For instance, the Netherlands finished the shell-and-core steel structure of its pavilion in the late summer of 2020. Construction of the remaining structure has now been put on hold and is expected to resume in early 2021. The US announced it had completed the external construction of its pavilion on 18 November, and will carry out fitout and exhibit installations in the first quarter of 2021.

Belgium also completed works on the shell of its pavilion in December and, after a temporary closure, will resume work on the interior finishing and the installation of sensitive equipment and the many plants and trees that will adorn the pavilion in March 2021. Finland announced the completion of structural works on its pavilion in October 2020. The remaining construction activity will resume in April 2021, when aesthetic elements, such as the white exterior membrane and pavilion partner Kone’s touchless elevator, will be installed, and work will begin on the interior fit-out for the exhibition space and VIP floor. Severi Keinala, commissionergeneral of Finland at Expo 2020 Dubai, says the exhibition “fundamentally remains the same”, when asked if the design or programming of the pavilion had to be readapted in light of Covid-19. “From the outset of the pavilion’s journey, we have always wanted to express the Finnish notion of freedom of movement and individuality, and there are several elements that are now proving to be even more valuable,” says Keinala. “These include the open exhibition space that allows for adequate social distancing measures regardless of visitor flow restrictions. We were already working with the Kone people flow analytic tool and Granlund manager digital twin technologies to enhance the visitor journey. As social distancing measures are now a crucial part of everyday life, we are able to simulate visitors coming and going using both technologies, allowing us to ensure adequate social distancing measures are in place.” Finnish firms Kone and Granlund are the national and key partners respectively of the pavilion. The Finnish pavilion’s exhibition partner Halton, which was already due to provide air displacement systems for the pavilion, will now include additional air purification systems. Another partner,

1) The Mobility Pavilion 2) View of the dome of Al-Wasl Plaza 3) An entry portal at the Expo site

YB 2021 \ 37

Dubai Expo 2020

1) The Sustainability Pavilion 2) The UAE’s pavilion 3) Opportunity District at night

38 \ YB 2021

Seviz, will integrate its real-time, remote air quality monitoring system with the pavilion’s digital twin. Other partners, including Flexbright, Lovvo and Cuusi, will maintain hygiene standards through the use of disinfecting lights, temperature measurement and sanitising services. “All exhibition content is digital, and we are currently experimenting with two new technologies that will allow visitors to interact with our content using motion sensors that detect movement from 20 to 30 centimetres above the screen,” says Keinala. He adds that the programming plan for the pavilion has been kept flexible, giving them the freedom to adjust elements accordingly based on the situation at the time and advice presented by the team at Expo 2020 Dubai. “Should restrictions be lifted before the event commences, we will return to maximum

visitor flow while ensuring all hygiene measures remain in place,” says Keinala. Expo 2020’s Expo Live programme, which provides grants to solutions fighting global challenges, offered support to many of its Impact Innovation Grant Programme innovators through the crisis. “Like many startups around the world, many of the Global Innovators have been affected by the current challenges, and we are very much conscious of this,” says Yousuf Caires, senior vice-president of the Expo Live programme. “That’s why Expo Live launched an emergency relief fund in March, inviting existing Global Innovators to apply for additional grant funding of between AED184,000 to AED367,000 [$50,000 to $100,000]. “As an outcome of this initiative, we managed to fund 15 organisations from 13 countries that were facing immediate financial hardship, allowing them to continue making positive change in their communities.” Gearing up Since early October, Expo 2020 has kicked off its pre-expo programming through virtual panel discussions and keynote speeches. This has been broken down into 10 thematic weeks, covering: Climate and Biodiversity; Health and Wellness; Urban and Rural Development; and Travel and Connectivity, themes that will also be returned to as part of the physical Expo event. Expo 2020 seems to have overcome any questions that were raised about the efficacy of its postponed plans. Organisers and participants alike are proceeding with confidence, and perhaps the celebrations will be grander than ever as the event coincides with the UAE’s Golden Jubilee in 2021. Mehak Srivastava

Expo 2020 will run from 1 October 2021 to 31 March 2022

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Banking

REGIONAL LENDERS TRUDGE INTO A TOUGHER YEAR Middle East and North African banks face a difficult 2021 amid weaker profits and the pending end of liquidity stimulus measures

A 2.98%

Average net interest margin for GCC banks in third quarter of 2020

36%

Combined decline in net profit for four-largest UAE lenders in first half of 2020

40 \ YB 2021

fter an epoch-changing 2020, it may be rash to make predictions about the year ahead. Middle Eastern lenders that were looking ahead to a period of stability this time last year soon found themselves at the centre of an economic crisis that continues to work its way through the system. There may be light at the end of the tunnel, with Covid-19 vaccine optimism fuelling markets across the globe. And yet, banks are still facing a day of reckoning when various monetary support measures are eased and the full impact of the pandemic reveals itself on balance sheets and income statements. What is clear is that the twin challenges of the pandemic and protracted

low oil prices have corroded banksâ&#x20AC;&#x2122; profitability through a mixture of slower credit growth, lower net interest margins (NIMs) and higher provisioning to account for non-performing loans (NPLs). Staying power The Covid-induced gloom should not distract from the positives revealed in the past 12 months. In general, most banks have proved they had sufficient firepower to withstand the sizeable drop in economic activity. This is not to suggest the pain was felt equally across the region. As Junaid Ansari, vice-president of investment strategy and research at Kuwait-based Kamco Invest says, the GCC has not seen business failures to the

GCC TOTAL BANK ASSETS 2,527 20 Q 20 3

2,473 20 Q 20 2

2,370 20 Q4 19

2,299 20 Q3 19

2,230 20 Q2 19

2,136 20 Q 19 1

2,107 20 Q4 18

20 Q3 18

2,076

($bn)

GCC BANKING SECTOR LOAN-TO-DEPOSIT RATIO

20 Q 20 2

79.3 20 Q 20 3

80.6 20 Q4 19

20 Q2 19

20 Q 19 1

20 Q4 18

79.7

80.5 20 Q3 19

80.4

80.3

81.0

81.3

(%)

20 Q3 18

extent seen in some of the other emerging markets – a situation that largely reflects the active and very strong support from the government to local businesses. The stronger banks in the region – those from Saudi Arabia, the UAE and Kuwait – enjoyed much more active support from their governments, as they were better placed to do so. “Taking elements like the loan moratorium and the reduced interest rates, that was much more elaborate for the stronger countries as compared to countries that were already under pressure due to economic woes,” says Ansari. In the Gulf at least, most lenders boast solid funding profiles and robust capital buffers that should keep them active in 2021. If you add in the substantial support measures governments and central banks across the region have extended, there is sufficient ballast to enable them to continue lending to private sectors that will be tentatively looking to revive. “One of the key reasons for the extraordinary support from the government was that banks provide capital to the economically important SMEs [small and medium enterprises] and MSMEs [micro, small and medium enterprises], [which are] the biggest providers of employment in the region,” says Ansari. “GCC governments were very clear in their strategy to deal with an already high unemployment rate as they cannot afford to let it spike to an uncontrollable level. The reforms in terms of reduced regulatory capital and continued lending to key sectors helped the economy in recovering from the Covid-19 pandemic.” The loan-to-deposit ratios of GCC lenders are among the lowest in the world, reflecting unutilised lending capacity and underutilised funds. This could prove useful in the near term as governments look towards private sector participation in the development process. At the same time, Middle East and North African (Mena) banks have not been able to escape the impact of the crisis on their profits. Net income con-

Source: Kamco

tracted markedly in the second and third quarters of 2020, with lower NIMs reflecting the lower fund rate from the US Federal Reserve. According to Kamco, average NIMs for GCC banks continued to slide during the third quarter of 2020, reaching one of the lowest recorded quarterly levels at 2.98 per cent. Profit decline The hit on margins – on top of the higher provision charges for NPLs – has translated into lower net income. The profit contraction has been stark for some of the biggest banking markets. In the UAE, the four largest UAE banks reported a combined drop in net profit of 36 per cent to $3.4bn for the first half of 2020. Mena banks will not be expecting to engineer a speedy return to pre-crisis

YB 2021 \ 41

Banking

GCC BANKING SECTOR NET INCOME

20 Q 20 3

20 Q 20 2

20 Q4 19

20 Q3 19

20 Q4 18

20 Q3 18

4.8

7.5

7.8

9.5 20 Q2 19

10.2

9.5 20 Q 19 1

8.5

8.9

($bn)

GCC BANKING SECTOR COST-TO-INCOME RATIO 42.9 20 Q 20 3

20 Q 20 2

37.5

36.9 20 Q3 19

20 Q4 19

37.0 20 Q2 19

37.6

38.0 20 Q4 18

20 Q 19 1

38.0 20 Q3 18

42.2

($)

Source: Kamco

“The Covid-19 pandemic may inflict deeper, more persistent economic scarring than previous recessions in the region” 42 \ YB 2021

period lending growth levels in 2021, with risk appetites remaining generally subdued. According to the US’ S&P, only Saudi Arabia, where mortgages have been expanding rapidly on the back of a government initiative to increase home ownership, will see a boost in lending. Much will depend on how quickly the region’s economy revives on the back of positive vaccine news. “If the vaccine development happens sometime early [in 2021], then we will see banking sector growth, with lending at a higher pace in the following quarters,” says Ansari. Before banks get carried away on the vaccine optimism, however, there is a need to recognise the long road ahead. According to Redmond Ramsdale, head of Middle East bank ratings at the US’ Fitch Ratings, the starting point for Middle East banks is that the operating

environment remains challenging for 2021. “What we’ve seen so far is a lot of pressure on profitability,” he says. “Bank metrics have been hit by lower interest rates and subdued business volumes, but most significantly by higher loan impairment charges.” As IMF regional director Jihad Azour noted in October 2020, the pandemic may inflict deeper, more persistent economic scarring than previous recessions in the region. He said the crisis has heightened corporate default and credit risks for Mena banks, with potential losses that could amount to $190 trillion, or 5 per cent of GDP. If unaddressed, these developments may threaten financial stability. True picture The shocks of low oil prices and the pandemic have put pressure on banks and that will continue, vaccine or not. “The true asset quality picture won’t emerge until the loan deferral programmes roll off and regulatory flexibility for banks to recognise loans ceases. We have also seen an increase in loan restructuring, and this is not reflected in the stage 3 loan numbers,” says Ramsdale, referring to the classification category of a loan where the financial asset is credit-impaired – in stage 2, the credit risk is regarded to have increased significantly. “Problem loans can be seen as a combination of stage 2 and stage 3 loans. These reflect pressures in the real estate market due to oversupply and problems in the retail, hospitality, transport and aviation sectors. Adding stage 2 and 3 loans together, you get some high ratios and that [speaks for] the potential for asset quality deterioration,” he notes. Yet despite the doom and gloom, analysts do not expect asset quality to deteriorate materially. “Ratios are going to deteriorate, so we might see GCC stage 3 ratios up by 150 basis points by the end of 2021. But this is still adequate so long as liquidity remains solid, and that is our expectation in the Gulf region at least,” adds Ramsdale.

GCC KEY CENTRAL BANK RATES

Kuwait discount rate Bahrain ON repo rate US Fed Funds rate UAE repo rate GCC other ON lending rate Saudi Arabia repo rate Oman repo rate

(%) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

2.50 2.25

De c1 7 Ja n1 8 Fe b1 Ma 8 r1 8 Ap r1 Ma 8 y1 8 Ju n1 8 Ju l1 Au 8 g1 Se 8 p1 8 Oc t1 No 8 v1 De 8 c1 8 Ja n1 Fe 9 b1 Ma 9 r1 9 Ap r1 Ma 9 y1 9 Ju n1 9 Ju l1 Au 9 g1 Se 9 p1 9 Oc t1 No 9 v1 De 9 c1 9 Ja n2 Fe 0 b2 Ma 0 r2 0 Ap r2 Ma 0 y2 0 Ju n2 0 Ju l2 Au 0 g2 Se 0 p2 0 Oc t2 0 No v 2 20 De c2 0

1.50 1.00 0.60 0.50 0.125

Rate change (%)

Kuwait discount rate

UAE repo rate

Saudi Arabia repo rate

Bahrain ON repo rate

1-year change (%) 2-year change (%)

-1.25 -1.50

-1.40 -2.15

-1.25 -2.00

-1.75 -2.25

GCC other ON lending rate -1.75 -2.50

GCC other repo rate

Oman repo rate

US Fed Funds rate

-1.00 -1.50

-1.78 -2.51

-1.50 -2.25

ON=Overnight. Source: Kamco

Payment holidays are being extended in most countries, for instance to the end of the first half of 2021 in the UAE, effectively extending the time when problems will be recognised. Regulatory forbearance measures have been extended and that reflects both the scale of the problem and the time it will take to deal with it. One thing that can be forecast with a relatively high degree of certainty is that Mena banks will be taking a much closer look at cost discipline in 2021. The focus on costs could reinforce consolidation efforts. Although bigticket mergers may be unlikely in the near term, there is scope for the better-funded banks to pick up some distressed assets. Future merger and acquisition moves will likely be outward looking rather than within countries. For example, the bigger Gulf players could be looking to the likes of Egypt and Lebanon for potential offerings. Some Egyptian assets held by Lebanese banks could emerge as likely candidates for acquisition – especially given the domestic pressures facing Beirut-headquartered banks. No one could have anticipated that Mena banks would find themselves facing 2021 in this way. There is still more pain to come, but there is at least a view that better days are around the corner, even if 2020’s scarring will not heal quickly. James Gavin

HELP ON HAND FOR REGIONAL BANKS A mixture of loan payment deferrals, liquidity injections and regulatory forbearance measures provided often life-saving support to Middle East and North African (Mena) banks in 2020, and much of this will continue through 2021. The government response came largely in the form of monetary instruments, channelled through the commercial lenders. The measures cushioned much of the blow dealt by the Covid-19 pandemic and low oil prices, giving banks more leeway to extend credit. Some of the help given was substantial in size. Saudi Arabia, for example, injected $13.3bn into its banking system. According to estimates from the OECD, 3.4 per cent of liquidity – more than $47bn – was activated by central banks across the region in the first weeks of the crisis. For example, Bank of Algeria reduced the minimum reserve ratio for banks from 8 per cent to 6 per cent alongside easing solvency and liquidity ratios. Some central banks extracted a price for their assistance, however. Bank of Morocco requested banks to withhold dividend payments so that they would have sufficient funds to face the financial impact of the crisis. Egypt’s central bank implemented several preferential and lowinterest lending initiatives as well as loan guarantees targeting the most affected sectors. The Central Bank of Jordan injected $705m into the economy by reducing the compulsory reserves of commercial banks, allowed lenders to postpone loan repayments in affected sectors and expanded the coverage of guarantees on loans to small and medium enterprises (SMEs), including new credit facilities for the tourism sector. Saudi Arabian Monetary Authority provided SR100bn ($27bn) to banks so that they would defer loan repayments to the end of 2020 and restructure loans without charges to support businesses and individuals affected by the crisis. The UAE central bank provided AED256bn ($27.2bn) to enable banks to continue lending to the economy, including allowing loan repayment deferrals, while lowering the reserve requirements for banks and providing zero-interest rate collateralised loans to banks to support SMEs.

YB 2021 \ 43

Project Finance

PROJECT LENDING IN THE REGION FEELS THE PINCH Dented government spending has reduced regional project finance opportunities, but large utility sector deals continue

This article first appeared in the September 2020 issue of MEED Business Review

44 \ YB 2021

roject sponsors are having a tough year, with governments pulling funding from large schemes and commercial banks’ finances buffeted by twin oil price and health crises. Banks’ capacity to lend to projects has been progressively squeezed. Crimped government project spending – including the odd force majeure declaration – has reduced the deal flow to a trickle. “The twin shock of Covid-19 and low oil prices has put a lot of pressure on the banks. Profitability has been hit, and lower interest rates have affected margins,” says head of Middle East bank ratings at Fitch Ratings, Redmond Ramsdale. “Then you have lower business volumes hitting fees and commission income.”

Lower project activity has impacted financings across a number of sectors, including real estate, construction, trade, retail, hospitality and transport. “Weaker oil prices are impacting government spending and all of this filters down to the banking system,” says Ramsdale. The concern is that this may not just be a 2020 phenomenon – the ripple effects are set to last longer. According to Arab Petroleum Investments Corporation (Apicorp), a multilateral development financial institution, planned and committed investments in the Middle East and North Africa (Mena) region for 2020-24 will decline by $173bn over its previous five-year estimate, to $792bn. Analysts see challenges in the near term for lenders. “Across the Gulf, bank

capital is adequate and that will remain so in the short term, because lower growth also means less of a hit on capital. But if there is a second infection wave, we might see pressure build on capital, funding and liquidity positions,” says Ramsdale. Several sectors that have attracted project financing in recent years face long-term challenges arising from the Covid-19 crisis. For example, remote working could affect income flows for certain services. Project sponsors will have to figure out how financing structures will be affected by such disruptions. Additional funding costs are likely to have to be factored into the equation. Financing activity None of this obviates the need for bank lending to support a series of major projects across the Mena region. “Following the Covid-19 outbreak, there was a slow-up in new deals entering the market, but we are beginning to see more power and water bid activity in the region and the Saudi privatisation programme is gaining momentum,” says John Dewar, partner at Milbank, a law firm that has advised on a series of major Middle Eastern project financings. “Abu Dhabi National Oil Company has also been very active, selling a $10bn stake in its gas pipeline infrastructure, and is tendering jointly with ADPower an innovative sub-sea power transmission network connecting its offshore oil rigs.” In June, financing terms were agreed for the 2,400MW Fujairah 3 independent power producer (IPP) project in the UAE. In early July, Japan Bank for International Cooperation provided project financing of $470m in a deal co-financed with a number of financial institutions. The total financing was $941m. Central to this financing’s success is that it is reported to be on the basis of a soft-mini-term structure, where loan tenor is long term but where incentives are put in place to encourage the borrower to refinance. “People are looking again at funding on a mini-perm basis,” says Dewar. “In

2008-09, Milbank was involved in one for Bahrain’s Al-Dur independent water and power plant, which was meant to herald a new way of financing for the region. That did not take off, mainly due to the refinancing risk. But now people are taking it seriously and some export credit agencies (ECAs) realise it may be necessary to do mini-perms to keep the market going.” Another bright spot is renewable energy, which has attracted multilateral agencies like International Finance Corporation (IFC), European Bank for Reconstruction & Development (EBRD) and Overseas Private Investment Corporation. “Egypt has had great success in closing solar and wind projects and we have been involved in a number of those. Many of the multilateral agencies, like IFC and EBRD, are very active in the market, trying to promote these projects and in particular stimulate renewable energy development,” says Dewar. “We are also seeing ECA involvement here, not so much linked to procurement, but linked to sponsor ownership.” The presence of ECAs and multilaterals remains pivotal to deal success in the evolving project finance landscape. The question remains whether there is sufficient regional banking capacity able to kickstart project finance deals in a market that remains fragile. While there remains a cohort of sizeable international lenders able to do such deals, some regional banks are finding it difficult to fund the lengthy tenors that IPPs in particular need to enhance their internal rates of return. That leaves a role for outside agencies to build a supportive infrastructure for financings that are growing increasingly sophisticated. “In Egypt, the real challenge is the interest rate hedging,” says Dewar. “ECAs tend not to be able to put hedges in place, they can’t cover floating rate debt. But we are starting to see ECAs and multilaterals working together to close deals, using the two types of funding sources, fixed and floating rate.” James Gavin

INFRASTRUCTURE SPENDING PLANS IN THE GULF

$275bn 2009-13

$580bn 2014-18

$1,580bn 2019-23f

Sources: Oliver Wyman; MEED

YB 2021 \ 45

PPP

This article first appeared in the September 2020 issue of MEED Business Review

RENEWED FOCUS ON PARTNERSHIPS By Jennifer Aguinaldo

Tightening fiscal space once again broadens Middle East opportunities for publicprivate partnerships

100

Number of PPP projects in Saudi Arabia’s pipeline

$2.7bn

Value of infrastructure projects that Abu Dhabi plans to procure through PPPs

46 \ YB 2021

utside the power and water sectors, public-private partnership (PPP) projects have had only limited success in the Middle East and North Africa (Mena) region, particularly in the wealthy GCC states, where abundant oil export revenues underpin capital spending by the government without the need for financing support from the private sector. The fall in oil prices in 2014 has seen the picture changing as lower oil revenues have forced governments to seek alternative ways to fund infrastructure projects. And the regional pipeline of PPP projects has swelled as countries such as Saudi Arabia and Oman – which have 100 and 49 PPP schemes, respectively – have identified private finance as a vital enabler of their development programmes. In 2020, the Covid-19 pandemic and retreat of global oil prices below the $50-a-barrel

mark are providing further impetus for the region’s PPP programmes. “The tightening fiscal position of most GCC countries means that all expenditure, in whatever guise, will be reconsidered,” says partner at US-headquartered legal advisory firm Bracewell, Andrej Kormuth. “This will no doubt affect planned infrastructure and potentially under-execution projects as most GCC governments hunt for savings in their budgets.” Pandemic and PPPs While widening budget deficits have “certainly increased the desire to do more PPPs,” as one Dubai-based senior finance executive tells MEED, none of the short- to mid-term scenarios are straightforward. Project activity slowed significantly in the first half of the year as governments focused on the emergency response to the Covid-19 pandemic.

The GCC states have had limited success with PPP projects outside the power and water sectors

tisation. “Gone are the days when any government has the surplus spending power to pay for infrastructure developments in a lump sum amount or short milestone payments, as would be the case under the direct engineering, procurement and construction (EPC) model,” says Kormuth.

Priorities are being reassessed on the one hand, as investor appetite for risk is declining on the other. Governments will have to balance the need to kick-start their post-Covid-19 economies in order to protect and create jobs with the imperative of avoiding fiscal stress, notes Muneer Ferozie, regional manager and head of Mena transaction advisory services at World Bank’s International Finance Corporation (IFC).

Strengthening frameworks An increased PPP pipeline does not necessarily guarantee that more projects will be successfully procured or delivered, however, unless countries ensure that their national PPP frameworks adequately support their proposed project models. Projects like the Saudi Landbridge and the Kuwait metro have been in the planning stage for more than 10 years, during which time the procurement model for each has shifted between the EPC and PPP models in line with oil prices or sector restructuring schemes. In 2018, Dubai’s first PPP project – a car park and cassation court building at Dubai Courts – stalled following the collapse of India’s Infrastruc-

“An increased PPP pipeline does not necessarily guarantee that more projects will be successfully delivered” As attention returns to infrastructure development in this tighter fiscal environment, regional governments are coming to freshly appreciate PPP models and their potential to defer capital expenditure through multi-decade amor-

ture Leasing & Financial Services, a project sponsor. Despite a sovereign guarantee offer, the planned Dubai Metro transitoriented development is also being retendered after a long, unsuccessful negotiation with the preferred bidder.

In Saudi Arabia, the build, transfer, operate contracts for four regional and domestic airports, awarded in 2017, remain on hold. “The reality is that PPPs face challenges everywhere, even in some OECD countries,” says director of World Bank’s infrastructure finance, PPPs and guarantees group, Imad Fakhoury. “PPPs need an enabling ecosystem with strong institutional set-up and significant buy-in from all stakeholders, anchored in strong communications with stakeholders, transparency, disclosure and political commitment from the cabinet level on down.” Fortunately, countries in the region have increasingly recognised the specific demands of complex PPP projects and adopted – to varying degrees – policies and legislative, regulatory and institutional frameworks to accommodate them. Some of the earliest countries to have enacted PPP laws or established PPP units include Morocco, Egypt, Jordan, Lebanon, Kuwait and Dubai; Oman joined the list more recently. Other countries, such as Saudi Arabia, are finalising their PPP laws or have updated their tenders and procurement laws to allow for more effective and transparent allocation and management of financial resources. However, much more needs to be done. “It takes time, patience and dedicated expertise to develop an institutionalised PPP ecosystem and programme,” says Fakhoury. Fostering an enabling environment requires “continuous

YB 2021 \ 47

PPP

and sustainable policy, institutional and regulatory reforms; capacity-building efforts; and proper infrastructure planning”. This ecosystem must at once encompass and consider public investment management, financial commitments and contingent liabilities, explicit – and funded – government support mechanisms, and proper operational PPP frameworks. According to Fakhoury, such ecosystems help ensure governments have the capacity to establish whether a certain project is a good investment and then apply a filter to test whether it makes sense to deliver it as a PPP. Compromise Picking the right projects is key. Some infrastructure schemes are simply too large to be delivered as pure PPPs. “In a greenfield environment, the private sector is unlikely to take any risks related to ridership, fare and stakeholder-related issues,” a GCC-based engineering consultant tells MEED. “The best compromise would be a design, build, operate and finance or a design, build and finance (DBF) model,” he continues, citing schemes such as Dubai tram and the Dubai Metro Route 2020, which utilised loans from Spanish and French banks. Yet in terms of risk allocation, there is little difference for governments between implementing DBF models and taking on loans and executing projects on their own. Besides, as one Dubai-based financial transaction advisor notes in reference to the downturn: “It

48 \ YB 2021

“While some projects are too big, others may also be too small to succeed” would be extremely difficult, if not impossible, to do DBF now.” Alternative financing models also tend to undermine the wider rationale for PPPs, which is to incentivise the private sector to minimise the project’s costs and maximise efficiency by bundling services from the building, operation and maintenance of the asset through to its transfer to the government at the end of the contract. “The PPP model helps transfer risks to the party that is best suited to handle them,” says Fakhoury, whose firm’s affiliate, IFC, has supported some of the region’s earliest PPPs, including Saudi Arabia’s Medina airport and Jordan’s Queen Alia International airport. Some governments have taken a different approach. Abu Dhabi, which plans to procure $2.7bn-worth of infrastructure projects through PPPs, is piloting its approach with smaller schemes, such as a street lighting contract, in order to test the process and build confidence prior to moving on to larger projects.

Overall, there has been a growing focus on social infrastructure projects, particularly in Saudi Arabia and Oman. Due to their size, these projects may offer more acceptable risks to long-term international and local lenders, yet caution is still advised in terms of their final financing structure. “While some projects are too big, others may also be too small to succeed,” the senior Dubai-based financial consultant says. While PPPs have undergone a protracted evolution in the region, their prospects look good. “Most regional governments have either already implemented PPP legislations and regulations, or have investigated the approach well enough for it not to be a novel idea altogether,” says Kormuth. “Previous downturns have steadily built towards more private business inclusive markets and the public sector’s view of PPPs as the bridge over essential infrastructure needs seems far more realistic than ever before.”

LAYING DOWN THE LAW PPP programmes in the Middle East have been underpinned in recent decades by increasingly dedicated legislation

2002 2004

BAHRAIN

Legislative Decree No.41 of 2002 lays out guidelines for privatisation. Bahrain lacks a dedicated PPP Law however

IRAQ

Iraq issues Order 87 governing Public Contact Law

2005 2006 2007 2008 2009 2010

LATEST PPP DIRECTIVES

2011 2012 2013 2014

KUWAIT

2015

DUBAI

TUNISIA

LEBANON

ALGERIA

EGYPT

SAUDI ARABIA

MOROCCO

ABU DHABI

Kuwait issues new Public-Private Partnership Law Dubai enacts PPP Law

Tunisia introduces new PPP Law

2016 2017

Law 48 regulates PPP

Algiers enacts Investment Ordinance-Law

2018 2019 2020

Cairo approves amendments to PPP Law Amendments made to the PPP Law

JORDAN

Riyadhâ&#x20AC;&#x2122;s new General Tenders & Procurement Law (GTPL) comes into force Abu Dhabi enacts a PPP Law

Amman makes amendments to PPP law (pending)

Source: MEED

OMAN

Oman implements a PPP Law

Interview

Biography

Mohamed al-Dhaheri

Head of infrastructure partnerships, Abu Dhabi Investment Office Adio is working on a transparent framework for PPPs in Abu Dhabi that clearly lays out the risks and returns

•Prior to joining Adio, Al-Dhaheri held various roles at strategic entities including the Vice Chairman’s Office of the Executive Council and the Tourism Development & Investment Company •Al-Dhaheri graduated with a bachelor’s degree in information systems from the United Arab Emirates University

By Richard Thompson

This article first appeared in the November 2020 issue of MEED Business Review

50 \ YB 2021

or more than two decades, Abu Dhabi has pioneered public-private partnerships (PPP) in the Middle East, establishing its first concession contract in 1998, when Abu Dhabi Water & Electricity Authority (Adwea) signed the 30-year agreement for the Taweelah A2 independent water and power project (IWPP). Twenty-two years later, the emirate continues to lay down PPP landmarks, with the commissioning this year of the 1.4GW first unit of the Barakah nuclear power plant – the Arab world’s first operational nuclear station – as well as innovative privately developed renewable energy and water projects. But Abu Dhabi’s PPP journey has not been without bumps in the road. Outside of the electricity sector, the UAE’s PPP delivery record is mixed. While deals with sovereign fund Mubadala Development Company to

develop campuses for the Paris-Sorbonne, Zayed and New York universities in 2008, and the $1.6bn Cleveland Clinic project, have been notable successes, several other schemes have foundered. The most high-profile failure came in 2011, when plans to develop the Mafraq-Ghuweifat international highway as a PPP were abandoned due to high costs. The proposed development of Tawam Hospital through PPP also failed to materialise, while a 2016 initiative to use PPP to deliver 100 development projects worth a combined $4.1bn in Abu Dhabi, Al-Ain and the Western Region came to nothing. Regulatory framework Learning from these experiences, Abu Dhabi reinvigorated its PPP efforts in February 2019 with the introduction of two new pieces of legislation aimed at building a regu-

PHOTOGRAPH: MEED

“Our goal is to make sure that we follow a very transparent process that everyone can see and understand” latory framework to support PPP in the UAE. The first new law established the Abu Dhabi Investment Office (Adio), while the second law focused on the regulation of PPPs. “One of the main challenges that we found was the lack of a framework that governs the whole thing,” says Adio head of infrastructure

partnerships Mohamad al-Dhaheri. “What we have done now at Adio, and in Abu Dhabi, is we have defined that framework. We have a law that governs the whole thing, and we have regulation.” Mandated with providing guidance to investors and promoting Abu Dhabi as a global investment desti-

nation, Adio is implementing a comprehensive strategy to increase foreign direct investment as part of Abu Dhabi’s Ghadan 21 strategy, launched in September 2018. PPP programming In February 2020, Adio unveiled plans to procure $2.72bn of infrastructure schemes under the PPP model as part of the Ghadan 21 accelerator programme. In March, Abu Dhabi awarded a 12-year PPP contract to replace the emirate’s street lights to Abu Dhabi-based Tatweer for Traffic Assets & Systems Operation & Management.

YB 2021 \ 51

Interview

Risk allocation One of the most important challenges facing Al-Dhaheri and Adio is to produce PPP opportunities that are attractive to investors. “PPP is about risk allocation,” says Al-Dhaheri. “We are trying to structure the PPPs so that we define the risk in a way that people will be interested to come and invest. “So, we think that most of our projects at the moment will be on availability payment basis. And we will be focusing more on social infrastructure like schools and hospitals. Based on the availability basis, we think that an appropriate return will be between eight to 12 per cent on most of these projects. “The demand risk is not with the investor on these projects,” he says.

52 \ YB 2021

Abu Dhabi pioneered some of the first PPPs in the region

The 1.4GW first unit of the Barakah nuclear power plant was commissioned this year

Abu Dhabi awarded a 12-year PPP contract to replace the emirate’s street lights in March

we will bring projects that can actually be bundled in a programme,” says Al-Dhaheri. “Because having a specific project that comes by itself doesn’t intrigue the investors. “But when I tell them that I have a programme of schools, for example, or a programme of roads, or a programme of LED street lighting projects, then investors will be more interested to come because they know that it is not a one-off project. It is a continuation of projects with the same output that we had before.” While the government can raise finance for projects at a lower cost than the private sector, Al-Dhaheri says the primary purpose of Abu Dhabi’s PPP agenda is not about finance. It is about providing better public services. “Abu Dhabi Investment Office is focusing on economic impact,” he says. “These contracts are usually a long-term contract which means they can work for the concession of, let’s say, 30 years, which means jobs are being created. People are engaging. Better services produced to the end user. This is

“Based on the availability basis, we think an appropriate return will be eight to 12 per cent on most of these projects” “It is about having the asset available for the end user, and maintaining it.” Transparency is one of the most recurring words used by Al-Dhaheri when talking about Adio’s PPP plans. Adio understands that it is a vital ingredient for investors and providing visibility about a future pipeline of opportunities is an important aspect of Adio’s work. “One of the most important things that we have tried to focus on is that

why we are focusing on PPP. It is not about the cost of finance.” Al-Dhaheri says Adio will publish its pipeline of PPP projects by the end of this year, so that potential investors will know when tendering is happening on each project. “We will do our best to have it as transparent as possible,” he says. “We want this whole process to be as transparent as possible for all investors.”

PHOTOGRAPH (MIDDLE): EMIRATES NUCLEAR ENERGY CORPORATION

The scope of the estimated $20m project includes replacing 43,000 street lights with energy-efficient LED lights to deliver energy and cost savings of 900 million kilowatt-hours and AED264m ($72m), respectively, over the contract period. The project client is Abu Dhabi City Municipality’s Department of Municipalities & Transport. “Our role is very, very simple,” says Al-Dhaheri. “We facilitate PPP projects for all of the government entities.” “We take projects from the initiation phase with the government entity all the way through to the financial close,” he says. “Our goal is to make sure that we follow a very transparent process that everyone can see and understand, that we give a fair opportunity for everyone to come and invest in Abu Dhabi.” In October, Adio issued guidance that acts as our procurement manual for PPP projects. “People can download this procurement manual,” says Al-Dhaheri. “They can see all the steps that we follow.”

Capital Markets

EQUITIES AND LISTINGS HIT BY CORONAVIRUS SLUMP The pandemic has led to a sharp fall in the number of listings, but it has also driven governments to the bond market to finance their large deficits

s with so much else, the Covid-19 pandemic cast a shadow on initial public offerings (IPOs) in 2020. The year began in a promising fashion, with three new listings in the first quarter, raising $762m, according to data compiled by UK-based consultancy EY. That was well ahead of the first-quarter total for the four preceding years. The three listings included Dr Sulaiman Al-Habib Medical Services Group on the Saudi Stock Exchange (Tadawul) in March, the fourth largest IPO across Europe, Middle East and Africa this year, according to UK-based consultancy PwC.

54 \ YB 2021

However, the coronavirus all but closed off the market in the second quarter, when there were no listings in the Arab world for the first time in more than a decade. There was, however, one notable IPO in Iran, where Social Security Investment Company (Shasta) sold $400m of shares in April, the Tehran Stock Exchange’s largest listing to date. Virtual roadshows The following three months were little better, with just one IPO in the third quarter, when Saudi Arabia’s Amlak International for Real Estate Finance raised $115.9m on the Tadawul after a virtual roadshow. That “proved virtual roadshows could be the way forward

for the region”, says Gregory Hughes, IPO and transaction diligence leader for the Middle East and North Africa (Mena) region at EY. The Amlak listing took the Saudi IPO total to three in the first nine months of 2020, compared with one on the Egyptian Exchange and none in other major economies such as the UAE. There were signs of a revival in IPOs in the final quarter of the year. Saudi grocery chain BinDawood Holding listed its shares on the Tadawul in late October and Saudi White Cement Company made its debut on the Nomu Parallel Market, becoming the first direct listing on the kingdom’s secondary market. Even so, market activity is not as robust as the authorities would like and some countries have tried to create greater liquidity. Among a series of liberalising measures announced in late October, the UAE raised the maximum amount of shares a company can list via an IPO from 30 per cent to 70 per cent, which observers said should boost interest in the market. The pipeline of potential new listings is reasonably long, although heavily concentrated in just a few markets. According to EY, there are at least 30 companies weighing the idea of a stock market listing, but most of them are in either Egypt (11 candidate companies) or Saudi Arabia (10). Beyond those two markets, there are a further four potential listings in the UAE, two apiece in Kuwait and Qatar, and one in Oman. “We expect IPO activity to pick up in 2021 as the vaccine becomes available globally and the uncertainty around the US elections and policies towards the region are settled,” says Hughes. “There is a healthy pipeline of companies looking to list regionally, with Saudi Arabia continuing to dominate as the centre of activity due to the high valuations and strong liquidity compared with the rest of the region.” However, some companies thinking of listing may still prefer to wait until

markets have full recovered and there is greater certainty about coronavirus vaccines and a wider economic recovery. The region’s bourses fell sharply in the early months of 2020 as the impact of Covid-19 started to become apparent. The improvement since then has been gradual at best. One issue holding back the markets is international investor sentiment. “Even after Covid-19 dissipates, the reception for traditional real estate, banking, retail and energy companies may not be what it once was,” says Hasnain Malik, Dubai-based head of equity research at UK-based Tellimer. “Two specific challenges for the Mena region are the distrust and frustration of foreign investors with state-dominated companies, with the public sector still the main source for future IPOs; and the success of overseas listing venues such as London in attracting mid-scale IPOs, because of ease of access for institutional investors.” Bond issues In contrast to the limited amount of action on the IPO market, debt capital market activity was far more extensive in 2020, with the coronavirus pandemic again the main factor. Governments have been forced to run up large budget deficits due to a combination of lower revenues from oil and other sources, and higher spending to prop up their locked-down economies. According to PwC, sovereign issuances were the main driver in the first half of the year, including $5.4bn of Islamic bonds (sukuk) issued by the Saudi government, and a $385m bond by Oman. Corporate issuance was also notable, including two sukuk issuances by Saudi-based Islamic Development Bank – $2bn in February and $1.5bn in June. Dubai Islamic Bank issued a $1bn sukuk in early June and First Abu Dhabi Bank (FAB) was also in the market. “The region [was] a big issuer [in 2020],” says Stuart Culverhouse, head

MENA LISTINGS, 2016-20 Period

IPOs

$m raised

Q1 2016

598

Q2 2016

397

Q3 2016

197

Q4 2016

Q1 2017

369

Q2 2017

419

Q3 2017

Q4 2017

2,341

Q1 2018

Q2 2018

329

Q3 2018

347

Q4 2018

1,032

Q1 2019

Q2 2019

2,665

Q3 2019

190

Q4 2019

29,989

Q1 2020

762

Q2 2020

Q3 2020

116

Note: Figures do not include Iran. Source: EY

YB 2021 \ 55

Capital Markets

that it had upgraded its forecast for global economic growth and oil prices in 2021 as a result of the potential for lockdown restrictions to be eased following promising results from the trials of vaccines being developed by pharmaceutical firms Oxford/AstraZeneca, Pfizer/BioNTech and Moderna.

“There is sizeable amortisation on bonded debt due [in 2021], which we estimate at $14.5bn, compared with $4.5bn [in 2020]” 56 \ YB 2021

of sovereign and fixed income research at Tellimer. “Taking the GCC and Jordan together, they issued about $50bn equivalent in hard currency bonds, about 26 per cent of total sovereign hard currency issuance in emerging markets.” The figure would have been higher still if Kuwait’s government had had the ability to issue debt. However, it has still not managed to pass a new law through parliament that would allow it to do so. The situation in 2021 could look rather different. If effective vaccines are rolled out, it will allow normal economic activity to resume and drive up global demand for oil. London-based Capital Economics said in late November 2020

Recovery predicted Capital Economics now predicts global growth of 6.8 per cent and says oil could rise to $60 a barrel by the end of 2021. That would still not be enough to return the budgets of most regional oil producers into surplus; the fiscal breakeven prices of at least nine countries are still above that threshold, ranging as high as $414.8 a barrel for Libya and $521.2 for Iran, due to a combination of warfare and sanctions, which have reduced their ability to export crude. However, it would sharply reduce the deficits of many governments and cut their need for debt. According to the IMF, the fiscal breakeven prices of Iraq and Kuwait are $63.6 and $64.5 a barrel respectively, while the UAE is at $75.9 and Saudi Arabia is at $78.2 a barrel. “I think issuance will remain high [in 2021], but not to the same extent as [2020], mainly because budget deficits in the region are generally expected to narrow, especially in Saudi Arabia and the UAE,” says Tellimer’s Culverhouse. Tellimer estimates the combined fiscal deficit across the GCC and Jordan will fall from $132bn in 2020 to $88bn in 2021. “If this is funded in the bond market in the same proportion as [2020], that implies a fall in issuance to $33bn next year,” says Culverhouse. “That said, there is sizeable amortisation on bonded debt due [in 2021] across the region, which we estimate at $14.5bn, compared with just $4.5bn [in 2020]. Depending on how this is refinanced, it could increase total issuance towards [2020] levels.” Dominic Dudley

CMY

Agenda

PANDEMIC DRIVES DEBT MARKETS

Foreign currency bonds worth about $40bn have been issued so far this year, with more to come as Gulf governments try to bridge large budget deficits

By Dominic Dudley

This article first appeared in the November 2020 issue of MEED Business Review

GOVERNMENT FISCAL BALANCES % GDP Bahrain Kuwait

2017

2018

2019

2020

-14.2

-11.9

-10.6

-13.1

2021 -9.2

6.3

9.0

5.4

-8.5

-10.7

-14.0

-7.9

-7.1

-18.3

-16.8

Other GCC

-2.5

5.9

4.9

3.0

3.3

Saudi Arabia

-9.2

-5.9

-4.5

-10.6

-6.0

UAE

-2.0

1.9

-0.8

-9.9

-5.1

Oman

Source: IMF (October 2020)

58 \ YB 2021

his year has seen a new record set for debt issuance by GCC countries, with low oil revenues and the costs associated with Covid-19 lockdowns causing budget deficits to soar and pushing governments towards international debt markets. According to London-based Capital Economics, about $40bn-worth of foreign currency-denominated sovereign bonds have been issued so far in 2020. This figure almost doubles with the addition of local currency issuance. The previous record for international bonds was set in 2017, when $37.7bnworth of debt was issued. The Covid-19 crisis is a key reason for the high volume of bonds being sold, according to analysts. “The amount of debt issued is very likely above and beyond what the authorities in the GCC may have otherwise issued,” says Middle East and North Africa economist at Capital Economics, James Swanston. “Against the backdrop of

low oil prices, which has caused budget deficits to widen, there is limited scope to row back on austerity. Turning to debt markets makes the financing of these large deficits easier.” Distribution of debt The debt is unevenly distributed, however. Kuwait has been unable to issue any bonds due to the failure of its National Assembly to pass a new debt law. At the other end of the scale, Saudi Arabia has been a very active market participant. According to Riyadh-based Jadwa Investment, total debt issuance and refinancing by the Saudi government for 2020 is likely to reach SR220bn ($58.7bn). Oman and Bahrain have also had to cope with big budget deficits and have responded by turning to the debt markets. On the other hand, the UAE has faced more limited additional financing requirements this year. The year is not over yet though, and there is more debt

issuance to come. In mid-October, Oman launched a roadshow for a dual-tranche $2bn conventional bond issue, which could be followed by a dollar-denominated sukuk before the end of the year. Standard & Poor’s (S&P) says it expects Muscat to raise about $5.5bn from international capital markets before the turn of the year. Kuwait debt law The overall figure for this year would have been even higher if the Kuwait government had been able to issue debt. However, it remains hamstrung by opposition in the National Assembly to proposals to issue up to KD20bn-worth ($65bn) of debt. Parliamentary elections are scheduled for December and analysts on the ground say the authorities may use the opportunity to pass the new debt law by decree in the period before the new parliament is formed.

Kuwait was downgraded by Moody’s Investors Service in late September, but still maintains a healthy credit rating of A1. The same cannot be said for Bahrain and Oman, which are both classified as junk issuers by the main ratings agencies. Oman has suffered four downgrades this year – two from Fitch Ratings in March and August, one by Moody’s in June and one by S&P in October. Bahrain was also downgraded by Fitch in August. Each downgrade carries the risk of higher debt repayment costs and Muscat and Manama could soon find it unappealing to borrow on international markets. “Sovereign dollar bond yields remain elevated and any future downgrades could push them up higher, to around the 8 per cent mark, where we tend to see emerging market [governments] shy away from further external borrowing,” says Swanston. Instead, Bahrain and Oman may have to turn to a combination of domestic borrowing and tapping their richer neighbours for additional lines of credit –

is likely to need to issue up to $90bn to cover its funding requirements until March 2024. Refinancing Existing borrowings will also need to be refinanced. According to S&P, Oman faces debt repayments of $4.3bn in 2021 and $6.4bn in 2022. Bahrain has $5.6bn-worth of external debt maturing in 2021-23, according to Fitch, which says Bahrain will need to issue $2bn2.5bn a year going forwards. Other governments are better placed to cope with the fiscal challenges they face, at least in the short term. Saudi Arabia, for example, may try to limit its debt issuance and instead avail itself of high dividend payments from Saudi Aramco – something that could help to keep its deficit at about 12 per cent of GDP, according to Moody’s. Much of this will have to be funded from the national oil company’s cash reserves. “Leveraging Saudi Aramco’s extraordinary financial flexibility to pay large dividends to the state will partly offset the drop in government revenue

“With oil prices expected to stay low next year, almost all GCC governments will need to issue more debt” something they have both done in the past decade. Other GCC governments do not face such problems, but, with oil prices expected to stay low next year, almost all of them will need to issue more debt to cover their budget deficits. Moody’s says Kuwait

because of lower oil prices,” says senior analyst at Moody’s, Alexander Perjessy. “However, the government is unlikely to be able to repeat the same manoeuvre beyond 2021, particularly when taking into account Saudi Aramco’s own capital expenditure needs.”

YB 2021 \ 59

Upstream

UNCONVENTIONAL ENERGY NARRATIVE ADVANCES Considering the robust outlook for natural gas demand, Gulf states are focusing on developing unconventional oil and gas resources

N $118bn

Long-term budget approved by Riyadh in 2020 to fund unconventional gas output from the Jafurah basin

1 bn cf/d

Unconventional gas production in cubic feet a day targeted by Abu Dhabi from Ruwais Diyab concession before 2030

60 \ YB 2021

ational oil companies (NOCs) in the Gulf have, from time to time, displayed interest in commercially exploiting unconventional hydrocarbons reserves accessible to them. But while the intent has been in place for decades, the plans never quite left the boardrooms of NOCs, largely due to the relatively higher cost of production from unconventional resources and the availability of enormous conventional reserves. With conventional oil and gas reservoirs across the region maturing steadily and, more importantly, because of the rise in importance of natural gas in the 21st century – both in terms of global demand and clean environmental credentials – NOCs have started laying significant em-

phasis on the appraisal and development of unconventional resources. New discoveries As a result of comprehensive interpretations of legacy geological data and new, advanced seismic surveys, regional NOCs were able to announce discoveries of considerable unconventional resources in 2020. The year also saw state energy players present noteworthy capital expenditure budgets towards the economic recovery of resources, particularly the production of gas, from existing and new tight and shale plays. Saudi Arabia’s unconventional programme has witnessed start-stop periods over decades, during which state energy

giant Saudi Aramco had been working to determine the extent and economic potential of reserves available. The kingdom’s unconventional campaign was flagged off in 2014, with Aramco awarding UK-based Wood Group a project management services deal, which was extended for two years in January 2020. There are three areas Aramco has earmarked for commercial development: Turaif in the Northern Borders province and the giant Jafurah basin and South Ghawar, both of which are located in the Eastern Province. In 2017, the first unconventional gas development project took shape in the north – extracting tight gas from the Turaif deposit to feed a new power station at the nearby Waad al-Shamal industrial city, and thereby solving the problem of the latter lacking a connection to Aramco’s cross-country Master Gas System distribution network. Aramco’s unconventional exercise took a leap forward in April 2020, when the firm formally awarded engineering, procurement and construction (EPC) deals for an estimated $2bn project to extract gas from the South Ghawar area. In February 2020, Riyadh made a monumental announcement about its strategic aim of unconventional gas production, sanctioning a $118bn long-term capital expenditure budget for Aramco to exploit gas from the Jafurah basin, which extends from the kingdom’s onshore Empty Quarter desert belt into Gulf waters. As part of this strategic programme, Aramco will work towards realising the full potential of the Jafurah reserve, which is estimated to contain 200 trillion cubic feet of wet gas, by hitting peak production of 2.2 billion cubic feet a day (cf/d) of gas, 130,000 barrels a day (b/d) of ethane and 500,000 b/d of condensate and natural gas liquids (NGLs) by 2036. The first phase of the Jafurah scheme involves building a gas processing facility, a project estimated to cost $3.5bn. Aramco is currently evaluating bids received for the various EPC packages.

TOP 5 GULF UNCONVENTIONAL GAS PROJECTS IN PRE-EXECUTION PHASES Project

Client

Jafurah gas plant: processing plant (package 2)

Saudi Aramco

Value ($m) Status 1,500

Bid evaluation

Jafurah gas plant: gas compression plant (package 1)

Saudi Aramco

1,000

Bid evaluation

JPFs 4 and 5: off-plot works and production facilities

Kuwait Oil Company

900 Bidding

Jafurah gas plant: upstream pipelines and wells tie-in (package 4)

Saudi Aramco

500

Bid evaluation

South Ghawar UR field development programme: 37 wells tie-in

Saudi Aramco

500

Bid evaluation

JPF=Jurassic production facility; UR=Unconventional resources. Source: MEED Projects

In November 2020, Abu Dhabi National Oil Company (Adnoc) announced the discovery of 22 billion stock tank barrels (STB) of onshore unconventional oil reserves. This is in addition to the discovery of 160 trillion cubic feet of unconventional gas announced in November 2019. Abu Dhabi determined The discoveries stem from an aggressive seismic survey exercise undertaken by Adnoc since 2018, and underscore Abu Dhabi’s ambition of reaping commercial gains from the development of unconventional resources in the emirate. By moving to partner with international oil companies (IOCs) to undertake exploration and production (E&P) activity in hydrocarbons blocks, through two upstream licensing rounds so far, Adnoc is looking to ensure it is able to tap into both foreign technical know-how and investments in its quest for unconventional reserves development. The NOC took a firm step forward towards this goal in November 2020 by announcing the encounter of first gas from the Ruwais Diyab concession, in which France’s Total is a 40 per cent stakeholder. Adnoc has set a target of producing 1 billion cf/d of gas from the area before 2030, as part of Abu Dhabi’s overall ambition of becoming a net exporter of gas by the turn of the decade. It is therefore expected that Adnoc would swiftly move

“In November 2020, Adnoc announced the discovery of 22 billion stock tank barrels of onshore unconventional oil reserves” YB 2021 \ 61

Upstream

TOP 5 GULF UNCONVENTIONAL GAS PROJECTS UNDER EXECUTION Project

Client

Hawiyah Unayzah gas reservoir storage project

Saudi Aramco

Value ($m) Awarded

Due

1,850

2019

2023

South Ghawar UR field development programme: gas separation plant

Saudi Aramco

560

2020

2023

Yibal Khuff sour development project: on-plot works

PDO

500

2015

2021

Yibal Khuff sour development project: off-plot works

PDO

450

2015

2021

South Ghawar UR field development programme: transmission pipelines

Saudi Aramco

400

2020

2023

UR=Unconventional resources; PDO=Petroleum Development Oman. Source: MEED Projects

“Oman is pursuing a well-planned programme to tap into tight oil and gas plays in new hydrocarbons acreages” 62 \ YB 2021

towards EPC project development at the Ruwais Diyab concession. Meanwhile, Kuwait has been developing the deep, tight and sour Jurassic basin in its north since the early 2000s. Kuwait Oil Company (KOC) started gas production from the basin in May 2008, with the commissioning of the ‘early production facility 50’ project. The Jurassic basin is a large area with hydrocarbons locked in reservoirs spread across several fields. KOC has built three production facilities at the Jurassic zone (JPFs), with the third unit commissioned in January 2020. The NOC is currently engaged in an estimated $900m project to build JPFs 4 and 5, with contractors preparing bids for the EPC deals. However, technical and budgetary constraints, coupled with the business impact of Covid-19, have meant progress on the project has been slow. When JPFs 4 and 5 are commissioned, it will increase KOC’s production from the Jurassic zone by 50,000 b/d of treated sweet crude and 150 million cf/d of sweet and dehydrated rich gas. Over in Oman, unconventional gas production from block 61, which encompasses the tight gas basin of the Greater Barik area, has helped the sultanate attain greater energy security. Block operator UK-based BP, which holds a 60 per cent interest, has been producing 1 billion cf/d of gas and 35,000 b/d of

condensates from the asset as of late 2017, as part of the Khazzan gas project. In October 2020, BP announced an ahead-of-schedule start of gas production from Ghazeer, the second phase of the Khazzan scheme, with output notching up to 1.5 billion cf/d. State-owned OQ Exploration & Production and Malaysian state oil firm Petronas’ subsidiary PC Oman Ventures hold 30 per cent and 10 per cent stakes in Block 61 respectively. With the two phases combined, the Khazzan field is expected to produce 10.5 trillion cubic feet of gas and about 350 million barrels of condensates during its lifetime. IOCs are also partaking in Oman’s unconventional resource development drive. Total and UK/Dutch Shell are working on plans to exploit unconventional resources in a zone north of block 6, as well as in blocks 10 and 11, as part of an upstream agreement signed with Omani NOCs in February 2019. Oman is also pursuing a well-planned programme to tap into tight oil and gas plays in new hydrocarbons acreages, having awarded stakes in several blocks to foreign E&P firms in 2020. Delayed ambitions The coronavirus pandemic has dealt severe blows to global demand for both oil and gas. Subsequently, several unconventional energy programmes in the Gulf have been delayed, particularly in Bahrain, which has struggled to progress with the appraisal of its massive Khalij al-Bahrain offshore discovery for lack of suitable international partners and investments. However, with the outlook for gas demand remaining robust, in the wake of peak oil projections happening sooner rather than later, Gulf NOCs appear primed to capitalise on their unconventional resource finds with foreign assistance, as well as move swiftly with the development of economically viable reserves in 2021 and beyond. Indrajit Sen

Delivering value for customers In the region’s highly competitive oil and gas sector, flexibility and reliability are key to customer satisfaction

Cristiano Tortelli, CEO of PetrolValves Group

Key takeaways: ■ PetrolValves’ Brava prod-

uct promises to improve performance and lower the asset’s lifetime cost

■ PetrolValves is able to

de-risk project execution and address complex challenges

■ Local presence, speed

of response and remote support are key to retaining customers

■ PetrolValves’ employees

work collaboratively to develop solutions that meet the evolving needs of customers

In partnership with

As a supplier in the oil and gas sector, how does your company drive value for its customers? In a complex and unpredictable environment like the one in which we live today, the ability to differentiate is the fuel for long-term competitiveness. This approach is driving our efforts in creating value for our customers. In particular, leveraging reliable technologies in adjacent oil and gas segments and introducing them to the valve industry is setting the pace for sustainable competitiveness. We have introduced proven and reliable compression technologies in the configuration of our Brava (boltless reliable advanced valve) product to improve performance by extending the reliability and lifetime of the asset for a lower total cost, while reducing the weight, use of materials and overall environmental footprint, thus reducing project risk and improving delivery times. What are your key areas of focus when it comes to supporting your customers? We are focusing on predictability and the ability to deliver on time, helping our customers to de-risk their project execution and becoming a reliable and valued partner. Flexibility and the competency to address complex challenges is required in these unprecedented times, while prevailing challenges in the oil and gas market are requiring shorter delivery times and improved lifetime cost optimisation to fully exploit assets. Local presence, proximity, speed of response and remote support are all 7691 C

cool gray 11

100 C 55 M 20 Y 0 K 0 C 0 M 0 Y 80 K

PARTNERSHIP PUBLISHING

ingredients required to retain customers, helping them minimise the total cost of ownership and improve the value of their assets with advanced services. What emerging trends are you seeing in the current oil and gas landscape? The overall industry is facing different challenges from the traditional cycles we are used to in the sector: the global energy transition, oil and gas price fluctuations and the need for sustainability and flexibility have combined to create a complex scenario. Gas will continue to be a fuel of choice in the transition; oil demand will be driven by end users, but will still be required for many industrial applications. In all of this, reliable execution and the ability to fulfil contracts is instrumental to securing long-term partnerships. In addition, the industry expects suppliers to be closer to their customers and to be able to respond quickly and competently to solve complex issues. This is where new technologies will help by enhancing the customer experience. What will enable PetrolValves to succeed in today’s highly competitive industry? First and foremost, our people. Our employees proactively tackle problems and collaboratively resolve them, removing barriers and sharing ideas. Fostering an environment and a culture where ideas are listened to will lead to a continuous flow of innovation, positioning the business for long-term competitiveness. Meanwhile, maintaining accountability and an unyielding commitment to transparency and integrity in everything we do is vital to maintaining the trust of our customers. Furthermore, the act of working with customers to anticipate market needs in advance will help to build mutually profitable partnerships, encouraging continuous improvement and pushing the boundaries of our technology through the process of fitting our solutions to customers’ evolving needs.

REACHING PEAK OIL Amid a decline in global oil demand due to the Covid-19 pandemic, Opec has, for the first time, placed a date on the likely point of peak oil demand

GLOBAL DEMAND FOR OIL Opec expects demand for oil to peak after 2035, driven by declining use in OECD markets Mb/d Mb/d 120 120 100 100

103. 103.77 99.7 99.7

80 80 60 60 40 40

51.8 51.8 47.9 47.9

107. 107.2 2

109.9 109.9

109.3 109.3

109.1 109.1

71.2 71.2

74.3 74.3

90. 90.77

47.8 47.8

56.9 56.9 46.8 46.8

43 43

62.6 62.6

44.6 44.6

67.4 67.4

41.5 41.5

38 38

20 20 0 0

2019 2019

2020 2020

2025 2025

World World

2030 2030 Non-OECD Non-OECD

2035 2035

2040 2040

OECD OECD

SHARE OF GLOBAL GDP BY REGION Non-OECD oil demand growth will be led by the expanding economies of India and China

2019

2045

Change

OECD Americas OECD Americas

-21%

China China

+26%

OECD Europe OECD Europe

-29%

Other Asia Other Asia

+20%

India India

+100%

OECD Asia OECD Asia Oceania Oceania

-43%

-15%

Rest of Rest of the the World World

*=Theoretical route to net zero carbon emissions by 2050. Mb/d=Million barrels a day Sources: Opec (World Oil Outlook); BP (Energy Outlook); MEED

34.8 34.8

2045 2045

LIQUID FUELS DEMAND

OIL FEEDSTOCK DEMAND

Under current trends, demand for oil-based fuels is plateauing and will slowly decline from 2030

The use of oil-derived feedstocks for petrochemicals processes will keep rising, but at a slowing rate Mb/d Mb/d

Mb/d Mb/d 120 120

20 20

100 100

15 15

80 80 60 60

10 10

40 40

5 5

20 20 0 0 2018 2018

2025 2025 BusinessBusinessas-usual as-usual

2030 2030

2035 2035

2040 2040

Rapid Rapid change change scenario scenario

2045 2045

2050 2050

0 0 2018 2018

Net Net zero* zero* scenario scenario

2025 2025

Extrapolation Extrapolation of of past past trends trends

2030 2030

2035 2035

North American output should peak by 2025, paving the way for growing Middle East market share 0 0

5 5

10 10

15 15

20 20

25 25

2019 2019 2025 2025

30 30

35 35

40 40

45 45

US US & & Canada Canada Latin Latin America America Africa Africa

2030 2030 2035 2035 2040 2040

2045 2045 Only trade between major regions considered

2045 2045

2050 2050

BusinessBusiness- Rapid Rapid change change Net Net zero* zero* as-usual as-usual scenario scenario scenario scenario

GLOBAL CRUDE EXPORTS BY ORIGIN Mb/d Mb/d

2040 2040

Eurasia Eurasia & & Pacific Pacific Middle Middle East East

Downstream

REFINERIES RETHINK PLANS FOR POST-COVID MARKET The protracted recovery outlook for refined products poses a steep challenge to regional players with major capacity additions planned

D 10%

Estimated decline in Mena refinery utilisation rates in 2020 compared with 2019

10 million b/d Average decline predicted for oil demand in 2020 in barrels a day

66 \ YB 2021

emand for crude oil and refined fuels was upended in 2020, as the Covid-19 pandemic ravaged the global economy, causing some high-value refined products such as gasoline and jet fuel to trade below crude oil prices. Globally, refiners responded quickly to low refining margins and negative cracks, cutting refinery runs by roughly 12 million barrels a day (b/d) year-onyear during the second quarter of 2020, according to research from US-based Bank of America (BofA) Securities. But even after refiners took such drastic measures, refined product inventories ballooned and now loom over the prospect of swift recovery in

the sector. Refinery margins remain near zero across most regions, including in the Middle East and North Africa (Mena) region, even as refinery utilisation rates remain about 10 per cent below year-ago levels. Varied recovery Average oil demand erosion in 2020 is expected to be to the tune of about 10 million b/d, led by a decline in demand for transport fuels. In 2021, BofA Securities forecasts a rather quick rebound in road fuel demand and sees a longer recovery for jet fuel. For gasoline, demand is expected to fall by 3 million b/d year-on-year in 2020 and rebound by nearly 5 million b/d in 2021.

Petrochemicals outlook The pandemic’s impact on petrochemicals demand has been sector-dependent thus far. The rapid shift to online shopping boosted demand for plastic packaging in 2020, which represents more than one-third of total plastic demand, according to BofA Securities. Conversely, the slowdown in the manufacturing and construction sectors has softened demand for durable plastics used by those segments.

MENA DOWNSTREAM PROJECT SPENDING ($m) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2015

2016

2017

Chemicals

2018

Gas

2019

2020

Oil

Source: MEED Projects

MENA DOWNSTREAM PROJECTS PIPELINE

250

2,800

8,430

8,384

Lib ya Ba hr ain Tu nis ia M or oc co

10,030

Al ge ria Jo rd an

Ku wa it

Ira q

ot GC he C r Ar Sau ab d ia i O m an

UA E

Ira n

12,245

28,790

29,376

30,399

32,800

40,335

46,030

49,563

($m)

Eg yp t

Diesel demand has held up relatively well in 2020, but jet fuel will delay the full recovery for middle distillates until 2023. In aggregate, oil demand could take two to three years to reach prepandemic levels, but this will depend on when a vaccine is made available. As the global refining sector ponders how to work through the existing capacity overhang, greenfield refineries around the world, and in the Mena region in particular, are entering the grid in 2021. During 2021-23, global refining capacity is set to rise by more than 6 million b/d, unless refinery closures are announced. After significant delays during the execution phase, Iraq’s $6bn Karbala refinery project is expected to enter the grid in 2021, with a capacity of 140,000 b/d. In January 2014, State Company for Oil Projects awarded the engineering, procurement and construction deal for the project to a South Korean joint venture of Hyundai Engineering & Construction (E&C), GS E&C, SK E&C and Hyundai Engineering. Saudi Aramco has said its $16bn Jizan refinery complex, which has a total capacity of 400,000 b/d, is scheduled to start operations in the first quarter of 2021. Meanwhile, state-owned Bahrain Petroleum Company expects the $4.2bn project to modernise its Sitra refinery, which would increase the complex’s output to 400,000 b/d, to be completed by mid-2022.

Source: MEED Projects

On the other hand, the dramatic rise in demand for personal protective equipment (PPE) amid the pandemic has meant demand for polymer grades used to manufacture PPE kits for the healthcare, industrial and consumer segments surged in 2020. The exponential domestic demand for PPE products has meant even Gulf states are having to import polymers to meet local requirements, despite the regional petrochemicals industry being a key exporter to the world. Consultants, however, believe this to be a short-to-mid-term phenomenon, as

YB 2021 \ 67

Downstream

MENA DOWNSTREAM PROJECTS PIPELINE BY STAGE ($m) 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000

Bi dd ing

De sig n

ev alu at Bid ion

Fe ed

St ud y

Feed=Front-end engineering and design; PQ=Prequalification. Source: MEED Projects

“The UAE possesses a robust pipeline of downstream projects, which are set to start production later during the decade”

68 \ YB 2021

regional players start to tweak product lines of their existing chemicals assets to meet local demand for PPE kits. State energy companies have also been considering altering the size and scope of their upcoming projects to cater to PPE-specific product lines in order to both serve the local market and become a key global exporter. Projects pipeline Aside from projects under execution, the Mena region currently has a significant pipeline of oil and gas processing as well as petrochemicals projects at various pre-execution stages. Considering the demand scenario for refined products, coupled with a mixed outlook for petrochemicals derivatives, and with lower margins putting energy companies under du-

ress, how quickly the project owners choose to proceed with these schemes remains to be seen. With about $49.6bn-worth of downstream oil and gas and petrochemicals projects in the pipeline, according to regional projects tracker MEED Projects, Egypt is poised to make the largest refinery and derivatives capacity addition in the years to come. Egyptian Petrochemicals Holding Company (Echem) is planning to build the country’s largest chemicals complex in New Alamein City on the country’s Mediterranean coast. The estimated $8.5bn project, which is currently in the study phase, will have an annual production capacity of 1 million tonnes a year (t/y) of petrochemicals and 850,000 t/y of oil products. Echem is also in the study phase with another integrated refinery and petrochemicals project that is being planned to be built in the Suez Canal Economic Zone. Echem signed an agreement with US consultancy Bechtel in February 2020 for the joint financing and development of the estimated $6.7bn project. The scheme is planned to have a capacity of 900,000 t/y of petroleum products and 1.2-1.9 million t/y of petrochemicals products. The UAE also possesses a robust pipeline of downstream projects, which are set to start production later during the decade. An estimated $15bn New Refinery project planned by Abu Dhabi National Oil Company (Adnoc) forms the centerpiece of Abu Dhabi’s

TOP 10 PLANNED MENA DOWNSTREAM PROJECTS Value ($m)

Status

Completion year

UAE

15,000

Study

2026

Egypt

8,500

Study

2024

8,000

Study

2026

Egypt

6,700

Study

2025

Sonatrach

Algeria

6,000

Study

2026

Satorp

Saudi Arabia

5,000

Design

2025

Petrochemicals

Q-Chem

GCC other 5,000

Study

2025

Atrush oil field: Erbil oil refinery

Oil refinery

KRG Ministry of Natural Resources

Iraq

4,800

Study

2025

Al-Faw oil refinery

Oil refinery

Ministry of Oil

Iraq

4,250

Bidding

2025

Al-Zour petrochemicals complex: package 2

Petrochemicals

KIPIC

Kuwait

4,000

2025

Project

Type of plant

Owner

Country

New Refinery

Oil refinery

Adnoc/Eni/OMV

Alamein petrochemicals complex

Petrochemicals

Echem

Petrochemicals

Ministry of Industry Iraq & Minerals

Crude oil refining and petrochemicals Petrochemicals complex in Suez

Echem

Bled el-Hadba phosphate plant in Tebessa

Fertiliser

Amiral complex: ethylene and propylene plant

Petrochemicals

Ras Laffan petrochemicals complex

Nebras petrochemicals complex

Adnoc=Abu Dhabi National Oil Company; Echem=Egyptian Petrochemicals Holding Company; Satorp=Saudi Aramco Total Refining & Petrochemical Company; KIPIC=Kuwait Integrated Petroleum Industries Company. Source: MEED Projects

ambition to raise its refining capacity by 65 per cent, from 922,000 b/d to 1.5 million b/d. The project’s development schedule has, however, been delayed, with Adnoc considering a reduction in the planned capacity of the greenfield refinery, as a way to rein in the project’s costs. The goal to increase Abu Dhabi’s overall refining capacity by 600,000 b/d remains in place, but Adnoc is reportedly studying an alternate approach to achieve that – by increasing capacity at its existing refinery complex in Ruwais by 200,000 b/d, with the rest to come from the New Refinery. Tightened budgets There are close to $300bn-worth of total downstream oil and gas and petrochemicals projects at various pre-execution stages in the Mena region. Of these, about $186.6bn, or more than half of the projects, are in the study phase, indicating that the development of a large volume of these projects remains contentious. As state energy enterprises come under financial burden due to low refining margins and subdued petrochemicals

demand from industrial segments, they will be cautiously evaluating downstream project spending. This implies a lot of planned projects could be delayed until a clear rebound in demand is in sight for the downstream sector. The announcement by Omani-Kuwaiti joint venture Duqm Refinery & Petrochemical Industries Company (DRPIC) in early November 2020 that it was going to suspend front-end engineering and design (feed) work on its proposed $7bn Duqm petrochemicals project in the sultanate is a case in point. DRPIC’s board of directors concluded that “the suspension of feed work on the project is in the interest of the company during a time of unprecedented global economic uncertainty due to the impact of the Covid-19 pandemic, depressed demand and highly volatile commodity prices”. “The shareholders intend to reassess the project, taking into account the current challenging global market environment and the importance of seeking opportunities to enhance the value of the project,” DRPIC said in a statement. Indrajit Sen

YB 2021 \ 69

Power

RENEWABLES TO UNDERPIN POWER SECTOR RECOVERY The ongoing Covid-19 pandemic and low oil prices should strengthen government resolve to pursue energy sector diversification efforts

T 58.7GW

Renewables capacity targeted to be built by Saudi Arabia by 2030

700MW Renewables capacity awarded so far by Saudi Arabia

70 \ YB 2021

he transition to clean energy will remain the key theme for the Middle East and North Africa (Mena) region’s power sector in 2021, even as governments and utilities come to grips with the long-term impact of the Covid19 pandemic, low oil prices and the renewed call for decarbonisation. The first 11 months of 2020 – with curfews imposed in many cities between March and May in an effort to combat the pandemic – highlighted the role of utilities as a critical sector requiring thousands of personnel to be on site to ensure undisrupted service. Travel constraints on personnel and equipment also led to delays, particularly for projects under execution or undergoing commission-

ing, and to deferments of new contract awards and tenders for new capacity. In certain countries, particularly Jordan, Egypt and Morocco, factors such as surplus capacity, a weak electricity grid or a review of priorities led utilities to hold or cancel tenders for additional renewables capacity. Decreased value Across the Mena region, the value of power generation and transmission contracts awarded in the first 11 months of 2020, at $10.2bn, is down by about 29 per cent compared with the value of contracts awarded over the same period in 2019, according to regional projects tracker MEED Projects.

GCC SOLAR PHOTOVOLTAIC IPP TARIFFS Low bid – LCOE ($cents/kWh) 7 5.84

6 5 4 3

2.34 2.42

1.78

1.74

1.70

1.69

1.62 1.35

ph 20 as 0M e W 70 2, D MB M ub R W ai Sh Ab uw e u 30 D iha ha n 0 bi , SaMW ud S 20 i a 0M Arakak bi a, W Sa a Q u 80 di ur 0M Ar ay ab ya W ia t, Al * -K ha rs 30 a G ah ul , Sa0M f ud W i A Ra ra big bi h, ph 90 a* as 0M e W 5, 30 D MB ub R 0M ai Sa W ud J 2, i A ed 00 ra da 0M bi h, W a* Al Ab -D u ha D fr ha a bi ,

1,1

Notably, the contract award value for transmission and distribution (T&D) projects rose by 37 per cent during this period. However, this was unable to counter the steep 46 per cent drop in power generation deals signed, which accounted for 60 per cent of the total value. Despite a slow year for contract awards, projects across the GCC continued to break world records for unsubsidised solar photovoltaic (PV) production tariffs. In November 2019, a team of France’s EDF and China’s Jinko Solar offered a levelised cost of electricity (LCOE) of 1.35 $cents a kilowatt hour for the 2GW Al-Dhafra solar independent power project (IPP) in Abu Dhabi. This is 20 per cent lower than the price offered by a consortium led by Saudi Arabia’s Acwa Power for phase 5 of Dubai’s Mohammed bin Rashid solar park just a few months earlier. The scale of solar PV projects across the GCC, in particular, ensures recordbreaking tariffs will continue, together with the rapid drop in technology and engineering, procurement and construction costs. For example, the commercial operation of Abu Dhabi’s 1,177MW solar plant in Sweihan and the 300MW Sakaka solar IPP in Saudi Arabia helped the GCC triple its renewable energy installed capacity in 2019 to 2,446MW compared with 2018, according to the International Renewable Energy Agency (Irena). This trend is expected to continue as the Mena region plans to build between 90GW and 100GW of renewables capacity over the long term, with more than half of this capacity due to be delivered – primarily by Saudi Arabia – by 2030. Saudi Arabia has the largest renewables capacity-building programme across the Mena region. A mere 700MW of solar and wind IPPs have so far been awarded, which is a very tiny portion of the 58.7GW installed capacity targeted by 2030. This target is shared between the Public Investment Fund (PIF), which will develop 70 per cent of this target through direct negotiations, and the

IPP=Independent power project; LCOE=Levelised cost of electricity; kWh=Kilowatt hour; MBR=Mohammed Bin Rashid solar park; *=Not yet awarded. Source: MEED

Energy Ministry’s Renewable Energy Project Development Office (Repdo), which will oversee the development of the remaining 30 per cent through a competitive tendering process. Repdo has held back from awarding contracts for the 1.47GW second round of the National Renewable Energy Programme this year, although sources say the body is still working to award some if not all of the six contracts by yearend. If this does not materialise then it leaves Repdo with the task of awarding these and the 1.2GW third-round contracts in 2021. Significant solar PV IPP opportunities also exist in other countries such as Oman, Abu Dhabi, Kuwait and Morocco as they strive to meet ambitious targets to generate as much as 30 per cent of their electricity from renewable sources between 2025 and 2030. Hydrogen plants Developing alternative energy-based hydrogen is also becoming an important agenda for the region. Envisaged to be supported by 4GW of renewable energy, the $5bn clean hydrogen plant in Neom is one of the earliest – and boldest – plans to explore developing hydrogen for

“The Mena region plans to build between 90GW and 100GW of renewables capacity over the long term” YB 2021 \ 71

Power

efficiency and privatisation drives that are playing a key Project Country Client Capacity (MW) Project status role in every country’s longterm economic vision. GCC other Kahramaa 2,300 Bid evaluation Facility E IWPP The privatisation of elecSaudi Arabia Repdo 1,470 Bid evaluation NREP round 2 tricity T&D infrastructure, Oman OPWP 1,000 Main contract bid Manah 1 and 2 solar IPPs which began in 2019, when Saudi Arabia Repdo 1,200 Main contract bid NREP round 3 Oman’s Nama Holding diAbu Dhabi subsea power UAE Adnoc, Taqa 3,200 Main contract bid vested its 49 per cent share transmission network in Oman Electricity TransUAE Fewa 500 Prequalification Umm al-Quwain solar IPP mission Company to State MEW 2,700 Study Al-Zour North 2 and 3 IWPP Kuwait Grid Corporation of China, IWPP=Independent water and power project; NREP=National Renewable Energy Programme; Repdo=Renewable is expected to continue into Energy Project Development Office; IPP=Independent power project; OPWP=Oman Power & Water Procurement Company; Adnoc=Abu Dhabi National Oil Company; Taqa=Abu Dhabi National Energy Company. Source: MEED 2021. The sultanate plans to divest up to 70 per cent shareholding in four other T&D entities, transport fuel applications. The timeline raising much-needed capital while at the of the project is no less ambitious, with commercial operations expected in 2025. same time cutting electricity subsidies. While privatisation of operational In Oman, Sohar Port & Freezone assets is starting to take shape, the deals aspires to turn the industrial port into a for an estimated 3GW of private power hub for lower-cost hydrogen, replacing hydrocarbons, and plans to develop up to capacities in Oman and Abu Dhabi are expiring between 2021 and 2022. This 3.5GW of solar power capacity. offers opportunities and challenges as Similarly, there is a tangible interparties explore and renegotiate options. est to develop waste-to-energy (WTE) plants across the region, in line with Under construction government commitments to decrease Notably, at least 25GW of private and waste that goes to landfills. The GCC’s public power generation capacity – first utility-scale WTE plant, which has using conventional or renewable energy a 30MW power generation capacity, sources – is under construction in the is expected to be completed next year GCC alone, excluding the completed in Sharjah in the UAE. Dubai is in the four nuclear reactors in Abu Dhabi. process of reaching financial close for Two-thirds of this capacity is expected to its first major WTE plant, which has a come online on or before 2022. planned capacity of 171MW, and Abu Some experts say this fact, along with Dhabi is planning to tender the contract slower electricity demand growth, due to for two WTE plants in Mussafah and demand-side management programmes Al-Ain next year. The rest of the GCC to curb consumption on one hand and states are looking at similar schemes. the unexpected impact of the Covid-19 The planned privatisation of existing pandemic on the other, could force power and water plants, such as the Ras clients to review and delay their next al-Khair plant in Saudi Arabia, offers an capacity procurement decisions. opportunity for private developers to However, statistics such as Dubai’s 6.6 further expand their market shares and per cent peak demand growth in 2020 compensate for slowing projects activity. and the marginal 5 per cent decline in Schemes that are being put on sale power demand in Abu Dhabi compared include the North Shuaiba power plant in with forecasts at the height of the panKuwait and the power and water cluster in Saudi Arabia’s Yanbu region. There are demic, indicate a probable return to proclear indications clients plan to do more jects activity growth sooner than later. of these transactions in line with the Jennifer Aguinaldo

TOP UPCOMING IPP/IWPP PROJECTS

“There is a tangible interest to develop waste-toenergy plants across the region” 72 \ YB 2021

Technology’s role in reducing waste High-tech solutions have a vital role to play in helping Gulf countries to achieve their sustainability goals

Jesus Sancho, ACCIONA Middle East managing director

Key takeaways: ■ ACCIONA’s data platform

BIONS aims to solve the issue of water leaks

■ ACCIONA employs emerg-

ing technologies such as building information modelling and drone surveys

■ ACCIONA specialises in

large-scale 3D printing in concrete, which reduces the resources needed to produce building elements

■ Waste-to-energy plants

have an important role to play in reducing waste in the region

In partnership with

Water losses remain a major issue for most utilities in the region. In addition to upgrading infrastructure, what technology solutions are available to ease this problem? Leaks are a particular problem for Gulf countries, as they have the lowest per capita renewable freshwater resources in the world. In order to solve this problem, ACCIONA recently launched BIONS (business intelligence of network solutions), a new intelligent data platform in the cloud for water management. BIONS is able to detect, analyse and manage failures and incidents in the water supply network such as leaks, breaks or faulty assets, and thanks to artificial intelligence and machine learning, it can also predict when they are likely to happen. The regional construction industry is currently being disrupted by a number of emerging technologies. How is ACCIONA contributing to these developments? Digital technologies and new sustainable materials are making the construction industry more efficient. ACCIONA is at the forefront of these trends thanks to innovations from our construction technology centre in Spain. Some of the emerging technologies we are using today include computerised control systems for tunnel-boring machines, building information modelling, drone surveys and specialised control software at one of our key projects in Dubai: the Roads & Transport Authority’s Dubai Metro Route 2020 project.

PARTNERSHIP PUBLISHING

Managing construction waste is an important part of cities’ overall sustainability programmes. What developments are taking place in this niche sector? New technologies can play a key role in reducing waste. One example where ACCIONA is leading the way is in large-scale 3D printing in concrete. This reduces the energy and resources needed to produce concrete building elements, and reduces waste thanks to the recycling of raw materials. We launched the world’s biggest operational 3D printer using Powder Bed technology (made with DShape®3D) a year ago in Dubai. We are seeing more governments driving these initiatives. Saudi Arabia, for example, has launched a public-private partnership scheme to recycle construction waste. Every country in the region plans to build waste-to-energy (WTE) plants in partnership with the private sector. What challenges does the development of such plants present? This region produces nearly twice as much waste as Western Europe, so sustainability must begin by promoting environmental awareness and the need to reduce this waste. WTE plants have a role to play in this effort. While the cost of these technologies can be an initial challenge, a WTE plant represents one solution to two problems: first, it finds a new use for solid waste and reduces the amount going into landfill sites; second, it generates renewable energy from non-recyclable material.

ACCIONA’s 3D-printing machine

Green Funding

SUSTAINABLE FUNDING SOLUTIONS GAIN GROUND

The growth of green financial instrumentation between the banking sector and projects market is accelerating

This article first appeared in the September 2020 issue of MEED Business Review

74 \ YB 2021

hese are far from clement conditions for any forms of project funding to take off, but a clutch of recent deals indicate that sustainable – or ‘green’ – finance is making headway and will leave an indelible mark on future activity across the Middle East and North Africa (Mena) region. Authorities have been taking steps to create a supportive legal and investment framework for green finance, building on the experience gleaned from developing an array of renewable energy projects in recent years. Saudi Arabia’s $28bn renewable energy development programme, which offers credit to clean energy projects and the makers of renewable energy components, is a case in point. Other Mena countries have similar schemes in various states of readiness. Financiers point out there are no inherent obstacles to its progress. “Well-conceived green projects that have adequate sponsorship do not face severe difficulties in raising the financing needed, even in difficult market conditions,” says managing director and head of corporate banking at Arab Pe-

troleum Investments Corporation (Apicorp), Nicolas Thevenot. “That is because, fundamentally, the financing structure and main terms of utility-scale green projects are now well established.” Financial institutions have been attentive to the sustainability agenda for a while now. The so-called Equator Principles, which require the implementation of a range of environmental and social criteria, have been adopted by more than 100 international financial institutions. That said, the region’s financing methodology still remains wedded to hydrocarbons. According to S&P Global Ratings, no Gulf sovereign has issued a green bond or sukuk to date – a reflection in part of the lack of availability of assets and projects deemed suitably green. Regional shift The UAE is an early leader in pushing for change, with Dubai Electricity & Water Authority in 2016 establishing the $27bn Dubai Green Fund to stimulate investment

In-kingdom finance In Saudi Arabia, the Energy’s Ministry’s Renewable Energy Project Development Office has been negotiating with bidders for projects under the second round of the National Renewable Energy Programme. Successful bidders will enter into a 25-year power-purchase agreement with the Saudi Power Procurement Company as offtaker. Green finance activity also appears to be accelerating outside of the renewables programme in the kingdom, not least through a transaction in July 2020 that saw international lender HSBC act as lead arranger for a $248m export credit agency (ECA) loan

YB 2021 \ 75

20 1

for the Ministry of Finance. The proceeds GCC RENEWABLE of the loan – the first green ECA loan in the kingdom – will be used to buy buses for Sau- ENERGY SPENDING di’s public transport network, helping reduce $m 6,000 greenhouse gas emissions and air pollution. 5,000 Also in July, Apicorp provided a $50m 4,000 credit facility to Gulf-based SirajPower for cross-sector rooftop solar photovoltaic solu- 3,000 tions. In June, it provided a $40m facility for 2,000 the Dammam independent sewage treatment 1,000 plant (ISTP), the first ISTP in the kingdom. 0 These transactions followed a $75m, fiveyear Murabaha facility extended by Apicorp Source: Irena, Market analysis GCC 2019 in May 2019 to Saudi Arabia’s Alfanar to support its renewable energy projects. Such instruments increasingly fulfil several strategic objectives for organisations FIRST ABU DHABI such as Apicorp, according to Thevenot, BANK’S GREEN including “enhancing the energy sector’s sustainability, as well as supporting national BOND ALLOCATIONS objectives of countries in the Mena region to % share diversify their economies and enhance the sustainability of the energy mix”. Thevenot says the bankability requirement for renewable energy projects is similar to other utility projects and that while the risks may differ slightly, the overall approach remains fundamentally the same. As a result, he notes that the quality of the sponsorship, in terms of experience, credentials and credGreen buildings 65 itworthiness, continues to be a cornerstone District cooling 14 of such financing transactions. Solar plant 14 Beyond the Gulf, Egypt, Morocco and Wastewater treatment Jordan have established their own renewaand recycling plant 7 ble energy programmes for which financing packages are emerging. In August 2019, Source: SP Global a $400m financing for the 252MW Lekela West Bakr wind project on the Gulf of Suez in Egypt was closed. Further wind power rounds coming up in Egypt will also need to tap project funding sources. The clear message is that once the constraints afflicting the Mena region’s projects market are overcome, the work of governments, ECAs, multilaterals and financial institutions to establish viable frameworks should ensure a healthy line of funding solutions that will go some way towards helping to meet the region’s ambitious commitments to a greener future. James Gavin 20 1

in clean energy and other green projects through the provision of seed funding. The Dubai Financial Services Authority published its own green bond best practice guidelines in August 2018 to offer infrastructure and guidance in relation to green issuances in the capital markets. In July 2019, the Dubai Sustainable Finance Working group was announced, jointly launched by Dubai International Financial Centre and Dubai Financial Market. In Abu Dhabi, the Department of Energy announced a green bonds accelerator programme in January 2020, with a view to establishing the emirate as a regional hub for the issuance of green bonds and sukuk to finance sustainable projects. The banks themselves are also becoming more comfortable with green instruments. In June 2019, First Abu Dhabi Bank, the UAE’s biggest lender, issued the Gulf’s first Hong Kong dollar-denominated green bond, a $HK750m, five-year maturity instrument. The previous year, ports operator DP World secured a $2bn green sharia-compliant loan with an interest rate linked to the company’s carbon emission intensity. In March of this year, the UAE’s Taweelah independent water project secured the first ‘sustainable loan’ qualification for a water desalination project globally, with independent assessor Vigeo Eiris confirming that the $758m project financing that closed in September 2019 was in line with green loan and social bond principles.

Agenda

This article first appeared in the March 2020 issue of MEED Business Review

THE TROUBLE WITH RENEWABLES By Jennifer Aguinaldo

Integrating renewable energy into established electricity systems poses significant challenges for the region

MENA SOLAR AND WIND PROJECTS BY STATUS

Awarded* 20,052 Bidding 11,765 Pre-qualification 7,180 Study 53,000 Mena=Middle East and North Africa; *=Under construction or awaiting financial close, excludes completed schemes. Sources: MEED Projects, MEED

76 \ YB 2021

enewables are firmly established at the heart of global energy policy as the world seeks to reduce its dependence on fossil fuels to ensure longterm economic security and environmental sustainability. Few places will feel the transition to renewables more than the GCC, where thermal power plants account for more than 90 per cent of installed capacity. Saudi Arabia, the world’s largest exporter of crude oil, plans to install 58,700MW of renewable energy capacity by 2030 and have it account for one third of its total electricity generation capacity. The UAE already has close to 1,800MW of solar power capacity installed, with Dubai close to inaugurating another 800MW in phase 3 of the Mohammed bin Rashid al-Maktoum solar park, and Abu Dhabi preparing to award the contract to develop the

1,200MW Al-Dhafra solar photovoltaic (PV) plant this quarter. Ideal conditions A combination of high levels of solar irradiation, availability of land and capital, and record-breaking low development costs is enabling the region to install significant renewables capacity very quickly. In addition, the region is pursuing nuclear schemes, with the first reactor of Abu Dhabi’s Barakah nuclear energy plant due to start generating power in late 2020 or early 2021. Dubai, meanwhile, plans to commission the first unit of its 2.4GW ‘clean’ coal-fired power plant this year. Regardless of the source, electricity grids across the region will be receiving and distributing significant volumes of electricity from an increasingly diverse range of sources in the coming years.

The region’s energy industry aims to integrate renewable energy with a more steady supply from conventional thermal power plants

“By 2025, our electricity system will be very clean,” says one senior energy official in Abu Dhabi. “But it will face challenges, mainly due to the inextricable relationship between power and water production. We need to be very ambitious and cautious at the same time.” Variable renewables Perhaps the most significant challenge facing the region’s

winds power plants, with more steady supply from conventional thermal power plants. “While the grids are relatively strong, they still require new mechanisms, grid management tools and investments to accommodate large amounts of variable renewables,” says Frank Wouters, global lead, Green Hydrogen at Worley and director of the EU-GCC Clean Energy Technology Network. Wouters is among those calling for the introduction of stabilising measures to the region’s electricity grids to cope with VRE intermittency and its non-synchronous relationship with conventional power. Participants in a workshop conducted in April 2019 by the International Renewable Energy Agency (Irena) to assess VRE planning in the Arab context stated that the need to address system flexibility and stability as either “high” or “very high” in priority. The urgency arises from the need to reinforce transmission lines and substations to evacuate the power from renewable generation to load centres and connect the plants to the grid.

“Electricity grids across the region will be receiving and distributing significant volumes of electricity from an increasingly diverse range of sources” energy industry will be to ensure electricity grid flexibility and stability as it seeks to integrate large volumes of variable renewable energy (VRE), mainly from supply from solar or

Experts say this is a key area of investment since thermal power plants are typically located in coastal areas to access cooling water while solar plants are located inland

where irradiation is better. PV output could also change within seconds or minutes, due to weather conditions such as dust storms, requiring primary and secondary reserves and more ancillary services. “The most important issue to solve is ensuring that the system operation tools and processes are in place,” says Brendan Cronin, management consulting head in the Middle East at consultancy AFRY. “The need to manage system inertia, spinning reserve and ramping requirements will be very challenging for system operators across the region.” Capacity first Others say, however, that the region should continue to prioritise the development of its renewables generation capacity. “We must focus on building renewable capacity first,” says CEO of Saudi Arabia-based utilities developer Acwa Power, Paddy Padmanathan. He says the region’s electricity grids are strong and new, and can accommodate up to 50 per cent renewable energy penetration without faltering. He points to Jordan’s success in integrating more than 15 per cent of renewable capacity into its grid. Padmanathan also highlights the direct load match between variable demand and supply. “Air conditioning systems operate higher when the sun is up, and solar PV plants produce energy only when the sun is up, so there is a direct load match.” Cronin points out that renewable integration will be a continuous journey of improvement rather than a one-off event, and that it is time to start planning.

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Agenda

“The future is always closer than you think,” he says. Whatever approach is adopted, grid integration will take time. Some estimate it could take up to 10 years to be fully developed in certain markets. Such programmes include grid code modifications to define standards for new technologies; effective strategies to deliver reactive power; and load dispatch centre (LDC) tools to monitor and remotely control wind, solar PV and other technologies. Estimates say that investments in advanced planning and forecasting tools and processes, as well as in building flexible generation sources such as combined-cycle gas turbines, synchronous condensers, batteries and demand-side aggregation, could account for approximately 10 per cent of direct renewables investments. “The investment to increase the [electric] systems’ flexibility will be significant, but does not change the compelling economics of wind and solar PV,” says Cronin. Managing demand As the region transitions to renewable energy supply, a major shift in water supply policy is required to move quickly away from thermal desalination production to reverse osmosis (RO) production to meet water requirements. Failure to adjust water policy in parallel with the transition to renewables could result in significant curtailment of renewable generation, particularly in the winter time when electricity demand slows. “It is rational to decommission most thermal desalination

78 \ YB 2021

capacity before the end of technical life, but this is difficult to do given many of these assets are under long-term contract,” explains Cronin. GCC states have been launching an increasing number of independent water projects (IWPs), which directly respond to this challenge. Saudi Arabia has also launched a programme to retrofit older desalination assets reliant on energy-intensive desalination technologies. The right policies can also help foster greater demandside participation. Direct contracts with large consumers or establishing time-of-use or dynamic tariffs are potential

roof owners’ savings pay for the investment. Where electricity subsidies exist, a further subsidy for renewable generation may be required. “In general, energy subsidies are not very effective,” says Wouters. “But they are difficult to abolish due to popular sentiment.” In addition, a price on carbon emissions would be an effective policy instrument to enable the transition to renewable energy. Saudi Arabia has indicated that it plans to launch a carbon trading scheme in the future. Typical market structures in the region involving a single, government-backed buyer,

“Failure to adjust water policy in parallel with the transition to renewables could result in significant curtailment of renewable generation” instruments that could encourage a more flexible demand. More effective policies surrounding electric vehicles (EV), a potential source of significant energy storage capable of improving grid flexibility, are also required. Subsidies and carbon trading Distributed generation programmes such as rooftop schemes will form part of the transition to renewables. The Dubai Shams metering programme has been successful primarily because Dubai’s tariffs are cost-reflective, and therefore more expensive than solar PV electricity. This means

could also be favourable in the transition to renewable energy. The drive to embrace renewables is coming from the top, and leaders are aware of the need to enable policies to support such ambitions. “If a country in the region decides that the generation mix should be different, the next chunk of capacity could be tendered to accommodate that,” says Wouters. A smooth energy transition will require moving many levers at once, but the sooner progressive policies and market structures are effected, the greater the benefit and the lower the long-term cost will be.

MIXED FORECAST Increased electricity generation from clean and variable renewable energy sources is expected to present challenges to integration in the regionâ&#x20AC;&#x2122;s electricity markets

GENERATION

Installed and planned capacity of conventional and renewable energy

7.4tWh

1,240tWh

2.3GW

146GW

Electricity generation from renewables in the Middle East, 2018

Total electricity generation in the Middle East, 2018

Installed renewable capacity in the GCC, 2019

19.9GW

Nuclear energy capacity under construction in the UAE and planned in Saudi Arabia and Egypt

2.4GW

Total installed capacity in the GCC, 2018

Coal energy capacity under construction in the UAE

100GW

Planned and under construction VRE in the Mena region

30%

Estimated VRE penetration in the Middle East by 2030

7.7GW

Installed renewable capacity in Mena countries outside the GCC, 2018

DEMAND Sector-by-sector consumption split of total GCC energy generation Transport

Industry

Commercial

Residential

34%

47%

10%

57 % share* of building energy consumption attributable to air conditioning and circulation systems

tWh=Terawatt-hour; Mena=Middle East and North Africa; VRE=Variable renewable energy, includes wind and solar; *=Based on sample figures from Abu Dhabi. Sources: Irena, BP Statistical Review 2019, MEED Projects, MEED

Other

Interview

Biography

Paddy Padmanathan CEO and president, Acwa Power

Abundant capital and low interest rates boost developer’s ambitions

2018Independent present director, Besix 2006- President and CEO, present Acwa Power 19962006

Vice-president, Black & Veatch

19812006

John Burrow & Partners and Binnie & Partners

19791980

Postgraduate in Civil Engineering Production

19761979

BSc Civil Engineering University of Manchester, UK

By Jennifer Aguinaldo

This article first appeared in the March 2020 issue of MEED Business Review

80 \ YB 2021

he domino effect of a slowdown in Chinese growth due to the spread of the deadly Covid-19 strain of coronavirus has not spared even the Middle East’s largest private utilities developer, Acwa Power. “On a human level, we are very concerned,” CEO and president Paddy Padmanathan tells MEED, citing strong relationships with Chinese partners across the entire business, from development, financing and construction to the supply of products and technology. Needless to say, a slowdown in the Chinese economy will have an impact on the Saudi Arabia-based firm’s business. “There will be a slowdown and we will definitely be impacted, but we are trying our level best to contain the impact.” China’s Silk Road Fund is set to become a 49 per cent shareholder in the firm’s renewable energy

entity, Acwa Power Renewable Energy Holding, which was formed last year to own a number of the company’s clean-energy assets in the UAE, South Africa, Jordan, Egypt and Morocco. Acwa Power has also partnered with Chinese firms for some of its biggest projects, including the Hassyan coal project and the hybrid concentrated solar power/ photovoltaic (PV) fourth phase of Dubai’s Mohammad bin Rashid solar park. Padmanathan’s subdued tone, however, lifts when the conversation shifts to Acwa Power’s home market. With more than 50,000MW of renewable energy capacity planned over the next 10 years, Saudi Arabia is expected to become a global renewable energy heartland. Moreover, the Public Investment Fund’s (PIF) plan to further increase its current 25 per cent direct and indirect shareholding in

“We do not see any shortage of capital. We just need to be more clever in terms of how we structure and manage it.”

PHOTOGRAPH: MEED

the company is a boost to Acwa Power’s confidence. Saudi industrialisation ally “Saudi Arabia will be a major renewable energy procurer because they can introduce a huge amount of renewable energy into their [fuel] mix,” the executive tells MEED. He goes on to explain that the kingdom’s renewable energy programme also provides an opportunity to help meet Saudi Arabia’s industrialisation goals by maximising local content.

The procurement of Saudi Arabia’s renewable energy programme is split between the Energy Ministry’s Renewable Energy Programme Development Office (Redpo) and PIF. Repdo has been mandated to pursue a competitive tendering process for 30 per cent of the planned capacity, while PIF is undertaking direct negotiations with developers for the remaining 70 per cent. It is understood the kingdom will utilise the open tendering process “to keep discovering prices”, which PIF’s projects will then try to match.

The Repdo programme has a minimum stipulated local content that increases in each round. “I see no reason why we cannot have 100 per cent local content, given that we have all the ingredients to manufacture [solar and wind] panels, including sand, capital, energy, industrial capacity and the market,” says Padmanathan. “Saudi Arabia can match anybody on all of these things. If China can provide electricity at $cents 2, why can’t Saudi Arabia?” Beyond 100 per cent local content, the CEO supports the kingdom’s ambition to export renewable energy technology to nearby countries in Africa and the broader Middle East region. In addition to low-cost energy, Saudi Arabia, like China, can provide export credit, but is more strategically located to meet the huge demand in emerging African countries, according to the executive. “It is a lot easier to break [solar] panels when shipping to Guinea from China or the US than when shipping them from Saudi Arabia.” Leading the cost curve Padmanathan is also unrelenting in the face of competitors adopting a pricing stance that is as aggressive, if not more aggressive, than Acwa Power’s own. Japan’s Marubeni and France’s Engie submitted the two lowest bids for the Fuajirah F3 independent power producer (IPP) project in the UAE, and it is understood that Acwa Power’s competitors submitted lower offers for the solar photovoltaic projects in round two of Repdo’s programme. Padmanathan says that while his firm is setting the tariff benchmark, he is not surprised that competitors are “coming after us, trying to catch up or sometimes going ahead of us

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Interview

because that is what transparent tendering does”. “The reality is, we are the leaders – the numbers speak for themselves. There are a lot of opportunities; we do not need to win every project. We put our best effort in every tender, but we do not say we have to win this and therefore I am going to cut price,” says Padmanathan, who maintains that every project his firm has won over the years is profitable. Acwa Power is responsible for three of the world-record-low tariffs in the region over the past four years. And prices are expected to fall further due to the rapid developments in solar and manufacturing technology and innovations in construction methodology. “There will come a time when [the price] cannot get any lower, but we are not there yet. The drop will be slower as we go, but as long as interest rates remain where they are – and considering that the cost of capital accounts for about 30 per cent of the tariff – I think we will continue to see more [price] reductions,” the executive explains.

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Renewable targets Closer to home, Padmanathan is confident that the kingdom can deliver on its ambitious renewable energy target. “It is all achieveable if we get on with it [now],” he says, adding that construction on the 300MW Sakaka solar PV farm, the first to be awarded by Repdo in 2018, took only nine months. The CEO notes that while the project is relatively small, “Sakaka is not the urban centre of Dubai”. He adds that even large-scale solar PV schemes can be executed very quickly because they are built in large open spaces where people and machines can run in parallel without overcrowding. “We should be able to do very large quantities very quickly.”

“There will come a time when [the price] cannot get any lower, but we are not there yet” renewable energy projects expected to account for approximately 70 per cent. The executive says he does not expect any shortage of capital, at least for the moment, even in more high-risk territories where projects are usually supported by development banks or entities such as the World Bank’s Multilateral Investment Guarantee Agency. “There is growing recognition, even in the poorest countries in the world, that electricity is a basic infrastructure, a basic input to life

Regarding the firm’s planned initial public offering (IPO), first mooted in 2013-14, Padmanathan’s standard response of “sooner rather than later” remains unchanged. He justifies his refusal to commit to a specific schedule by saying “whatever date I say, will be wrong”. What he does say is that they are waiting for the right time, not necessarily for the market, before proceeding with the plan. “It is not just about the listing; we need to live afterwards,” he concludes.

IMAGES: ACWA POWER

$10bn investment Acwa Power plans to persevere with its expansionary stance – it has been pursuing – and winning – projects in Asia and Central Asia, as well as in higher risk territories such as Ethiopia. The strategy is driven in part by the need to maintain a 50:50 balance between Saudi Arabia and other geographies in its overall portfolio. “Since Saudi Arabia is giving us a lot of opportunities, we need a bigger geography to maintain [the 50:50] balance,” Padmanathan says. Indeed the $10bn that the company plans to invest this year will be roughly split between Saudi Arabia and the other territories, with

itself, and if you can provide affordable and price-competitive electricity, they are unlikely to walk away from it or break from the contract,” he says. “We do not see any shortage of capital. We just need to be more clever in terms of how we structure and manage it.”

WATER SECURITY TRENDS UPWARDS IN THE REGION A recovery in contract awards is expected as privatisation and public-private partnership transactions gain traction

carce or overused water resources and rapid population and economic expansion across the mostly dry and hot Middle East and North Africa (Mena) region form an interesting nexus that has seen major investments ploughed into the water sector over the past decade to meet rising demand. Together, the Mena states account for nearly half (48 per cent) of the total known desalination capacity in the world, estimated at 95 million cubic metres a day (cm/d) in 2018. Desalination pioneer Saudi Arabia remains the regionâ&#x20AC;&#x2122;s and the worldâ&#x20AC;&#x2122;s largest desalination market, accounting for 15.5 per cent of global desalination capacity, followed by the UAE, at 10.1 per cent.

Nearly every other Mena country outside the GCC plans more investment in water desalination as a means to augment overstretched groundwater or surface water resources. Egypt, for instance, plans to build 47 plants with a budget of roughly $2.8bn over the next five years. Saving water Sustainability objectives further call for a higher adoption of treated sewage effluent (TSE), particularly for irrigation and industrial applications, requiring the development of more efficient sewage treatment plants. Other projects include the expansion of water transmission pipelines and sewage networks, as well as the construction of water reservoirs.

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Water

MENA WATER DEALS SIGNED BY SUBSECTOR, 2011-20 (%)

Cooling 5

Storage 13

Transmission 35

Desalination 22

Treatment 25

Total: $91.1bn

A gradual phasing out of water subsidies is also a priority for most governments, in order to reduce water consumption per capita as well as increase fiscal savings, especially in light of tighter budgets due to low oil prices. Of the estimated $91bn of deals let in the Mena region between 2011 and the first 11 months of 2020, water transmission projects made up more than a third, followed by wastewater (25 per cent) and desalination (22 per cent), according to regional projects tracker MEED Projects. However, year-on-year, the value of deals inked in the first 11 months of 2020 nearly halved compared with the same period in 2019. Contract signings plummeted in four of the five sub-sectors, save for cooling. Transmission awards saw the steepest decline of 54 per cent, followed by sewage treatment (52 per cent) and desalination (44 per cent). The region-wide fall closely reflects that of Saudi Arabia, which accounts for almost a third of the overall market. In addition to the Covid-19 pandemic and low oil prices disrupting tendering processes for schemes, most Mena states are now looking at public-private partnerships (PPPs) to deliver water infrastructure. In addition to independent water projects (IWPs), the PPP model is growing in importance in sewage treatment, transmission and storage. This

MENA WATER CONTRACT AWARDS, 2011-20 ($m) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

2011

2012

Cooling

2013

2014

Desalination

*=Up to November. Source: MEED Projects

84 \ YB 2021

2015

2016

Storage

2017

2018

Transmission

2019

2020*

Treatment

implies a potentially longer procurement cycle compared with state-financed infrastructure seen in the past, as well as a more thorough review of future capacity procurement decisions. Decoupling capacity In contrast to a decade or two ago when independent water and power projects (IWPPs) were the norm, decoupling water and power production, particularly in the GCC, has become a key theme in recent years, and will likely grow in importance. The need to decarbonise the sector by using more energy-efficient membrane technologies as well as the need to increase the flexibility of the electricity grid with the arrival of renewable energy sources are expected to further intensify the trend towards decoupling. These, along with the need to preserve capital in a low-oil environment, imply IWPs could become the dominant norm for procuring future desalination capacity. IWP contracts awarded in 2018-20 account for a total capacity of 3.3 million cm/d. Those deals awarded during this period have a total value of at least $4bn. There are also numerous opportunities to retrofit desalination plants using multi-stage flash (MSF) with membrane technologies. By 2023, five MSF-based desalination plants owned by Saudi Water Conversion Corporation (SWCC) will be replaced by reverse osmosis technologies. The remaining MSF desalination plants, excluding the Ras al-Khair and Yanbu plants, which are relatively new, will be replaced with seawater reverse osmosis (SWRO) facilities by 2025. While Oman has pioneered the adoption of IWPs in the GCC region, having awarded its first such scheme in 2013, it was not until December 2018 â&#x20AC;&#x201C; when Saudi Arabia opened the bids for its first IWP â&#x20AC;&#x201C; that water production costs began to fall sharply. An Acwa Power-led team offered a record-breaking 0.53 $cents a cubic metre ($cents/cm) for the Rabigh 3 IWP. A few months later, the Saudi de-

veloper offered 0.495 $cents/cm for the Taweelah IWP in Abu Dhabi, the world’s largest planned SWRO plant. The 120 million imperial-gallon-a-day Hassyan IWP in Dubai set a new record, with UAE-based Utico offering a low bid of 0.277 $cents/cm for the scheme. MEED understands the price was achieved in part due to the Dubai government offering power at 0.0245 $cents a kilowatt hour (kWh), compared with 0.05 $cents/kWh offered in 2018 by Saudi Water Partnership Company (SWPC). This makes tariffs for future projects a major development to be watched, given that Riyadh plans to build several more IWPs. However, it must be noted opinions vary in terms of the feasibility of lower-than-0.4 $cents/cm water, let alone lower-than-0.3 $cents/cm water. Future projects As cited earlier, Saudi Arabia offers the most opportunities for water projects across the region. SWPC’s seven-year statement covering 2020-26 outlines plans to procure at least 40 water infrastructure projects across the kingdom. Abu Dhabi was planning an even bigger SWRO plant than Taweelah, which was expected to be tendered in 2021. However, there has been a change in plans, with an IWP scheme in Mirfa expected to be tendered in 2021. Despite the advent of IWPs, there remain major IWPPs in the study or bid evaluation phase. The deal is expected to be let in 2021 for the Facility E IWPP, while Kuwait is expected to move ahead with the procurement of the Al-Zour North 2 and 3 and Al-Khiran 1 IWPPs. In early 2020, SWCC began the privatisation of Saudi Arabia’s largest integrated water and power plant in Ras al-Khair, with preparations under way for the privatisation of a power and water cluster in Yanbu. By mid-November, SWCC announced the formation of Water Transmission & Technologies Company (WTTCO) as part of the restructuring of its water sector.

GCC INDEPENDENT WATER PROJECT TARIFFS ($cents a cubic metre) 0.6

0.53

0.52

0.5

0.495

0.473 0.413

0.4 0.277

0.3 0.2 0.1 0

Rabigh 3

Shuqaiq 3

Taweelah

Yanbu 4

Jubail 3A

Hassyan

MENA TOP UPCOMING DESALINATION PROJECTS Project

Capacity (cm/d)

AD Power UAE

Study

1,363,800

Al-Zour North 2 & 3 IWPPs: desalination plants

KAPP

Kuwait

Study

624,590

Jubail 3B IWP

SWPC

Saudi Arabia

Bid evaluation

570,000

Al-Khiran IWPP phase 1: desalination plant

KAPP

Kuwait

Study

568,260

Mirfa IWP

Project

Client

Ruwais IWP

Country

AD Power UAE

Study

545,000

Facility E IWPP: desalination plant

Kahramaa Gulf

Bid evaluation

454,600

Aqaba-Amman water desalination and conveyance

MWI

Jordan

360,000

19 desalination plants (phase 1): North and South Sinai, Matrouh and Red Sea

Nuca

Egypt

Study

312,000

Ras Mohaisen IWP

SWPC

Saudi Arabia

300,000

Salalah 4 IWP

OPWP

Oman

Study

100,000

cm/d=Cubic metres a day; IWP=Independent water project; AD Power=Abu Dhabi Power Corporation; IWPP=Independent water and power project; KAPP=Kuwait Authority for Partnership Projects; SWPC=Saudi Water Partnership Company; MWI=Ministry of Water & Irrigation; PQ=Prequalification; Nuca=New Urban Communities Authority; OPWP=Oman Power & Water Procurement Company. Sources: MEED, MEED Projects

WTTCO will manage and operate more than 8,400 kilometres of transmission system and an additional 2,900km of new pipelines that are planned to be installed by 2022. By 2030, the transmission system is planned to expand to up to 17,000km, which will be achieved by investing SR60bn ($16bn) over the next 10 years. Jennifer Aguinaldo

YB 2021 \ 85

Interview

Biography

Abdullah bin Ibrahim al-Abdlkareem SWCC governor and WTTCO chairman

New technologies underpin Saline Water Conversion Corporation’s efficiency and privatisation targets

• Prior to his appointment as governor of SWCC, Al-Abdlkareem served as deputy governor for planning and development between 2014 and 2020 • Previously, he worked as head of strategic planning (2009) and then general manager of strategic planning and budgeting (2010) at the firm

By Jennifer Aguinaldo

he privatisation of Saudi Arabia’s Saline Water Conversion Corporation (SWCC) started this year with the planned majority share sale of its largest integrated water desalination and power plant in Ras al-Khair. More than three dozen international and local firms expressed interest in the deal in July, and while the transaction is still in the prequalification phase, the next project – comprising the Yanbu power and water cluster – is already being prepared. “The Saudi market and economy currently enjoy a high level of confidence among international investors and we expect to sustain this interest and confidence in the future,” says SWCC governor Abdullah bin Ibrahim al-Abdlkareem.

This article first appeared in the December 2020 issue of MEED Business Review

86 \ YB 2021

New company By mid-November, the kingdom marked another major milestone with the formation of the

Water Transmission & Technologies Company (WTTCO) as part of the restructuring of its water sector. WTTCO will manage and operate more than 8,400 kilometres of water transmission system that conveys 7.2 million cubic metres a day (cm/d) of desalinated water between the country’s desalination plants and inland municipalities, including the capital, Riyadh. WTTCO’s remit will include an additional 2,900km of new transmission pipelines that are planned to be installed by 2022. The new firm will commence operations after signing a water transmission services agreement with the special water project companies (SWPCs) created to produce drinking water under private ownership and operation. According to Al-Abdlkareem, by 2030, the transmission system is planned to expand to up to 17,000km, which will be achieved by

PHOTOGRAPHS: SWCC; MEED

investing SR60bn ($16bn) in new water transmission infrastructure over the next 10 years. “WTTCO and SWCC will partner with the private sector to increase the reliability and availability of the water transmission system by interconnecting water production and delivery systems at regional and country-wide levels,” says Al-Abdlkareem. Funding capacity The government executive is confident that local banks and their international counterparts have enough capacity to fund these and other planned projects in the kingdom.

“WTTCO and SWCC will partner with the private sector to increase the reliability of the water transmission system” “Local banks might have adequate capacity to fund the majority of future water-related infrastructure projects in the kingdom,” says Al-Abdlkareem. “However, the country’s privatisation programme has attracted strong interest from international banks and investors as well. This is evident in the number of firms

that have expressed interest in the Ras al-Khair power and water plant privatisation.” He adds: “The SWCC structure for privatisation of water production assets will give the private sector the opportunity to be a majority shareholder in each of the private project companies.”

YB 2021 \ 87

Interview

The minority shares in each project company will remain with a government-owned holding company, which will in turn solicit this shareholding opportunity into an initial public offering in the future. Equally important, Al-Abdlkareem says they are working to reduce the cost of water, increase competition and create efficiency across the entire supply chain, to ensure the success of the privatisation initiative. “New technologies, such as zero liquid discharge of the seawater reverse osmosis desalination plant (SWRO ZLD), will allow us to produce water at 40 per cent lower costs, by extracting valuable minerals from the brine, such as magnesium and sodium chloride,” he explains. New technologies A homegrown brine concentrator technology developed by SWCC’s Water Technology Research Institute (WTRI), the SWRO ZLD helps to increase the production of the reverse osmosis system by 40 per

cent and decrease energy consumption to below 2.7 kilowatt-hours a cubic metre. The first commercial unit developed by WTRI that has the patented ZLD system is being installed at Shuaiba 4, and will be operational by mid-2021. “WTRI is also developing other technologies to increase the efficiency of high-pressure pumps, as well as energy recovery devices to gain improved energy power recovery and reduced power costs at existing desalination plants,” Al-Abdlkareem says. The initiative to retrofit multi-stage flash (MSF)-based desalination plants, a key measure to minimise energy consumption, is also under way. By 2023, five MSF-based desalination plants owned by SWCC will be replaced by reverse osmosis technologies. This will not include the Ras al-Khair and Yanbu plants, which are relatively new. The remaining MSF desalination plants will be replaced with SWRO facilities by 2025. “The goal is to give the opportunity for the private sector to acquire effi-

“The goal is to give the opportunity for the private sector to acquire efficient plants that produce water at low cost”

WTTCO was formed in November as part of Saudi’s water sector restructuring

88 \ YB 2021

cient plants that produce water at low cost,” the executive notes. “The plant privatisation tender packages will require bidders to include a list of enhancements recommended to be considered to achieve an increase in plant capacity and reduction of fresh water production costs.” Water master plan 2050 The water sector privatisation in Saudi Arabia is in line with the kingdom’s Water Master Plan 2050, which is managed by the Environment, Water & Agriculture Ministry (Mewa). This plan includes all major projects needed to meet the increase in water demand related to population growth in the kingdom. The country’s long-term water supply needs are addressed by implementing government projects delivered by SWCC, public private partnerships, and independent water and power projects. Phasing out thermal desalination plants at the end of their useful life and replacing them with membrane desalination facilities that incorporate the latest desalination technologies and equipment is a key feature of the master plan. This is expected to ensure Saudi Arabia’s leadership position in the global desalination market and secure reliable long-term water supply for the kingdom. It also enhances the use of sustainable and environmentally friendly technologies that decrease the energy and costs required to produce drinking water. “All SWCC desalination plants are ISO14001-compliant and all of our production assets have been checked and licensed to operate safely and in compliance with the existing environmental regulations. “Environmental stewardship and protection are of prime importance to SWCC and Mewa,” concludes Al-Abdlkareem.

Construction

CHALLENGING OUTLOOK AS MARKET FRAGMENTS While Kuwait and Saudi Arabia performed well in 2020 compared with 2019, the UAE did not fare as well as its real estate market declined

T $34bn

Construction and transport awards made in the GCC by late November 2020

$55bn

Construction and transport awards made in the GCC during the whole of 2019

90 \ YB 2021

he regionâ&#x20AC;&#x2122;s largest construction markets are divided in their outlook. In the GCC, Saudi Arabia is looking forward to future growth and the UAE is dealing with the mistakes of the past. Outside of the GCC, Egypt continues to dominate the agenda as it launches ambitious new projects. The economic disruption and uncertainty over the future affected all GCC markets in 2020. According to regional projects tracker MEED Projects, there were $34bn of construction and transport awards made in the GCC by late November and, with just one month to go until the end of the year, that total was 38 per cent down on the $55bn of contracts let during the whole of 2019.

Kuwait was the only market to already outperform 2019 by the end of November. It had awarded $1.9bn of contracts during the first 11 months of 2019, an increase of 12 per cent compared with the $1.7bn it awarded in 2019. UAE decline The other five GCC markets are all down compared with 2019. Although the UAE remains the most active market, with $10bn of awards by the end of November, it is the worst-performing market when compared with 2019, when it awarded $26bn of deals. While the 60 per cent drop will slightly narrow with contract awards during December, it is unlikely to improve its performance

MENA CONSTRUCTION AND TRANSPORT AWARDS

2015

2018

2019

50.9

2017

70.2

2016

80.5

2014

88.1

2012

95.2

131.7

2013

110.6

126.2

($bn)

86.8

significantly. The UAE also completed the most amount of work in 2020. By the end of November, it had completed $29bn of work, which, despite the operational disruption caused by the Covid-19 pandemic, is slightly less than the $31bn of work completed in 2019. Combining the awards and completions data demonstrates the difficulties the UAE’s construction sector has faced over the past two years. If the total value of completions is subtracted from total value of awards to give an indication of market growth, the UAE market contracted by $18bn by the end of November 2020, a significant increase on the $6bn drop recorded in 2019. The total value of deals awarded in Saudi Arabia was not as great as in the UAE, but was a better performance when compared with 2019. By the end of November 2020, the kingdom had signed $9bn of contracts, which is down 26 per cent on the nearly $13bn total registered during 2019. There was also a significant drop in completions when 2020 is compared with 2019. By the end of November 2020, there were $12bn of contracts completed in Saudi Arabia, a decline of 64 per cent when compared with the nearly $35bn completed in 2019. Subtracting completions from awards gives a market contraction of $3bn for Saudi Arabia for the first 11 months of 2020, which is an improvement on the $22bn figure recorded for 2019. The more positive numbers for Saudi Arabia do not reflect the improving sentiment in the market as construction activity on the kingdom’s new wave of large-scale projects starts. These schemes, which include the self-styled gigaprojects, were mostly launched in 2017 and over the past two to three years have been locked in the planning and design phases. In 2020, key elements of these projects started to move onsite. One of the most significant moments came in July, when The Red Sea Development

2020

Mena=Middle East and North Africa. Source: MEED Projects

Company (TRSDC) awarded an estimated $250m contract to a joint venture of local contractors Nesma & Partners Contracting Company and Almabani General Contractors for the airside construction works for the airport serving the Red Sea Project on the west coast of the kingdom. That award plus others means TRSDC is expected to have awarded close to $4bn of deals for work on The Red Sea Project by the end of 2020. Megaproject activity Significant construction contracts were also awarded at the Amaala, Qiddiyah and Dirriyah Gate projects, while at the same time consultancy activity ramped up as major construction packages moved toward the tender stage for the $500bn Neom project in the northwest of the kingdom. Selected contractors submitted prequalification documents in October and November for construction work on the infrastructure backbone of the Neom project. The deals cover building high bridges and viaducts, cut-and-cover utility tunnels, tunnel access points, drill and blast tunnels, and water reservoirs. The infrastructure backbone is a corridor that will include utilities, roads and a railway, running more than 120 kilometres inland from the Straits of Tiran, the waterway that separates Saudi Arabia and Egypt. Another major rail scheme, the Saudi Landbridge that will link Jeddah on the Red Sea with the capital Riyadh, is also

“The UAE market contracted by $18bn by the end of November 2020, an increase on the $6bn drop in 2019” YB 2021 \ 91

Construction

2010

2011

2012

2013

2014

2015

2016

2017

2018

-34 -73.4

-17.4

-4.7

31.7

44.6 -0.1

22.3

($bn)

68.9

NET CHANGE* IN CONTRACTS UNDER EXECUTION

2019

2020

Note=Data covers construction and transport awards in the Middle East and North Africa; *=Contract awards minus contract completions. Source: MEED Projects

“There are more than 100 planned PPP projects worth an estimated total of $90bn in Saudi Arabia” 92 \ YB 2021

progressing. The consortium developing the planned $10.6bn scheme presented the findings of the project’s feasibility study to the Transport General Authority in October and the award of the project’s engineering, procurement and construction contracts are expected in 2021. Saudi Railway Company and China Civil Engineering Construction Company signed a memorandum of understanding to implement the project using a public-private partnership (PPP) model in October 2018. Across all sectors, there are more than 100 planned PPP projects worth an estimated total of $90bn in Saudi Arabia, which includes social infrastructure. For schools, Tatweer Buildings Company (TBC) and the Education Ministry signed agreements for the first phase of the PPP schools programme, which includes 60 schools in Jeddah and Mecca, with a local consortium of Ajyad Knowledge for Education & Training and Al-Bawani Company in November. TBC has confirmed the bidders prequalified to work on the second phase of the programme, and a third phase is also planned. In healthcare, the National Centre for Privatisation & PPP has received statements of qualification from interested firms for the deal to develop the 244-bed Al-Ansar hospital PPP project in Medina. In the UAE, the outlook for new projects is less optimistic, but there are still upcoming opportunities. In Dubai, there are real estate projects moving forward, although the quantity and scale of the

schemes coming to tender are a reduction on previous years. In Abu Dhabi, larger schemes are moving forward, such as housing projects for UAE nationals and civic projects such as museums. Further clouding the outlook of the UAE’s construction sector is the future of its largest construction company, Dubai-listed Arabtec Holding. The company’s shareholders voted to liquidate the company in late September and shareholders were planning to meet at the end of November to review whether the liquidation deadline should be amended. If the liquidation goes ahead as planned, it could have far-reaching consequences for an industry that is already struggling with challenging trading conditions. Experience from the UK following the collapse of Carillion shows that the contagion effect of a major main contractor leaving the supply chain with unpaid bills forces other subcontractors and suppliers into bankruptcy, which could then threaten the delivery of other projects they are working on. The banking sector will also be affected by Arabtec’s liquidation. Lenders are said to have close to AED2bn ($136m) of exposure to Arabtec in the form of loans and it is estimated they hold another AED8bn of company exposure in the form of performance guarantees. Decreased value Outside the GCC, Egypt is the most active construction projects market, with just over $7bn of construction and transport awards in 2020 by the end of November. The construction sector has performed consistently over the past five years supported by major schemes such as the expansion to the Suez Canal, the New Administrative Capital scheme and additional lines for the Cairo Metro. The expectation is that this trend will continue into the future as the government continues to support infrastructure schemes together with the private sector. Colin Foreman

Interview

Hill plans to build on its existing business in Egypt, where the downtown Cairo area will offer a host of redevelopment and renovation opportunities in the long term

OPTIMISM IN THE FACE OF ADVERSITY Despite the global pandemic and regional geopolitical issues, Hill International’s CEO is confident about the outlook for 2021

R This article first appeared in the December 2020 issue of MEED Business Review

94 \ YB 2021

aouf Ghali, the CEO of US project management firm Hill International, is optimistic about the prospects for 2021. “The region went through a lot of difficulties in the past two or three years. There were geopolitical changes, the low price of oil and then the pandemic. Next year is going to bring stability and growth back to the region,” he says. Ghali’s comments come as hopes grow globally that there will soon be a vaccine for Covid-19, and as long-standing geopolitical tensions in the region start to subside. “Geopolitically, the UAE and Bahrain’s new treaties with Israel are going to provide opportunities and stability. The peace deal in Libya will also bring more stability to the region,” says Ghali. Even outside the direct conflict zones, stability will have a positive impact on economic activity. “Stability allows governments’ focus to be more on internal issues rather than external. Opportunities will arise; where

and how is not yet clear, but we are confident it will happen,” says Ghali. As an established player in the region’s construction sector, Hill has experienced business cycles before, but as the market looks for a recovery in 2021, the company is very different to the one that negotiated the market swings of the past. The big change came in 2016, when Hill completed a $147m deal to divest its claims business, which now trades as HKA. Narrowing focus The move turned Hill, which operates extensively in the Middle East, into a pure project management business. “It was something we did purposely. We wanted to become a pure-play project manager and allow the claims business also to grow,” says Ghali. “We were starting to get a lot of conflicts because the success we had on the project management side conflicted the claims group, which traditionally

has contractors as its biggest clients, whereas our project management clients are usually owners.” One advantage that having a claims business brought was resilience. While project management performs well when the market is growing and new projects are starting, the claims business becomes busier as projects come to a close. To address this, Hill has moved to offer new services. “We have replaced that resilience that the claims business brought with facilities management. It is downstream and follows the construction cycle. A lot of our clients operate their facilities, and many contract it out,” says Ghali. “It is a growing business. We started in North Africa, and are now having success with clients in the UAE and in Saudi Arabia, where we just got a major contract for 2,000 schools,” he adds. Building business Resilience will also come from building business in existing markets such as the UAE, Saudi Arabia and Egypt. “As a company, we are very cautious. We have a strategy now that we want to build locations to get critical mass. We already have a good footprint and we are really focused on existing countries. “I am not saying we are not going to look at new markets, but we are going to be very careful,” says Ghali. Projects in Saudi Arabia are a key area of focus. “We feel the plans are now more realistic. We feel comfortable and confident that things will start moving,” he says. Another market that has performed well in recent years is Egypt. In September, Hill was appointed, as part of a consortium, for the project management and design review for the Greater Cairo monorail scheme. Then, in October, it secured a contract to provide project management services for the E£5bn ($320m) Kasr al-Ainy hospitals development project for Cairo University.

“Opportunities will arise; where and how is not yet clear, but we are confident it will happen” ––– Raouf Ghali, CEO of Hill International

“Egypt is refreshing news. The New Administrative Capital created a lot of potential, both on the infrastructure and the building side. The way things are being built is fast and that has required attention in all directions,” says Ghali. “The way Egypt looks at it, it is not building for today but building for the next 10-15 years, which is a wise thing to do,” he says. Longer term, Ghali expects more construction work redeveloping older areas of Cairo. “The move for all the public facilities and ministries from Cairo to the New Administrative Capital is going to be a major shift. Once they do that, it will spur other opportunities, for the redevelopment and renovation of the downtown Cairo area, where all these ministries used to be. Cairo is an old city, so there is going to be demand, and a busy market there.” Colin Foreman

YB 2021 \ 95

Manufacturing

INDUSTRIAL PROJECTS GAIN TRACTION ACROSS REGION The pipeline of manufacturing schemes in the Middle East and North Africa is expanding in line with economic diversification goals

I 115

Number of industrial projects under execution in the Mena region

181

Number of industrial projects in the preexecution phase in the Mena region

96 \ YB 2021

ndustrial projects activity is steadily gaining traction in the Middle East and North Africa (Mena) region as capital expenditures evolve in line with government diversification mandates. The Mena region has 115 industrial projects with a contract value of $17.2bn under execution. Of these, 79 of the projects, with a total value of $7.8bn, are in the GCC. The largest ongoing industrial project in the Mena region is the Torbat direct reduction iron plant in Iran. Preconstruction work on the project was under way in 2011, but the $1.8bn contract was repeatedly delayed until October 2020, when construction was understood to have commenced on the

scheme. Italy’s Danieli is providing main contracting, instrumentation and technology for the plant, according to regional projects tracker MEED Projects. GCC market Yamama Saudi Cement Company’s production plant in Riyadh is the largest ongoing industrial project in the GCC. The contract is valued at $900m, with Metallurgical Corporation of China providing civil and mechanical, electrical and instrumentation works for the scheme. In 2017, financiers National Commercial Bank and Samba Financial Group increased the project’s credit facility from $266.6m to $960m. With a production capacity of 20,000 tonnes-a-

day, the plant should begin operating by early 2021. Collectively, Mena countries have 181 industrial projects in the pre-execution pipeline, with a net value of $55.4bn. About 75 per cent (136) of these projects, however, are at the study stage, indicating that contract tenders and awards for the majority of these schemes may not be confirmed in the near term. The two largest projects in the Mena region’s pre-execution pipeline are facilities for the production of non-ferrous metals ($5bn) and aluminium ($3bn), planned by China’s East Hope Group at the Khalifa Industrial Zone Abu Dhabi (Kizad) freezone. The facilities are part of a $10bn scheme by East Hope to develop industrial infrastructure within the UAE and wider Gulf under the umbrella of China’s Belt and Road Initiative. The alumina and non-ferrous metal processing facilities respectively make up the first and third phases of the project. The second phase includes a recycling project for red mud and an alumina waste product along the research centre, with a net value of $2bn. Projects within the East Hope scheme make up three of the five largest preexecution industrial schemes in the Mena region. The other two projects are located in Egypt, one of which is a $2.3bn vertically integrated solar factory by the Defence Ministry. According to MEED Projects, plans for the solar plant include the construction of a poly silicon plant and chip mill ($750m each), a power plant ($400m), a silicon plant ($200m), a cells plant ($150m), a glass factory ($80m) and a plastic factory ($20m). The solar factory is under study, as is Egypt Kuwait Holding’s wood factory in the Minia governorate. With a net contract value of $1.6bn, the project is envisioned to include a factory building, office buildings and production and packaging units. It is expected to be completed in 2024, according to MEED Projects. Of the 181 pre-execution industrial projects in the Mena region, 105

are GCC-based schemes, once again reflecting regional governments’ efforts to stimulate public and private sector investment in their non-oil industrial base. With 40 projects worth a combined $9.4bn, Saudi Arabia has the largest of the Mena region’s pre-execution industrial projects in terms of volume. The kingdom’s biggest industrial scheme under study is an air separation unit that the US’ Air Products & Chemicals is developing as part of the world-scale ammonia plant project at Neom. The unit has a net value of $1.5bn, and is expected to be tendered in the second half of 2021, according to MEED Projects. Also at the pre-execution stage in Saudi Arabia is Gulf Tubing Company’s manufacturing plant in the Eastern Province. Front-end engineering and design (feed) work is under way for the project, and its main contract should be tendered by early 2021, with its award likely in the first half of 2021. The project’s scope is set to include the construction of a piping plant and a melt shop with a capacity of 600,000 tonnes a year (t/y); the installation of a tube rolling mill of 400,000 t/y and forged flanges and valves of 200,000 t/y; and the laying of seamless tubes and pipes. Oman emergence After Saudi Arabia, Oman has the highest number of pre-execution industrial projects in the Mena region. The sultanate’s 34 industrial schemes in pre-execution have a net value of $8.1bn. Sohar Aluminium Company’s smelter expansion scheme is the largest of these projects. The contract’s scope includes the construction of a carbon anode plant, metal casting and storage facilities, a gas treatment centre and a power station, as well as the installation of pot-tending machines and an anode bake furnace. With a net project value of $1.2bn, the project is expected to be tendered in the second half of 2021 and awarded in early 2022. Also at the pre-tender stage in Oman is a calciner plant in Batinah by Sohar

MENA PROJECTS IN PRE-EXECUTION PHASE Sub-sector

Number

Metal refining Transport & logistics Building materials Energy sector supply Industrial space Automotive & transport Recycling facilties Food processing Pharmaceuticals Industrial chemicals

25.7 25 6 5.9 5.7 4.1 2.5 2.2 1.5 1.2 0.5

Electronics Source: MEED Projects

“Of the 181 pre-execution industrial projects in the Mena region, 105 are GCC-based schemes” YB 2021 \ 97

Manufacturing

MAJOR PRE-EXECUTION INDUSTRIAL PROJECTS IN THE MENA REGION Net project value ($m)

Project status

Metals

5,000

Study

UAE

Aluminium

3,000

Study

Defence Ministry

Egypt

Energy

2,350

Study

East Hope

UAE

Recycling

2,000

Study

Client

Country

Sub-sector

Non-ferrous metal processing facilities

East Hope

UAE

Alumina facility

East Hope

Vertically integrated solar factory Red mud research and recycling Centre Wood factory in Minya

Egypt Kuwait Holding

Egypt

Building materials

1,685

Study

Chabahar steel plant project

Pars Kohan Diar Parsian Steel/Posco

Iran

Steel

1,600

Study

Mokran major steel complex

Iranian Mines & Mining Industries Development & Renovation Organisation

Iran

Steel

1,600

Study

Logintek Free Zone

Zinafrik Development

Morocco

Industrial park

1,590

Study

World-scale ammonia plant: air separation unit

Air Products & Chemicals

Saudi Arabia

Energy

1,500

Study

Car production plant

Siag Arabian Auto Manufacturing Company

Jordan

Transport & logistics

1,500

Design

Source: MEED Projects

“Pharmaceuticals is another sector that could create opportunities for regional contractors” 98 \ YB 2021

Calciner, a joint venture between Saudi Arabia’s Acwa Power and Germany’s MMEC Mannesmann. The project will be developed in two phases, with the first to have a combined plant capacity (cpc) of 450,000 t/y and the latter to have a cpc of 900,000 t/y. Feed work should be completed by early 2021, with the main contract expected to be issued in the first quarter of the year. At a more advanced stage in Oman is Duqm Cement Projects International’s integrated cement plant in Duqm. The $435m project includes the construction of a factory with a capacity of 10,000 tonnes a day, a grinding unit, a clinker unit, a warehouse and processing units. MEED understands the construction contract will be confirmed during the first quarter of 2021, with groundbreaking expected in the same period. While much of the Mena region’s industrial projects are focused on sectors such as metals, investments are also being made in relatively new industries such as food, recycling and pharmaceuticals. In addition to the $2bn East Hope recycling scheme at Kizad, the region’s

pre-execution pipeline includes a $300m integrated waste management plant in Egypt and a $100m solid waste plant in Lebanon, both of which are under study. Pharmaceutical sector Pharmaceuticals is another sector that could create opportunities for regional contractors, with seven schemes worth $1.4bn in pre-execution. The largest of these is a $1bn insulin plant planned by Egypt’s HoldiPharma. There is also a $250m vaccine production plant planned by the UAE’s Almas International in Saudi Arabia. Both projects are under study. More vaccine production plants are expected to follow. The CEO of Egypt’s Pharco Corporation, Sherine Helmy, said in November 2020 that the firm was “working on finding more than one alternative for [Covid-19] vaccines in Egypt”. Local media reported Pharco would locally manufacture the vaccine and export it to Africa, where agreements are in place with Burundi, Mali, Tanzania and Nigeria to establish pharmaceutical plants. Neha Bhatia

Insight

NEW DAWN FOR PPP Public-private partnership projects are arguably the most lucrative source of new business opportunities around

nfrastructure is emerging as an alternative investment market in the Middle East and North Africa (Mena) region and it could result in public-private partnership (PPP) projects becoming one of the most reliable sources of new business opportunities. Installing world-class infrastructure and delivering effective public services are central to national agendas across the region, as governments strive to meet the needs of growing populations. Equally important is the need to boost the role of the private sector in driving growth and creating jobs.

PPP prospects Executed properly, PPPs will deliver these goals. PPPs provide a model that allows governments to develop strategic national projects and services without increasing direct state capital spending. At the same time, a reliable flow of commercially attractive PPP projects will stimulate private investment and ensure that performance targets to improve services and reduce waste are achieved.

But despite these compelling selling points, PPPs have largely failed to gain traction in the region outside the electricity sector. There are many reasons for this, but the biggest factor has been a lack of political will to move to PPP. There has been no urgent need to hand over state assets to private developers.

announced its intention to tender $2.7bn in PPP projects to finance and operate new social, municipal and transportation assets. Countries that do not already have PPP legislation in place are preparing frameworks, while those that do are drawing up pipelines of projects. It will not be easy and the

“In the post-Covid-19 world, new forms of project finance are required by governments” This has changed. Since 2015, weak oil prices have impacted the revenues of oil-producing countries, particularly those in the GCC. In 2020, Covid-19 applied breaking strain to regional economies. Traditional public spending trends are being reviewed and cut back. In the post-Covid world, new forms of project finance are required. PPP contracts are taking shape across the region, most notably for schools projects in Saudi Arabia, healthcare in Kuwait, and water and power projects elsewhere. In early 2020, Abu Dhabi

PPP push must avoid the pitfalls of the past to succeed. Selecting appropriate and bankable projects will be key, as will building up institutional capacity and developing a body of skilled civil servants.

This article is extracted from MEED’s PPP in the Middle East and North Africa 2021 report, which is available at buy.meed.com/product/ ppp-in-the-middle-eastand-north-africa-report

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Agenda

INTELLECTUAL CAPITAL GAINS

This article first appeared in the December 2020 issue of MEED Business Review

By Neha Bhatia

The UAE is stepping up efforts to establish a knowledge economy amid a pandemicinduced global downturn

UAE GROSS EXPENDITURE ON RESEARCH AND DEVELOPMENT % of GDP

1.30

1.4 1.2

0.69

0.6

0.90

0.8

0.96

0.4 0.2 0

2014

Source: Unesco

100 \ YB 2021

2015

2016

2018

ince the Abraham Accords joint statement on 13 August, UAE firms have announced a flurry of deals with Israeli companies, many of them with ties to research or technology development. Beyond an insight into the business-like approach of the UAE, the focus of the deals has aptly illustrated the intensifying pursuit of higher technology within the UAE in its decades-long push towards diversification and the creation of a knowledge economy. This has taken several forms over the years, from the country’s initial investment in its education sector and universities through to more recent efforts to foster entrepreneurship among university graduates through incubator, accelerator and mentorship schemes. In the past 18 months, the UAE has also softened its residency laws to allow researchers and entrepreneurs to apply

for 10-year visas to encourage them to remain in the country. Investment deficit One area of outstanding weakness for the UAE, as in many economies in the Middle East and North Africa, is the total investment in research and development (R&D). Unesco data shows the UAE’s gross domestic expenditure on R&D (GERD) accounted for 1.3 per cent of its GDP in 2018. This GERDto-GDP ratio was less than half the World Bank’s estimated global average of 2.7 per cent that year. In contrast, the US, at 2.84 per cent, exceeded the global average in 2018, while Israel, at 4.95 per cent, exceeded it by some margin. The higher GERD performance of many nations is in large part driven by the higher education infrastructure they have established. However, countries such as the US and

The Sharjah Research, Technology & Innovation Park was established by Royal Decree in 2016 with the mandate of developing and managing a local innovation ecosystem

Israel have also effectively tapped into the triple helix model, which encourages a three-way interaction between academia, government and industry, to facilitate the value

The Abu Dhabi-headquartered National Space Science & Technology Centre (NSSTC) is another local organisation where the triple helix model is being pursued. The centre was established jointly by the UAE University, the UAE Space Agency and the Telecommunications Regulatory Authority’s ICT-Fund in 2016. The three institutions are all backed by the government. In August, NSSTC announced it will collaborate with Europe’s Airbus and Abu Dhabi’s Tawazun Economic Council, a defence and security industry enabler, to develop an assembly, integration and testing centre for satellites in Al-Ain. Director of NSSTC, Khaled al-Hashmi, notes that in the space sector, the UAE could benefit from further cooperations of this type.

“For governments, commercial scalability and feasibility are critical to ensure national funds are invested wisely” creation needed for a knowledge economy to thrive. The triple helix model In the UAE, the Sharjah Research, Technology & Innovation Park (SRTI Park) was established in 2016, with the intention of capitalising on the triple helix model. Last year, for example, the park collaborated with Dutch company Cybe Construction and the American University of Sharjah to develop its first 3D-printed home.

“For example, the European Space Agency has [such ties] at a mature level, and you can see a lot of companies spinning-off out of these relationships and becoming more innovative.” Education gap Access to higher education institutes is critical to achieving knowledge economies, but according to a recent research note by provost and vice-president for academic affairs at the American University in the Emirates, Abhilasha Singh,

universities in the UAE face challenges when it comes to attracting the best students for every industry. “Universities in the UAE will have to build deeper relationships with relevant industries to promote the future of their students and subsequently be a part of the economic growth of the country,” she says. CEO of SRTI Park, Hussain al-Mahmoudi, says a more “effective and seamless” model linked to the triple helix must be developed to achieve innovation in the UAE. He tells MEED the expectations of academia, government and industry must be better coordinated, adding: “We need to have more alignment on the mechanism of how to execute R&D.” Commercial scalability Investment in innovation is typically driven by a focus on fundamental or applied research. In the latter case, R&D efforts focus on the feasibility of the product, service or technology that is being developed. For governments, commercial scalability and feasibility are critical to ensure national funds are invested wisely, leading them to prioritise applied research that can eventually be commercialised and scaled up into a knowledge economy. NSSTC’s Al-Hashmi says the UAE is moving rapidly towards establishing a triple helix model in the space sector, but commercialisation must be a top priority. “Whatever we do, it needs to be commercialised and [must be used] by the end user. We

YB 2021 \ 101

Agenda

can nurture innovation, but the product must go to the market.” Attracting international startups and small and medium-sized enterprises (SMEs) to establish local operations is one way to lay the groundwork for a knowledge economy. This is an area in which the UAE has been quite successful, establishing several technology ecosystems that are attractive to foreign researchers and innovators. In some sectors, however, this imported startup approach could risk stifling opportunities for locally incubated startups and SMEs. A more nuanced approach to homegrown R&D may therefore be needed from government investors to strike the right balance. Funding needs To achieve its long-term innovation goals, the UAE must identify the main niche areas in which it can grow a knowledge-based economy, with the government providing seed funding, as well as initial and periodic support. “You need some support at the beginning and sustainable innovation can come as a result of such investments, but if we see the government continuously providing support, then we lose the objective of building an innovation economy,” Al-Hashmi explains. “This economy has to be sustained by demand, and government support should come in the form of enabling policies and regulations, creating funds to enter new markets or increase the level of competitiveness and so on.” Multinational companies will also be important stakeholders in the UAE’s knowledge

102 \ YB 2021

NUMBER OF UNIVERSITY RESEARCH PAPERS PUBLISHED 1,400

Khalifa University

1,200

NYU Abu Dhabi

1,000

Abu Dhabi University

800

University of Sharjah

600

Zayed University

400

UAEU

200

AUS

2013

2014

2015

2016

2017

2018

NYU=New York University; UAEU=UAE University; AUS=American University of Sharjah. Source: Scopus Database

economy, and SRTI Park’s Al-Mahmoudi says the private sector must pay heed to the UAE government’s aspirations to spur innovation, instead of viewing the market as a hub for administrative operations such as sales or project investments. He says the lack of local R&D investment by such companies is “a real gap, because normally large companies and multinationals in any part of the world would contribute to the science scene and to the development of products”. Roadmap for innovation The good news for the UAE is that its own academics and entrepreneurs are more than happy to share their thoughts on how to foster the growth of the knowledge economy. On the subject of foreign competition, one Dubai-based angel investor notes that locally incubated startups should be provided with support to ensure competitiveness against foreign funding-backed competitors establishing local operations. Another praises the recent visa changes, but calls for the further tightening of intellectual property laws so international

student researchers and investors are better incentivised to establish long-term projects in the UAE. It is nevertheless widely agreed that the UAE is on track to establish a knowledge economy that can be both domestically beneficial and globally competitive. Moreover, given its hard infrastructure capacities and geographic connectivity, the UAE is also well equipped to position itself as a global hub for test projects that can be commercialised at a global level. “The UAE can become a place where you have a pilot or prototype project, but the market is small, so when we look at R&D, it should have a regional or global remit,” Al-Mahmoudi explains. This has long been the broader model for the UAE – to provide a local environment conducive to businesses capitalising on opportunities at a regional level. Now the UAE needs to facilitate investment, academic collaboration and private sector involvement to create the same kind of ecosystem to feed into the knowledge economy.

INTELLECTUAL CAPACITY Investment in research and development in the GCC countries has yielded varying degrees of success in the more tangible measures of academic output

RESEARCH PAPER PUBLICATION SAUDI ARABIA

UAE

0.70

PAPERS PER 1,000 PEOPLE

KUWAIT

OMAN

BAHRAIN

0.50 PAPERS PER 1,000 PEOPLE

0.45 PAPERS PER 1,000 PEOPLE

0.40 PAPERS PER 1,000 PEOPLE

23,448

7,238

1,915

1,989

2018

PAPERS,

679

PAPERS, 2018

TOP COLLABORATION COUNTRY PARTNERS Co-authored with

Co-authored with

Egypt

India

Saudi Arabia

Egypt

India

Canada

US PATENT REGISTRATION

PATENTS PER 1 MILLION PEOPLE

1,046 TOTAL PATENTS, 2019

PATENTS PER 1 MILLION PEOPLE

116

TOTAL PATENTS, 2019

PATENTS PER 1 MILLION PEOPLE

TOTAL PATENTS, 2019

Sources: Scopus Database, World Bank, PwC Analysis, US Patent & Trademark Office, MEED

1.3

PATENTS PER 1 MILLION PEOPLE

TOTAL PATENTS, 2019

0.6

PATENTS PER 1 MILLION PEOPLE

TOTAL PATENTS, 2019

Tourism

EXPERTS LOOK TO 2021 FOR POTENTIAL RECOVERY Governments across the Middle East and North Africa are working on several initiatives to bump up visitor numbers in the new year

T $175bn

Potential decline in Mena tourism sector’s contribution to GDP in 2020

4.7 million

Jobs forecast to be lost in the Mena tourism sector in 2020

104 \ YB 2021

he impact of the Covid-19 pandemic has been felt across the Middle East and North Africa (Mena) region. Data released by the World Travel & Tourism Council (WTTC) at the end of October 2020 revealed that with no changes in barriers to global travel until the end of 2020, the region will see 4.7 million jobs lost and a $175bn decline in the contribution of the travel and tourism sector to the region’s GDP. However, while there is a lot of uncertainty in the market, the Mena Hotel Market Survey conducted by Canada-based Colliers forecasts that a recovery will have started in the fourth quarter of 2020 and continue into 2021.

“We are optimistic for a steady upturn in demand across most major markets in the region next year,” says James Wrenn, associate director of hospitality services for the Mena region at Colliers. “Markets such as those in the UAE with a strong focus on the international leisure segment should lead in terms of clawing back lost market demand on account of Covid-19.” Positive signs There have been signs pointing to this upturn. Hotels in both the Middle East and Africa regions recorded their highest absolute occupancy level in October 2020 since February, according to data from US consultancy STR.

Philip Wooller, area director for the Middle East and Africa region at STR, says occupancy has been climbing steadily since October, with local carriers opening to more destinations. “We expect the region to continue showing occupancy increases during the traditionally strong winter season, especially after the recent announcement of a UKUAE travel corridor,” he adds. “While leisure demand strengthens, the next phase is the prominent return of corporate business, followed by group demand and events such as GITEX [6-10 December 2020] and Arabian Travel Market [ATM], now scheduled for the middle of May 2021.” The Colliers forecast assumes a faster recovery for the UAE and Saudi markets, with the former expected to benefit from the build-up to Expo 2020, which is now expected to start in the fourth quarter of 2021. For Saudi Arabia, the forecast in 2020 assumes restricted pilgrim access to Mecca and Medina during the Ramadan and Haj periods. Both countries are expected to continue benefiting from ongoing tourism initiatives, upcoming megaprojects and domestic tourism, according to the Colliers report. Many cities and countries relied on domestic tourism during 2020 and the question is whether that will be enough to bolster the region’s figures, and whether the trend will sustain itself over the months ahead. “As international travel found itself in the ever-changing crossfire of quarantine rules and Covid-19 case counts [in 2020], staycations became one of the primary drivers of occupancy during the pandemic,” says STR’s Wooller. He adds that countries in the Middle East have done an overall good job generating the domestic demand, and the staycation boost has helped hotels in the region to move the occupancy trend in the right direction. “However, the region is a great hub of international travel and will hope to see high international demand as countries around the world

MIDDLE EAST AND AFRICA HOTEL OCCUPANCY RATES FOR OCTOBER 2020 Occupancy (%)

Change* (% points)

Middle East

44.2

-33.8

UAE

52.7

-31.5

31.1

-38.4

20.1

-67.5

Area

Saudi Arabia Oman *=Year-on-year. Source: STR

start to open in the upcoming quarters,” says Wooller. According to Alex Dichter, senior partner at US-based McKinsey & Company, a full recovery in air travel demand is not expected before 2022 and could be delayed beyond 2024. This is not necessarily related to the economic fallout but to government restrictions and consumer fear, Dichter told the Future Hospitality Hybrid Summit in Saudi Arabia in October 2020. Separating domestic from international outbound tourism, the latter will take longer to recover, said Dichter, with a lot of that driven by the closing of borders but also permanent capacity reductions in the aviation industry, where wider long-haul aircraft have been grounded. Domestic travel Domestic tourism definitely grew in 2020 during the pandemic and was a “welcome replacement” for lost room nights from overseas travellers, says Colliers’ Wrenn. “However, as international travel is set to rebound in 2021, with countries and regional bodies putting in place more user-friendly entry-exit policies and procedures, as well as the positive news around the availability of a vaccine, we do foresee that domestic tourism demand may retract as an overall percentage of the business mix in hotels,” he adds. “However, given the likelihood that corporate travel may take some time

“A full recovery in air travel demand is not expected before 2022 and could be delayed beyond 2024” YB 2021 \ 105

Tourism

ECONOMIC IMPACT ON MIDDLE EAST TOURISM FROM COVID-19 Already affected TRAVEL & TOURISM JOBS LOST IN 2020

TRAVEL & TOURISM GDP LOST IN 2020

GLOBAL ARRIVALS ASSUMPTIONS

4.2

62%

$154bn

If no improvement

4.7

70%

63%

$175bn

71%

International

Domestic

International

Domestic

66%

37%

73%

45%

million

Note=Scenarios are from 13 November 2020. Source: World Travel & Tourism Council

“Dubai launched the #WeWillSee YouSoon and #TillWeMeet Again campaigns to engage with tourists during the lockdown” 106 \ YB 2021

to recover, hotels will certainly look to retain a high portion of domestic leisure business especially during weekends and local holiday periods,” says Wrenn. McKinsey’s Dichter also notes that business tourism will be harder hit than leisure. “We do expect real changes in attitudes towards business travel,” he said during the October Saudi summit. “We’ve had a bit of a perfect storm coming into this with many businesses increasingly concerned about their carbon footprint and Covid-19 created a catalyst for us to try new technologies. We’ve been talking to every chief human resources officer that we can about their company’s plans for travel and most of them are telling us that they have a task force focused on learning how to travel differently.”

Speaking at the Arabian Hotel Investment Conference 2020, Christopher Hewett, vice-president of hospitality at the UAE’s Al-Hamra Group, brought up the domestic travel market. “We have come to value the domestic market more than maybe historically,” he said. “There was a very strong focus on the international segment because they were driving long average length of stay, they were generating 70-80 per cent of room nights. But we have seen that the domestic market is valuable.” Government initiatives Tourism bodies across the region have launched several initiatives to push visitor numbers up. Colliers noted in its survey that Dubai’s Department of Tourism

& Commerce Marketing launched two campaigns in early 2020, including #WeWillSeeYouSoon and #TillWeMeetAgain to engage with tourists during the lockdown period, following it up with #ReadyWhenYouAre in July 2020, when the emirate opened for tourists. Meanwhile, Saudi Arabia reopened heritage site Al-Ula for visitors within the kingdom in November, and the Tourism Ministry has partnered with the local Social Development Bank to create funding systems for tourism projects. Moreover, after suspending umrah for seven months, Saudi Arabia restarted access to pilgrims on 4 October. During the first stage, 6,000 local pilgrims were allowed to perform umrah. The capacity was increased to 20,000 pilgrims a day by 1 November and foreign pilgrims were also permitted to enter. Additionally, the UAE and Bahrain have signed a peace deal with Israel to normalise relations and focus on trade, business and travel. On that note, the 2021 edition of the ATM exhibition is expecting a huge influx of exhibitors and visitors from Israel and further afield. “The interest shown by Israel’s Tourism Ministry as well as other travel professionals based in Israel and international operators specialising in tours to Israel has been extraordinary,” says Danielle Curtis, Middle East exhibition director for Arabian Travel Market. “This is a brand new market for both inbound and outbound operators, and will provide a much-needed boost to regional and international travel. “However, it is not just about direct travel between Israel and the UAE and Bahrain. Due to the burgeoning international flight network between [Israel’s] El-Al, [the UAE’s] Emirates, flydubai, [and] Etihad, and [Bahrain’s] Gulf Air, there will be massive potential for two-centre holidays or stopovers, either during inbound or outbound legs.” Meanwhile, Oman has resumed issuing tourist visas, albeit after a second

lockdown was imposed in October 2020. However, tourists must apply for their visa through a hotel or tourism firm. Travel pass Meanwhile, the global air travel industry is also looking for ways to accelerate international travel and tourism. The International Air Transport Association (IATA) revealed in November 2020 that it is in the final phase of creating a ‘travel pass’ that can hold users’ test and vaccination certificates. The pass can be shared with relevant airlines and authorities and could allow for seamless travel amid strict requirements. The document is planned to be launched in the first quarter of 2021. “IATA and International Airlines Group have been working together in the development of this solution and will undertake a trial to demonstrate that this platform, combined with Covid-19 testing, can reopen international travel and replace quarantine,” the travel body said in a statement. “These are very important initiatives,” says Colliers’ Wrenn. “We see the recovery being led by the leisure segment and making it easier for international tourists to visit your country is imperative in the extremely competitive world of international leisure travel.”

IATA is developing a travel pass that could allow for seamless air travel amid strict requirements

Devina Divecha

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Hoteliers

A NEW MODEL FOR HOSPITALITY Covid-19 provides an opportunity to rethink the Gulf’s hotel and hospitality industry

This article first appeared online on www. meed.com on 13 June 2020

108 \ YB 2021

hen Abu Dhabi’s Department of Culture issued guidelines to hotels in the emirate for the reopening of restaurants, bars, beaches, pools and gyms on 23 May 2020, the announcement marked the start of a new phase of the Covid-19 crisis and brought welcome relief to hospitality businesses, suffering severe cash flow challenges. Yet even before Covid-19, the Gulf’s hoteliers were being challenged by falling revenues, rising costs and an ever growing key count. Visitor numbers to the region have grown strongly over the past 10 years, and in 2019, visitors to the Middle East accounted for about 7 per cent of all tourists globally, according to data from US consultant HVS. That said, the increase in international arrivals has fallen year on year over the past few years. Despite greater numbers of tourists, revenue per available room (RevPar)

and gross operating profit (GOP) has fallen in the region, says HVS president for the Middle East, Asia and South East Asia, Hala Matar Choufany. Speaking at the Mashreq Real Estate and Hospitality Forum webinar on 20 May, Choufany said: “The declining performance on the top line, and increased cost has left many owners with a lot of pressure on Ebidta (earnings before interest, taxes, depreciation and amortisation), and as a result, a devaluation of hotel assets. “On average in the GCC region, we have seen about a 30 per cent decline in hotel values.” The problems for the industry began with the drop in oil prices in 2014 and the subsequent freeze in spending by governments in many Gulf countries says Khalid Anib, CEO of Abu Dhabi National Hotels. This, along with double-digit increases in the number of hospitality

assets (key count) in the region, has been disastrous for owners, he says. Abu Dhabi National Hotels estimates an 80 to 90 per cent drop in RevPar for establishments in the second quarter of 2020, but, says Anib, hotel owners still have the same liabilities including loan interest, staff food and accommodation, insurance, maintenance, utilities and capital expenditure for property upkeep. Even once customers return, he says, the inevitable drop in hotel occupancy and capacity in food and beverage facilities due to safety and social distancing measures will hit revenues. While the hotel owner is the direct loser, the failure of tourist facilities will have a wider-reaching affect. “It has a direct impact on the overall economy… especially in Dubai,” says Anib. Cost control Anib says the risk of contagion from a tourism downturn to the wider economy requires governments, operators, banks and investors to work together to control costs and support a more sustainable industry. “We need support from the government, which should not be limited to reduction of taxes or reduction of utilities,” says Anib. “It should really be comprehensive and ensuring that hotel owners remain resilient.” Bringing travellers back to the region is vital to sustaining the hospitality sector, says Choufany. HVS recently surveyed a large pool of frequent travellers to establish the factors that influenced their hotel choices. An overwhelming 85 per cent of respondents said that their decision would relate to how the government in that region has handled the pandemic, and to the safety, security and quality of the medical system. “This is quite challenging [for hotel owners and operators],” says Choufany. “Because, if I am a great brand, and if I have a beautiful asset in a great location, there is still not much that I can do to really influence the decision.”

“The biggest concerns are health and safety regulations and guest confidence,” says Mark Sawkins, vice-president of operations at Accor, one of the biggest hotel operators in the Middle East and North Africa region. “We believe that the brands are going to be playing a major role, but the government is quite important as well in providing that safety.” To boost customer confidence, Accor has put into place its ‘Allsafe’ label, which ensures that international cleanliness and disease prevention standards are maintained in all of its hotels. Hotels are introducing safety measures such as contactless service for check in and check out, keyless entry systems and digital menus. Increasing delivery services for food and beverage, while ensuring that social distancing is observed in restaurants and other communal areas will also be key developments. Sawkins says Accor is working closely with Dubai Tourism & Commerce Marketing on marketing and awareness campaigns. “It is very important that the destination stays on top of the mind of travellers in Europe, Africa and the Russian and Ukrainian markets,” he says. A model for the future Hotels in the region have largely retained a traditional model of operation, but the struggling industry will need to evolve to survive, says Alison Grinnell, CEO of Ras al-Khaimah (RAK) Hospitality Holding. “A hotel still looks very much like a hotel did 10, 15, 20 years ago,” she says. “This is an opportunity to start to bring in more innovative solutions.” Some of the changes will require collaboration between industry stakeholders, says Grinnell. For example, working together to purchase health and safety equipment could drive down the individual costs for each hotel. “That’s where the power of the government and the big brands can help. They have got the wealth and headcount behind them to be able to bring in some of these solutions.” Danelle Wyper

“The long-term decline in profitability as a result of rising costs and declining levels of spending represents a maturing of the Gulf’s hospitality sector after two decades of stellar growth” YB 2021 \ 109

Aviation

D E L L E C N A C EUROPE’S SECOND WAVE OF COVID-19 TESTS GULF AVIATION Lockdowns in the continent will prolong demand reductions for super-connectors

This article first appeared online on www. meed.com on 9 November 2020

110 \ YB 2021

econd waves of Covid-19 in Europe spell bad news for aviation super-connectors in the GCC. The second round of national shutdowns were announced in Belgium, France and Germany in the autumn. In the UK, Prime Minister Boris Johnson announced a lockdown from 5 November to 2 December for England to prevent a “medical and moral disaster” for the National Health Service. These lockdowns will spur greater commercial disruption at airlines and airports in the Middle East, particularly super-connectors in the Gulf. “In the Gulf, authorities have made substantial effort through testing and discussions with partners to get travel going again, connected through [region-

al] hubs,” Brian Pearce, chief economist of the International Air Transport Association (IATA), told MEED during the agency’s briefing call on 4 November. “But Europe is one of the major markets for travel from Asia via super-connector airlines and hubs in the Gulf, so [the second wave] is going to be damaging.” Operational decline Middle Eastern airlines posted a 90.2 per cent traffic decline in passenger demand during September, improving from a 92.3 per cent drop in August. Capacity tumbled 78.5 per cent during the month, IATA said, and load factor sank 40.9 percentage points to 34.4 per cent. Air cargo performance remained subdued, but appears to be on track for re-

covery. Middle Eastern carriers reported a decline of 2.5 per cent in year-on-year international cargo volumes in September, marking a significant improvement from the 6.7 per cent fall in August. IATA said regional airlines aggressively adding capacity following the peak of the Covid-19 crisis has led to a “sharp V-shaped recovery” in the region’s air cargo sector. In October, the agency made further downward revisions to its forecast for passenger traffic in the Middle East. Full-year 2020 passenger numbers to, from and within the Middle East are forecast to reach only 30 per cent of 2019 levels, down significantly from the 45 per cent that was projected in July. This means the region will record around 60 million travellers in 2020 compared to 203 million in 2019. Regional demand is expected to grow to 45 per cent of 2019 levels next year (90 million), but a full return to 2019 levels is not expected until late 2024. “A few months ago, we thought that a fall in passenger numbers to 45 per cent of 2019 levels was as bad as it could get,” Muhammad al-Bakri, IATA’s regional vice president for Africa and the Middle East, said in late October. “But the second wave, combined with continuing travel restrictions and quarantines, will result in passenger numbers in the region being less than a third of what we had in 2019. “This heightens the urgency for governments to adopt systematic Covid-19 testing to restart travel and curb the economic devastation that is being caused because people cannot travel.” Cash crunch Globally as well as in the Middle East, airlines appear unable to cut costs fast enough to make up for shrinking revenues. According to an IATA estimate in late October, maintaining last year’s level of labour productivity would require employment to be cut by about 40 per cent. Further jobs losses or pay cuts

would be required to bring unit labour costs down to the lowest point of recent years, a reduction of 52 per cent from third-quarter 2020 levels. However, as IATA explained, despite such an unprecedented reduction, total costs will still be higher than revenues in 2021, and airlines “will continue to burn through cash”. IATA’s director general and CEO, Alexandre de Juniac, said: “There is little good news on the cost front in 2021. Even if we maximise our cost cutting, we still won’t have a financially sustainable industry in 2021.” Some of the region’s largest airlines – including the Gulf’s super-connectors – have cut thousands of jobs and idled their largest jets as Covid-19 shrinks 2020 revenues. Kuwait’s Jazeera Airways laid off 200 employees across all business lines, primarily pilots and cabin crew, in September. The redundancies followed 300 layoffs in March. In the UAE, Etihad recently extended the period of reduced pay for its staff until end-2020, while Emirates has put a significant number of its remaining A380 pilots on unpaid leave for 12 months. Accommodation, medical cover and other allowances remain in place. The move comes after Emirates asked cabin crew to take unpaid leave, believed to be between one and three months, in August. On 1 October, IATA said 1.7 million Middle East jobs will be lost in aviation and industries supported by aviation in 2020. The figure is nearly half of the 3.3 million aviation-related jobs in the region. Furthermore, 323,000 jobs will be lost in aviation alone in 2020. This is around 46 per cent of the region’s total 595,000 aviation-related jobs. “Normally, aviation contributes $213bn to the region’s GDP,” Al-Bakri said. “Closing borders has reduced this to $108bn. That loss has severe consequences, not least of which is the loss of 1.7 million jobs.” Neha Bhatia

“The second wave, along with continuing travel restrictions and quarantines, will result in passenger numbers being less than a third of 2019 levels” YB 2021 \ 111

Awards

GCC’s best projects drive innovation and sustainability Twenty-seven regional winners from across the GCC have been honoured for demonstrating excellence in architecture, construction and engineering

Last year’s line-up of winners at the 2019 MEED Projects Awards ceremony

“Shortlisted firms have delivered an extremely successful portfolio of projects amid challenging economic conditions” 112 \ YB 2021

EED announced the finalists and national winners for the 10th edition of its MEED Projects Awards in December. The awards were a celebration of the GCC’s dynamic projects industry, which is valued at $3.1tn, according to MEED Projects’ database. A total of 88 projects from across the region have been honoured in 19 separate categories, including Transport Project of the Year, Healthcare Project of the Year and Digital Infrastructure Project of the Year, among others. UAE-based projects dominate the honours, with schemes such as The Address Sky View Project, CLYMB Abu Dhabi and Mediclinic Parkview Hospital receiving regional winner status in the Hotel Project of the Year, Tourism and Leisure Project of the Year and Healthcare Project of the Year categories, respectively. Projects in Saudi Arabia have also received multiple honours, and excelled within the Tourism and Leisure categories, as well as Social, Cultural and Heritage categories, moving the kingdom one step closer to realising its Vision 2030 goals.

From the Al-Zour Refinery in Kuwait to the Aluminium Bahrain B.S.C. Line 6 Expansion Project and the Mazoon Dairy Project in Oman, the entire region is striving towards contributing to the GCC’s economic success and continued development. With an estimated 6,722 active projects planned or under way in the region, this market is seen as strategically vital to the development of the GCC as it seeks to drive growth, provide new jobs, drive economic diversification, increase productivity, and place a greater focus on sustainability and social cohesion. Winning entries Key players in the GCC projects industry including ASGC, Acwa Power, Saudi Water Partnership Company and ALEC Engineering & Contracting constitute just some of the winning organisations that were selected out of hundreds of entries for their significant contribution to the region’s top-quality projects. Companies across the UAE, Saudi Arabia, Kuwait, Bahrain and Oman were honoured across numerous categories for

THE COMPLETE LIST OF WINNERS Category

Project name

Company

Commercial Property Project of the Year

The Galleria Al-Maryah Island

Gulf Related

Transport Project of the Year

Dubai International Airport Improvement Works

ASGC

Road Project of the Year

Haradh & Hawiyah Highway Improvements – Interchanges & Airstrip

China Harbour Engineering Arabia Company

Power Generation Project of the Year

Noor Abu Dhabi Photovoltaic Independent Power Project (IPP)

Emirates Water & Electricity Company

Power Transmission Distribution & Substation

Construction of 400kV underground cable and overhead lines from 400kV Sohar IPP-3 GS to 400kV Sohar Fee Zone GS

Larsen & Toubro (India) and Larsen & Toubro

Education Project of the Year

Mohammed bin Rashid Library

ASGC

Water Project of the Year

Shuaibah

Acwa Power

Water Project of the Year

Shuaibah

Saudi Water Partnership Company

Water Project of the Year

Shuaibah

Abengoa

Industrial Project of the Year

Aluminium Bahrain B.S.C. Line 6 Expansion Project

Aluminium Bahrain

Hotel Project of the Year

The Address Sky View Project

Arabian Construction Company

Healthcare Project of the Year

Mediclinic Parkview Hospital

ASGC

Healthcare Project of the Year

Mediclinic Parkview Hospital

Stantec

Sustainability Medal 2020

An Innovative Hybrid Solar Desalination Cycle

King Abdullah University of Science and Technology, Saudi Arabia

Small Project of the Year

SELA 2

TP3 & Sela-Sport

Digital Infrastructure Project of the Year

Saline Water Conversion Corporation Water Dispatch Centre

Khatib & Alami

Oil & Gas Project of the Year

ENOC Processing Company Refinery Expansion

ENOC Processing Company

International Project of the Year

Ismailia Road Tunnels (Tahia Masr Road Tunnels)

The Petroleum Projects & Technical Consultation Company (Petrojet)

Megaproject of the Year

Noor Abu Dhabi Solar Plant

Sterling & Wilson Solar

Social, Cultural & Heritage Project of the Year

Atturaif Living Museum (UNESCO World Heritage Centre)

BuroHappold Engineering

Tourism & Leisure Project of the Year

CLYMB Abu Dhabi

AECOM

Residential Project of the Year

The Residences at Marina Gate 1 & 2

ALEC Engineering & Contracting

Innovation Medal 2020

3D Printed Single Family House under the Building Technology Stimulus Initiative for the Saudi Arabian Ministry of Housing

Consolidated Contractors Company

Engineer of the Year

Sachin Watarkar

Labuksh Voltas Engineering Services & Trading

MEED Award for Excellence in Civil Engineering MEED Award for Enabling Diversification MEED Award for Environmental Protection

Al-Madinah al-Munawwarah Wastewater Treatment and Sludge Management, Saudi Arabia

Khatib & Alami

EDITOR'S SPECIAL AWARDS

Expo 2020 Thematic Districts & Plaza Pavilions

AF Construction

Kuwait Environmental Remediation Programme (KERP)

Kuwait Oil Company

their extensive efforts in delivering some of the GCC’s best projects. “Project owners, contractors and consultants across the region have delivered an extremely successful portfolio of projects amid challenging economic conditions,” said MEED’s editorial director Richard Thompson. “The shortlisted companies have demonstrated ambition and innovation, and achieved brilliance across architecture, engineering and construction. We are thrilled to recognise the organisations that have been shortlisted and given na-

tional or regional winner status, and congratulate all the individuals and teams.” The regional winners were recognised at an awards reception on 16 December 2020 at the Address Downtown, Dubai. The MEED Projects Awards is supported by construction partner Al-Bawani, steel manufacturing partner Emirates Steel, supporting partner Khatib & Alami, strategic partners Honeywell, DUPOD by Amana, VVIP partners AFC, ALEC, AlSalam Palace Museum and Samsung Engineering, and VIP partners ACE, ASGC, GHD and Petrojet.

YB 2021 \ 113

Awards

Gulf Capital 2020 SME Awards celebrate resilience amid Covid The 2020 Gulf Capital SME Awards saw 300+ entries from small and medium businesses that displayed agility during the global health crisis

G “This year, we wanted to reach out to a larger group of SMEs and give them broader support” 114 \ YB 2021

ulf Capital and MEED-GlobalData have revealed the winners of the ninth edition of the Gulf Capital SME Awards. The awards have been a remarkable celebration of the small and medium-sized businesses that are spearheading commercial growth in the region. In their ninth year of supporting and celebrating SMEs, Gulf Capital and MEED-GlobalData came together and launched a multi-channel programme of activities to provide SMEs with the information, intelligence and support needed to make efficient business decisions and adapt corporate strategies to achieve success following Covid-19. Webinar series The Gulf Capital SME Insights LIVE bi-monthly webinars – which started in July and saw more than 800 users tune in during a two-month period – discussed topics such as technology, finance, legal

and communications strategies. Featuring a panel of industry leaders, including Oracle, IBM, SAP, The Fund – Dubai SME, DTEC, Hub71, startAD and in5, the webinars addressed the key challenges faced by SMEs in the region. Additional dialogue between participants and individual panellists for further insight and awareness took place through virtual roundtables. The successful webinar series culminated in a virtual summit, the Gulf Capital SME Insights Summit, on 9 September 2020, when reputed thought leaders came together to solve pertinent issues and help SMEs navigate business challenges, such as liquidity and debt management, corporate governance and negotiations, as well as investment readiness to attract investors and expand. The Gulf Capital SME Insights programme received great feedback for its content-led discussions and efforts to

In partnership with MEED-GlobalData

build a community to support the SME sector through the Covid-19 crisis. As part of the programme, the awards entries recorded more than 350 registrations on the website, with 300+ entries submitted by companies in the GCC. After being shortlisted, finalists across the 17 categories proceeded to the judging phase, undertaken by an independent panel of more than 50 representatives from global and regional businesses, government stakeholders and industry experts. Karim el-Solh, CEO of Gulf Capital, said: “The awards programme has evolved to become a wider initiative that supports SMEs across the Gulf region, and this couldn’t have come at a better time. “This year, we wanted to reach out to a larger group of SMEs and give them broader support, over and above the recognition they get from the awards. Gulf Capital SME Insights was born to provide knowledge transfer and networking opportunities to SMEs across the GCC. This includes a series of live webinars, a virtual conference and an information hub, all of which were added to the awards programme, now in its ninth year. “Support, mentorship and recognition are now the three pillars of our programme. I hope this will contribute to building and maintaining a healthier SMEs ecosystem amidst the current turbulence and that it will guide SMEs to safer shores post-crisis.” Hard work rewarded MEED’s editorial director Richard Thompson added: “The Gulf Capital SME Awards recognise small and medium-sized businesses, whose talent and hard work has enabled them to not merely survive, but also to thrive through the exceptionally difficult challenges of 2020. “The way that they have adapted their strategies and business models during this challenging period is incredible. “The very large number of entries received for this year’s awards is a testament to the resilience and determination

WINNERS AND HIGHLY COMMENDED COMPANIES Category

Company

Business Innovation of the Year Disruption of the Year

EVOTEQ

Micro Business of the Year

Fruitful Day

Customer Focus of the Year

Belly Baby Mom

Lock & Stock

Mastercard Technology Startup of the Year BankOnUs Startup Business of the Year

IQ fulfillment Snackat Café

New Entrepreneur of the Year

D14.ai Contractors Direct

CSR Programme of the Year

The Happy Box

Sustainable Business of the Year

ONE MOTO – Electric Vehicles

Entrepreneur of the Year

Karen Remo, New Perspective Media Group

Emirati Business of the Year

Kimberley, Bait al-Kandora Eng. Ahlam Ali Ibrahim, New Step Solar Energy

Gulf Capital Business of the Year

Linen Obsession Textile Trading FEDS

People and Culture of the Year B2B Small Business of the Year

The Hanging House

B2C Small Business of the Year

QidZ

Business Leader of the Year

Atheeqe Ansari, Electric Way Ali Seto, FEDS

Digital Business of the Year

Artsmiley Absolutely Digital

Winner

Linen Obsession Textile Trading COEGA Sunwear

Highly commended

to succeed of entrepreneurs and SMEs in the UAE. The ambition, energy and flexibility of these organisations is inspiring, and is why I know that we can continue looking forward to long-term sustainable success in this region. I am delighted to be able to celebrate the remarkable achievements of these vital organisations.” The winners from the 17 categories were announced at an awards reception on Wednesday December 9 2020 at the Address Downtown, Dubai. The Gulf Capital SME Awards are supported by founding partner Gulf Capital; SME payments partner Mastercard; association partners DTEC, in5, She Is Arab, startAD and TiE Dubai; communications partner Four Communications; endorsing partners Dubai SME and Khalifa Fund for Enterprise Development; knowledge and research partner Diligencia Consulting; leadership partner Young Arab Leaders; and strategic partner Beehive P2P.

YB 2021 \ 115

Country Profile

ALGERIA Algeria’s economy has been hit hard by the 2020 decline in global oil prices, which have dramatically diminished the oil revenues that equate to about 85 per cent of the country’s total exports and 50 per cent of government revenue. While the IMF estimates that Algeria’s GDP will contract by only 5.5 per cent in 2020 in real terms, the nominal value of GDP is set to shrink by $22bn, or 13 per cent. In 2021, the IMF’s projection of 3.2 per cent real GDP growth is expected to be accompanied by a nominal GDP recovery of just $7bn. In its budget, Algeria has more than doubled its fiscal deficit from 5.6 per cent in 2019 to 11.5 per cent in 2020.

Algiers

PRESIDENT

Abdelmadjid Tebboune (since 19 December 2019)

ACTIVE PROJECTS

PRIME MINISTER

Abdelaziz Djerad

(since 28 December 2019) OFFICIAL NAME

People’s Democratic Republic of Algeria CAPITAL

Algiers CURRENCY

Algerian dinar POPULATION (2020)

43.9 million

Execution $40.1bn

square 2.4 million kilometres

20 20

2,650

6,026

3.2 155 3.4 3.8 -11.4 66.6 -16.6

3,900

-5.5 147 3.3 3.5 -11.5 57.2 -10.8

0.8 169 3.9 2.0 -5.6 46.3 -10.1

6,757

1.4 174 4.1 4.3 -4.5 38.2 -9.6

CONTRACT AWARDS

1.3 167 4.0 5.6 -6.6 27.3 -13.2

15%

2021f

40%

Transport

2020e

Power & water

7,087

2019

14%

2018

*=As of November 2020. Source: MEED Projects

e=Estimate; f=Forecast. Source: IMF

MAJOR PROJECT SCHEMES Owner Sonelgaz Ministry of Transport Ministry of Housing Sonatrach MEM EMA Sonatrach Anesrif MEM/MEI Anesrif

Value ($m) 34,000 6,000 6,000 6,000 3,600 3,070 3,000 2,000 2,000 2,000

Due 2030 2027 2024 2026 2024 2025 2023 2024 2023 2023

PV=Photovoltaic; MEM=Ministry of Energy & Mining; EMA=Metro d’Alger; Anesrif=Agence Nationale d’Etudes et de Suivi de la Realisation des Investissements Ferroviaires; MEI=Ministry of Energy & Industry. Source: MEED Projects

116 \ YB 2021

38%

2017

KEY ECONOMIC INDICATORS

Project Renewable energy programme (22GW) El-Hamdania sea port development Hassi Messaoud New City Bled el-Hadba phosphate plant in Tebessa Tafouk 1 solar PV power plants programme Algiers metro line expansion: phase 2 Tinrhert gas field development Es Senia-Ain Temouchent Beni Saf rail line electrification Oued Keberit fertiliser plant East mining line

Construction

15%

33% Energy & industry 39%

AREA

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

Pre-execution $122.3bn

COVID-19 FIGURES* Total recorded cases Thousand

89+

Total recorded deaths

2,527

Testing volume

Tests per thousand people

*=As of 9 December 2020

BAHRAIN

Manama

The passing of Bahrain’s prime minister Sheikh Khalifa bin Salman al-Khalifa on 11 November set the seal on a year of pronounced generational change in the Gulf. With 51-year-old Crown Prince Salman bin Hamad al-Khalifa, already deputy prime minister, swiftly appointed prime minister to succeed the 84-yearold Sheikh Khalifa, King Hamad quelled speculation about possible alternative candidates. Despite the pandemic and Manama’s weakened fiscal health in 2020, Bahrain was the only country in the region to significantly increase the value of its project contract awards, which rose by 25 per cent in the six months from March to August compared with 2019.

HEAD OF STATE

King Hamad bin Isa al-Khalifa (since 1999)

ACTIVE PROJECTS

PRIME MINISTER

Prince Salman bin Hamad al-Khalifa (since 11 Nov 2020)

OFFICIAL NAME

Kingdom of Bahrain CAPITAL

Manama CURRENCY

Bahraini dinar POPULATION (2020)

1.7 million

Execution $14.7bn

780 square kilometres

PHOTOGRAPH: FLICKR

1,831 *

2,915 19

*=As of November 2020. Source: MEED Projects

MAJOR PROJECT SCHEMES

Al-Dur 3 IWPP Askar waste-to-energy plant King Abdullah bin Abdulaziz Medical City Liquefied natural gas distribution centre Aromatics complex

20 20

2.3 36.6 23.7 2.8 -9.2 131 -5.7

5,111

-4.9 34.6 22.9 0.0 -13.1 128 -8.0

1.8 38.6 26.0 1.0 -10.6 103 -2.1

1.8 37.7 25.4 2.1 -11.9 95.0 -6.5

6,9117

4.3 35.5 24.4 1.4 -14.2 88.1 -4.1

CONTRACT AWARDS

2021f

42%

2020e

10%

Transport

5,899

2019

Power & water

2018

e=Estimate; f=Forecast. Source: IMF

Sitra ammonia and urea plant expansion

38%

21%

2017

KEY ECONOMIC INDICATORS

Project New Bahrain International airport Integrated public transport network Sitra refinery modernisation programme Bander al-Seef

Construction

43%

30% Energy & industry 10%

AREA

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($k) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

Pre-execution $50.7bn

Owner Value ($m) Bahrain Airport Company 10,000 Ministry of Transport 7,900 Bapco 5,700 Eskan Bank 2,700 Gulf Petrochemical 2,200 Industries Company (GPIC) MEW 1,200 MoWMU 1,000 Ministry of Housing 1,000 National Oil & Gas Authority 600 GPIC 500

Due 2028 2024 2022 2024 2026 2024 2024 2022 2024 2023

Bapco=Bahrain Petroleum Company; IWPP=Independent water and power project; MEW=Ministry of Electricity & Water; MoWMU=Ministry of Municipalities Affairs & Urban Planning. Source: MEED Projects

COVID-19 FIGURES* Total recorded cases Thousand

88+

Total recorded deaths

341

Testing volume

Tests per thousand people

1,360+

*=As of 9 December 2020

YB 2021 \ 117

Country Profile

EGYPT Egypt, the region’s most populous country and third-largest economy, is projected by the IMF to defy global trends and exhibit the only positive real GDP growth rate in the region, at 3.5 per cent, in 2020. IMF director for the Middle East and Central Asia, Jihad Azour, credits this to the government’s expansion of social safety nets and adoption of health and economic protection measures. He also pointed to the Egyptian Central Bank’s slashing of interest rates by 300 basis points in April, followed by 50 basis point in September. The IMF has supported Egypt with loans, including $2.8bn from its rapid finance facility in April and $5.2bn in June.

Cairo

PRESIDENT

Abdul Fattah al-Sisi (since June 2014)

ACTIVE PROJECTS

PRIME MINISTER

Mostafa Madbouly (since June 2018)

OFFICIAL NAME

Arab Republic of Egypt CAPITAL

Cairo

CURRENCY

Egyptian pound

Ain Sokhna to Al-Alamein high-speed railway Alamein petrochemicals complex Al-Habtoor City in Cairo

Owner Atomstroyexport ACUD ACUD Palm Hills Developments Petrobel Ministry of Petroleum El-Mostakbal Company for Urban Development Ministry of Transport Echem Al-Habtoor Group

Value ($m) 30,000 20,000 20,000 18,000 12,000 10,200

Due 2028 2029 2030 2034 2021 2026

10,000

2030

9,000 8,500 8,500

2030 2024 2025

ACUD=Administrative Capital For Urban Development; Petrobel=Belayim Petroleum Company; Echem=Egyptian Petrochemicals Holding Company. Source: MEED Projects

118 \ YB 2021

9,472 *

17,942

COVID-19 FIGURES* Total recorded cases Thousand

119+

Total recorded deaths

3,790

Testing volume

Tests per thousand people

*=As of 9 December 2020

PHOTOGRAPH: FLICKR

MAJOR PROJECT SCHEMES

Future City

20 20

*=As of November 2020. Source: MEED Projects

e=Estimate; f=Forecast. Source: IMF

Project El-Dabaa nuclear power plant Entertainment district New Administrative Capital Badya city project in 6th of October City Zohr gas field development project Salamat field

2.8 375 3.6 6.2 -8.1 90.6 -4.2

28,049

3.5 362 3.6 5.7 -7.5 86.6 -3.2

5.6 302 3.0 13.9 -7.4 83.8 -3.6

CONTRACT AWARDS 22,678

5.3 250 2.6 20.9 -9.4 92.7 -2.4

16%

4.1 237 2.5 23.5 -10.4 103 -6.1

14%

Transport

2021f

Power & water

13,661

2020e

17% 19%

2019

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($k) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

2018

52%

24% Energy & industry 18%

1 million square kilometres 2017

Construction

40%

AREA

KEY ECONOMIC INDICATORS

Pre-execution $406.4bn

103.2 million

Execution $70bn

POPULATION (2020)

IRAN Iran, the Middle East’s coronavirus epicentre, crossed the 1 million-case mark on 3 December. Two days later, the country’s death toll passed 50,000, however the number of daily reported deaths had reduced in the previous days. Iran’s high oil dependence, little build up in Covid-19 testing and weaker project activity have all been compounded by renewed US sanctions, which have led to the sharp devaluation of its currency.

Tehran

HEAD OF STATE

Supreme Leader Ali Khamenei (since 1989)

ACTIVE PROJECTS

PRESIDENT

Hassan Rouhani (since August 2013)

OFFICIAL NAME

Islamic Republic of Iran CAPITAL

Tehran CURRENCY

Iranian rial POPULATION (2020)

84 million

Execution $72.4bn

square kilometres

584

611

652

5.3 31.2 -1.9 40.3 6.1

7.0 41.0 -5.5 44.7 1.1

7.3 30.5 -9.5 45.4 -0.5

7.7 30.0 -6.9 40.4 0.3

3,726

436

5.3 9.6 -1.8 38.2 3.5

431

3,255

Nominal GDP ($bn)

3.2

20 20

-5.0

9,025

-6.5

-5.4

3.7

16,629

Real GDP growth (% change)

CONTRACT AWARDS

2021f

17%

2020e

Transport

10,980

2019

Power & water

25%

2018

29%

2017

KEY ECONOMIC INDICATORS

*=As of November 2020. Source: MEED Projects

e=Estimate; f=Forecast. Source: IMF

MAJOR PROJECT SCHEMES Project South Pars gas field development Tehran metro North Pars gas field development Kish gas field development Masjed-e Soleiman fertiliser complex Golshan gas and Ferdowsi oil and gas fields development Tous gas field development Farsi offshore block exploration and development Imam Khomeini Airport City North-South corridor project

44% Energy & industry 77%

1.7 million

GDP per capita ($k) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

Construction

AREA

Pre-execution $173.3bn

Owner POGC TUSROC POGC NIOC MISPC NIOC ICOFC IOOC MRUD MRUD

Value ($m) 91,000 16,500 16,000 13,000 10,000 8,400 6,000 5,000 4,000 4,000

Due 2026 2026 2028 2025 2026 2025 2026 2026 2024 2026

ICOFC=Iranian Central Oil Fields Co; IOOC=Iranian Offshore Oil Co; MISPC=Masjed Soleiman Petrochemical Industries; MRUD=Ministry of Roads & Urban Development; NIOC=National Iranian Oil Co; POGC=Pars Oil & Gas Co; TUSROC=Tehran Urban & Suburban Railway Operation Co. Source: MEED Projects

COVID-19 FIGURES* Total recorded cases Thousand

1,062+

Total recorded deaths

50,594

Testing volume

Tests per thousand people

80+

*=As of 9 December 2020

YB 2021 \ 119

Country Profile

IRAQ After decades of sanctions, insurrection and war, Baghdad had been focusing on repairing its severely damaged infrastructure when the global pandemic hit. Despite a modest build-up in testing capacity, Iraq’s dependence on oil and 65 per cent decline in project contract award activity has left the country in the midst of a dire fiscal crisis. Baghdad is struggling to pay public sector salaries and was forced to borrow from the Central Bank of Iraq over the summer. Low oil revenues meant the state’s monthly profits are covering just over 50 per cent of its expenses. Security is also a concern for contractors in the country.

Baghdad

PRESIDENT

Barham Salih

ACTIVE PROJECTS

(since October 2018) PRIME MINISTER

Mustafa al-Kadhimi (since May 2020)

OFFICIAL NAME

Republic of Iraq CAPITAL

Baghdad CURRENCY

Iraqi dinar POPULATION (2020)

40.6 million

Execution $45.2bn

square kilometres

9,394

5,976 * 20 20

2.5 196 4.8 1.0 -13.1 75.0 -12.1

7,376

-12.1 178 4.4 0.8 -17.5 68.3 -12.6

4.4 230 5.9 -0.2 0.9 46.9 1.1

8,701

-0.1 226 5.9 0.4 7.8 48.9 6.7

-2.5 195 5.3 0.1 -1.6 58.9 1.8

CONTRACT AWARDS

2021f

2020e

Transport

3,160

2019

Power & water

14%

2018

24%

2017

KEY ECONOMIC INDICATORS

*=As of November 2020. Source: MEED Projects

e=Estimate; f=Forecast. Source: IMF

MAJOR PROJECT SCHEMES

COVID-19 FIGURES* Owner

Iraq strategic crude oil export pipeline

Ministry of Oil

Basra refinery upgrade

Value ($m)

Due

Total recorded cases

38,300

2025

SRC

15,000

2023

11GW gas-fired power plants programme

Ministry of Electricity

15,000

2025

Nebras petrochemicals complex

Ministry of Industry & Minerals

8,000

2026

Nahrawan residential development

Ministry of Construction & Housing

5,000

2025

Atrush oil field: Erbil oil refinery

KRG Ministry of Natural Resources

4,800

2025

Port of Fao oil refinery

Ministry of Oil

4,250

2025

Zubair oil refinery

Eni

4,000

2025

Testing volume

Expressway 2

Ministry of Construction & Housing

4,000

2024

Baghdad metro

Ministry of Transportation

3,300

2025

90+

SRC=South Refineries Company. Source: MEED Projects

Thousand

568+

Total recorded deaths

12,460

Tests per thousand people

*=As of 9 December 2020

PHOTOGRAPH: FLICKR

Project

120 \ YB 2021

56%

35% Energy & industry 33%

438,317

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($k) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

Construction

27%

AREA

Pre-execution $328.3bn

JORDAN The Covid-19 crisis has presented a major challenge for Jordan’s embattled economy, which has faced trouble both in maintaining its fiscal stability and making progress with corrective structural reforms. While Jordan’s fiscal and economic circumstances had been stabilising recently thanks to international support, the cessation of international travel in 2020 was especially harmful to the country’s travel and tourism segment, which plays an outsized role in Jordan’s service-led economy. By September, there had been an 86 per cent drop in project contract awards compared with 2019.

Amman

HEAD OF STATE

King Abdullah II

ACTIVE PROJECTS

(since 1999)

PRIME MINISTER

Bisher al-Khasawneh (since 7 October 2020)

OFFICIAL NAME

Hashemite Kingdom of Jordan CAPITAL

Amman CURRENCY

Jordanian dinar POPULATION (2020)

10.2 million

Execution $3.6bn

square kilometres

MAJOR PROJECT SCHEMES

Amman metro rail 220MW nuclear power plant Upgrade of Al-Mafraq/Al-Safawi to Al-Karameh border terminal New main brine intake pumping station at the Dead Sea Jordan renewable energy: Round 3 Amman bus rapid transit project

151

342 19

*=As of November 2020. Source: MEED Projects

e=Estimate; f=Forecast. Source: IMF

Car production plant

20 20

3.4 44.9 4.3 1.4 -7.4 88.8 -5.7

1,168

-5.0 42.6 4.2 -0.3 -9.1 88.4 -6.8

2.0 44.6 4.4 0.7 -6.0 78.0 -2.3

1.9 43.0 4.3 4.5 -4.7 75.1 -6.9

3,259

2.1 41.5 4.3 3.6 -3.6 76.0 -10.6

CONTRACT AWARDS

2021f

18%

2020e

23%

Transport

871

2019

Power & water

22%

2018

66%

2017

KEY ECONOMIC INDICATORS

Project Maan petroleum refinery complex Jordan oil shale project Zarqa refinery: Phase 4

3% Energy & industry 54%

89,342

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($k) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

Construction

AREA

Pre-execution $22.6bn

Owner Value ($m) Private developers 6,800 Questerre 3,000 JPRC/Infra Mena 1,600 Siag Arabian Auto 1,500 Manufacturing Company GAM 1,200 JAEC/KAERI 800

Due 2025 2025 2024

MPWH

576

2024

Arab Potash Company

500

2023

MEMR GAM

500 450

2022 2021

2025 2025 2025

GAM=Greater Amman Municipality; JAEC=Jordan Atomic Energy Commission; JPRC=Jordan Petroleum Refinery Company; KAERI=Korea Atomic Energy Research Institute; MEMR=Ministry of Energy & Mineral Resources; MPWH=Ministry of Public Works & Housing. Source: MEED Projects

COVID-19 FIGURES* Total recorded cases Thousand

247+

Total recorded deaths

3,116

Testing volume

Tests per thousand people

240+

*=As of 9 December 2020

YB 2021 \ 121

Country Profile

KUWAIT Before the spread of Covid-19 around the world, Kuwait was already facing a significant budget deficit. The outlook for the oil-exporting country, which derives 90 per cent of government revenues from hydrocarbon receipts, has significantly worsened due to the pandemic and lower global oil prices. The National Bank of Kuwait has predicted the fiscal shortfall could reach 43.5 per cent of GDP in the 2020/21 fiscal year. Meanwhile, the appointment in late September of Kuwaitâ&#x20AC;&#x2122;s 83-yearold crown prince as the new emir, succeeding the late Sheikh Sabah al-Ahmed al-Jaber al-Sabah, revealed a desire to retain the succession between elderly siblings of the Al-Sabah family, rather than skip generations.

Kuwait City

HEAD OF STATE

Emir Sheikh Nawaf al-Ahmad al-Jaber al-Sabah

ACTIVE PROJECTS

(since 29 September 2020) PRIME MINISTER

Sheikh Sabah al-Khalid al-Sabah (since 19 November 2019) OFFICIAL NAME

State of Kuwait CAPITAL

Kuwait City CURRENCY

Kuwaiti dinar POPULATION (2020)

4.3 million

Execution $42.6bn

square kilometres

2,911

3,309

20 20

*=As of November 2020. Source: MEED Projects

MAJOR PROJECT SCHEMES Owner PAHW Kapp/Part Kapp PAHW DGCA MPW KOC Kipic Kapp/Part DGCA

Value ($m) 20,100 18,000 15,000 13,900 12,000 10,500 10,500 10,000 10,000 8,500

Due 2030 2030 2026 2035 2030 2030 2030 2025 2025 2025

DGCA=Directorate General of Civil Aviation; Kapp=Kuwait Authority for Partnership Projects; KOC=Kuwait Oil Company; Kipic=Kuwait Integrated Petroleum Industries Company; MPW=Ministry of Public Works; PAHW= Public Authority for Housing Welfare; PART=Public Authority for Roads & Transportation. Source: MEED Projects

COVID-19 FIGURES* Total recorded cases Thousand

144+

Total recorded deaths

897

Testing volume

Tests per thousand people

270+

*=As of 9 December 2020

PHOTOGRAPH: FLICKR

e=Estimate; f=Forecast. Source: IMF

122 \ YB 2021

0.6 116 23.1 2.3 -10.7 36.6 -2.8

6,105

-8.1 109 22.3 1.0 -8.5 19.3 -6.8

0.4 135 28.5 1.1 5.4 11.8 9.4

9,891

1.2 141 30.4 0.6 9.0 14.8 14.5

-4.7 121 27.2 1.5 6.3 20.5 8.0

CONTRACT AWARDS

2021f

30%

2020e

17%

Transport

16,986

2019

Power & water

2018

10% 30%

2017

KEY ECONOMIC INDICATORS

Key project schemes South Al-Mutlaa City Kuwait City Metropolitan Rapid Transit Al-Zour North IWPP Al-Khiran Residential City development North Kuwait airport Mubarak al-Kabeer seaport development Ratqa Lower Fars heavy oil handling facilities Al-Zour petrochemicals complex Kuwait National Rail Road Kuwait International airport expansion

38%

31% Energy & industry 15%

17,818

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($k) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

Construction

30%

AREA

Pre-execution $200bn

LEBANON Lebanon rode into 2020 on a wave of mass street protests over economic stagnation and government corruption, as well as the dimming prospects for near-term economic growth. With the onset of the Covid-19 pandemic, the IMF’s revised April 2020 forecast pointed to a 12 per cent economic contraction and 15 per cent fiscal deficit. Now even this is wide of the mark. Of even greater concern than the impact of the Covid-19 crisis are Lebanon’s structural issues. Decades of unsustainable macroeconomic policy have culminated in the implosion of Lebanon’s currency peg and remittance-based financial order.

Beirut

HEAD OF STATE

Michel Aoun

ACTIVE PROJECTS

(since October 2016) PRIME MINISTER

Saad al-Hariri

(returned as PM in October 2020) OFFICIAL NAME

Lebanese Republic

CAPITAL

Beirut

CURRENCY

Lebanese pound POPULATION (2020)

6.8 million

Execution $2.4bn

square kilometres

620 80 *

*=As of November 2020. Source: MEED Projects

e=Estimate; f=Forecast. Source: IMF

MAJOR PROJECT SCHEMES

PHOTOGRAPH: FLICKR

20 20

-25.0 18.7 2.74 85.5 -16.5 172 -16.3

337

-6.9 52.5 7.66 2.9 -10.5 174 -27.4

-1.9 55.0 8.01 4.6 -11.3 155 -28.2

CONTRACT AWARDS

0.9 53.1 7.79 4.5 -8.6 150 -26.3

17%

1,410

1.5 51.2 7.63 -0.8 -8.9 146 -23.5

Transport

2020e

2019

49%

626

2018

Power & water

2017

33%

2016

KEY ECONOMIC INDICATORS

Project Lebanon wind power programme Rehabilitation of road links 300MW solar photovoltaic farms 300MW wind power project 50MW concentrated solar power plant, Hermel Bekaa to Beirut road tunnel Amchit Mall Al-Ghadir wastewater treatment plant upgrade Ghazir sewer networks system, Kesrouane Expansion and development of Tripoli port

33%

0% Energy & industry

10,400

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

Construction

60%

AREA

Pre-execution $5.9bn

Owner LCEC CDR MEW MEW LCEC CDR Dolmen CDR CDR CDR

Value ($m) 1,400 600 300 300 300 250 200 161 150 120

Due 2024 2025 2023 2023 2023 2026 2023 2025 2023 2024

CDR=Council for Development & Reconstruction; LCEC=Lebanese Centre for Energy Conservation; MEW=Ministry of Energy & Water. Source: MEED Projects

COVID-19 FIGURES* Total recorded cases Thousand

139+

Total recorded deaths

1,115

Testing volume

Tests per thousand people

250+

*=As of 9 December 2020

YB 2021 \ 123

Country Profile

MOROCCO

Rabat

For Morocco, 2020 has not only brought economic hardship but also – with the breaking down of a 29-year ceasefire between Rabat and the Polisario Front movement in the Western Sahara – the renewal of conflict in Rabat’s hotly disputed back yard. In its October 2020 forecast, the IMF predicted Morocco’s GDP would shrink by 7 per cent by the end of the year in response to the pandemic. The IMF has nevertheless characterised Rabat’s response to the crisis as generally positive, and noted the country’s position of relative fiscal stability amid the crisis.

HEAD OF STATE

King Mohammed VI (since 1999)

ACTIVE PROJECTS

PRIME MINISTER

Saadeddine Othmani (since April 2017)

OFFICIAL NAME

Kingdom of Morocco CAPITAL

Rabat

CURRENCY

Moroccan dirham

square kilometres

Owner Value ($m) ONEE 5,300 SECEGSA/SNED 3,000 Brookstone Partners 2,000 Casa Transport 2,000 OCP 2,000 ONCF 1,633 Zinafrik Development 1,590 ONEE 1,500

Due 2025 2025 2023 2024 2021 2025 2024 2024

GDTC

1,400

2025

902

2021

MET

OCP=Office Cherifien des Phosphates; ONCF=Moroccan National Railways Office; ONEE=National Office of Electricity & Drinking Water. Source: MEED Projects

879 *

COVID-19 FIGURES* Total recorded cases Thousand

384+

Total recorded deaths

6,320

Testing volume

Tests per thousand people

110+

*=As of 9 December 2020

PHOTOGRAPH: FLICKR

MAJOR PROJECT SCHEMES

124 \ YB 2021

4,824

*=As of November 2020. Source: MEED Projects

e=Estimate; f=Forecast. Source: IMF

Project Gas to power project Morocco to Spain undersea rail link 900MW Dakhla wind farm Casablanca tramway extensions New industrial complex Marrakech-Agadir high-speed railway line Logintek Technopole freezone in Sidi Laidi Wind integrated programme: Phases 1 & 2 Complexe des Energies Renouvelables au Royaume du Maroc project Tiznit-Dakhla expressway

20 20

4.9 124 3.4 0.8 -6.0 76.6 -5.2

-7.0 112 3.1 0.2 -7.8 76.9 -7.3

1,950

2.2 119 3.3 0.2 -4.1 65.8 -4.2

3.0 118 3.3 1.6 -3.7 65.3 -5.3

CONTRACT AWARDS 3,542

4.2 110 3.1 0.7 -3.5 65.1 -3.4

29%

2021f

40%

Transport

2020e

Power & water

18%

3,672

2019

37%

2018

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($k) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

2017

15%

10% Energy & industry 15%

446,550 KEY ECONOMIC INDICATORS

Pre-execution $33.7bn

Construction

36%

AREA

36.9 million

Execution $16.1bn

POPULATION (2020)

OMAN When Oman entered 2020, the sultanate was already on a perilous fiscal trajectory. Its sovereign credit rating had long since slipped out of investment grade territory and Muscat faced the prospect of needing to either rein in its fiscal deficit or further raise its debt. Under the added pressures of the global pandemic, not only has the price of oil dropped by about $20 a barrel, but Oman’s projected fiscal breakeven oil price has also increased by close to $20 a barrel, steeply worsening the country’s fiscal deficit. With few fiscal or foreign currency reserves to fall back on, Oman is headed for a 29 per cent increase in its gross debt in 2020, according to the IMF, and is likely to add a further 8.7 per cent to that in 2021.

Muscat

HEAD OF STATE

Sultan Haitham bin Tariq al-Said (since January 2020)

ACTIVE PROJECTS

DEPUTY PRIME MINISTER

Sayyid Fahad bin Mahmood al-Said (since 1972)

OFFICIAL NAME

Sultanate of Oman CAPITAL

Muscat CURRENCY

Omani rial

0.9 79.8 19.1 0.9 -7.9 53.2 -5.5

-0.8 76.3 18.2 0.1 -7.1 63.1 -4.6

-10.0 62.3 14.4 1.0 -18.7 81.5 -14.6

-0.5 65.3 14.7 3.4 -16.8 88.7 -12.9

*=As of November 2020. Source: MEED Projects

e=Estimate; f=Forecast. Source: IMF

MAJOR PROJECT SCHEMES

PHOTOGRAPH: OMAN NEWS AGENCY

Project Madinat al-Irfan urban development Sur refinery and petrochemicals complex Duqm refinery Middle East to India deepwater pipeline 2,700MW power plant Salalah refinery Yiti Riviera Mina Sultan Qaboos waterfront Freezone Sohar Khazaen Economic City

Owner Value ($m) Omran 13,000 SIS 10,000 Oman Wanfang 5,650 Sage 4,500 OPWP 3,000 Salalah Refinery 2,500 Yiti Tourism 2,000 Development Company Omran 2,000 Sipco 2,000 Oman Global Logistics Group 1,812

Due 2050 2026 2026 2027 2025 2026 2027 2027 2024 2040

Omran=Oman Tourism Development Company; OPWP=Oman Power & Water Procurement Company; SIS=Shumookh Investment & Services. Source: MEED Projects

* 4,793

0.3 70.6 17.0 1.6 -14.0 46.4 -15.6

CONTRACT AWARDS

5,501

2021f

2020e

20 20

2019

Transport

4,980

2018

Power & water

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($k) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

2017

16%

12,881

KEY ECONOMIC INDICATORS

36%

10%

20 18

square kilometres

Construction

27%

9,366

309,500

Pre-execution $149.5bn

48% Energy & industry 50%

20 17

5.1 million AREA

Execution $26.3bn

20 16

POPULATION (2020)

COVID-19 FIGURES* Total recorded cases Thousand

125+

Total recorded deaths

1,452

Testing volume

Tests per thousand people

40+

*=As of 9 December 2020

YB 2021 \ 125

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SAUDI ARABIA Saudi Arabia is on a non-oil growth curve that is unlikely to be significantly diminished by the pandemic in its ultimate trajectory, even if growth has faltered in 2020. The financial burden of containing the coronavirus, shutting down sectors of the economy and providing stimulus to beleaguered industries has further pressurised Riyadhâ&#x20AC;&#x2122;s budget, but in many ways, this only adds impetus to the economic reform already under way. The advanced timeline for the introduction of a 15 per cent VAT is an example of the way in which Riyadh has used the coronavirus crisis to push policies that might have been more problematic to implement in a normal context.

Riyadh

HEAD OF STATE

King Salman bin Abdulaziz al-Saud (since January 2015)

ACTIVE PROJECTS

CROWN PRINCE

Mohammed bin Salman al-Saud (since June 2017)

OFFICIAL NAME

Kingdom of Saudi Arabia CAPITAL

Riyadh CURRENCY

Saudi riyal

*=As of November 2020. Source: MEED Projects

e=Estimate; f=Forecast. Source: IMF

PHOTOGRAPH: FLICKR

MAJOR PROJECT SCHEMES Project Neom City development programme Nuclear power reactor Jeddah public transportation programme Renewable energy programme Green Riyadh Diriyah Gate investment programme Marjan field development Mecca public transportation programme Red Sea Tourism Project Al-Faisaliah City

15,740

3.1 735 20.7 3.7 -6.0 34.3 -1.6

-5.4 681 19.6 3.6 -10.6 33.4 -2.5

20 20

0.3 793 23.3 -2.1 -4.5 22.8 5.9

48,466

2.4 787 23.5 2.5 -5.9 19.0 9.2

-0.7 689 21.1 -0.8 -9.2 17.2 1.5

CONTRACT AWARDS

2021f

15%

25,951

2020e

Transport

2019

18%

2018

26,993

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($k) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

2017

Power & water

KEY ECONOMIC INDICATORS

70%

13%

30,535

square kilometres

Construction

2.2 million

39%

Pre-execution $1,221bn

30% Energy & industry

34.8 million AREA

Execution $158bn

POPULATION (2020)

COVID-19 FIGURES* Owner Value ($m) Public Investment Fund 500,000 Ka-Care 40,000 Metro Jeddah Company 30,400 Redpo 30,000 ADA 23,000 Diriyah Gate Development Authority 20,000 Saudi Aramco 20,000 MMRTC 17,000 TRSDC 16,000 Mecca Region Development Authority 10,000

ADA=Arriyadh Development Authority; Ka-Care=King Abdullah City for Atomic & Renewable Energy; MMRTC=Mecca Mass Rail Transit Company; Redpo=Renewable Energy Project Development Office; TRSDC=The Red Sea Development Company. Source: MEED Projects

Due 2030 2032 2026 2025 2030 2027 2025 2031 2023 2030

Total recorded cases Thousand

359+

Total recorded deaths

5,977

Testing volume

Tests per thousand people

290+

*=As of 9 December 2020

YB 2021 \ 127

Country Profile

TUNISIA

Tunis

Tunisia appears to have weathered 2020 relatively well for a country with a large tourism sector. The IMF has forecast a real GDP contraction of 7 per cent in 2020, but nominal GDP is still set to rise, suggesting the market has benefitted from a rise in the price of goods and services above the rate of inflation. Tunisia’s budgetary deficit is expected to more than double, from 3.9 per cent of GDP in 2019 to 8.1 per cent of GDP in 2020. However, the deepening of the deficit is projected to quickly reverse in 2021 to arrive back at a smaller imbalance in 2022 than in 2019. This is necessary, as there is already scant room for manoeuvre in Tunisia’s debt scenario.

PRESIDENT

Kais Saied

(since 23 October 2019)

ACTIVE PROJECTS

PRIME MINISTER

Hichem Mechichi

(since 2 September 2020) OFFICIAL NAME

Republic of Tunisia

CAPITAL

Tunis

CURRENCY

Tunisian dinar

163,610

square kilometres

Owner Bukhatir Group OMMP Soretras Tunisia Ministry of Tourism Jinane Medjerda OACA SPLT Avtozaz Tunisia Ministry Equipment TMIESME

Value ($m) 5,000 3,200 1,100 1,030 872 840 800 558 506 500

Due 2024 2024 2030 2024 2024 2025 2023 2025 2024 2023

OACA=Tunisian Civil Aviation & Airports Authority; OMMP=Office of the Merchant Marine & Ports; SPLT=Societe de Promotion du Lac de Tunis; TMIESME=Tunisian Ministry for Industry, Energy & SMEs. Source: MEED Projects

377

COVID-19 FIGURES* Total recorded cases Thousand

105+

Total recorded deaths

3,596

Testing volume

Tests per thousand people

40+

*=As of 9 December 2020

PHOTOGRAPH: FLICKR

MAJOR PROJECT SCHEMES

128 \ YB 2021

*=As of November 2020. Source: MEED Projects

e=Estimate; f=Forecast. Source: IMF

Project Tunis Sports City Enfidha deepwater port Sfax metro Nabeul mixed-use project Jinane Medjerd in Oued Zarga New Bizerte International airport Entertainment and leisure park Bizerte car factory Tunis to Jelma motorway 500MW solar PV programme

397

4.0 40.6 3.4 5.3 -5.1 86.2 -8.7

20 20

-7.0 39.2 3.3 5.8 -8.1 84.8 -8.3

CONTRACT AWARDS

1.0 38.8 3.3 6.7 -3.9 72.3 -8.5

39%

605

2.7 39.8 3.4 7.3 -4.6 78.2 -11.2

Transport

1.9 39.8 3.5 5.3 -5.9 70.6 -10.3

17%

2021f

11%

1,128

2020e

Power & water

2019

53%

228

2018

45%

17% Energy & industry

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($k) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

2017

KEY ECONOMIC INDICATORS

Pre-execution $26.6bn

Construction

13%

AREA

11.8 million

Execution $2.2bn

POPULATION (2020)

UAE The UAEâ&#x20AC;&#x2122;s prospects for recovery improved in the second half of 2020. The rosier outlook comes despite a more than 60 per cent decline in project contract awards in the country in the six most severely Covid-afflicted months, from March through to August, compared with the same period last year. Standing the country in better stead is a world-beating Covid-19 testing infrastructure that has delivered an average of 800 tests per thousand people, with strict requirements for international travel, as a well as for movement between Dubai and Abu Dhabi, the most populous emirates.

Abu Dhabi

PRESIDENT

Sheikh Khalifa bin Zayed al-Nahyan (since 2004)

ACTIVE PROJECTS

PRIME MINISTER

Sheikh Mohammed bin Rashid al-Maktoum

(since 2006) OFFICIAL NAME

United Arab Emirates CAPITAL

Abu Dhabi CURRENCY

UAE dirham POPULATION (2020)

9.9 million

Execution $120bn

square kilometres

15,732 *

*=As of November 2020. Source: MEED Projects

e=Estimate; f=Forecast. Source: IMF

MAJOR PROJECT SCHEMES

PHOTOGRAPH: FLICKR

30,508

1.3 373 32.7 1.5 -5.1 38.2 7.5

20 20

-6.6 354 31.9 -1.5 -9.9 36.9 3.6

47,956

1.7 421 39.2 -1.9 -0.8 27.3 8.4

20 19

1.2 422 40.5 3.1 1.9 20.9 9.6

2.4 386 38.0 2.0 -2.0 21.6 7.1

CONTRACT AWARDS 47,083

2021f

12%

2020e

Transport

40,732

2019

Power & water

15%

20 17

2018

18%

2017

KEY ECONOMIC INDICATORS

Project Barakah nuclear power plant New Refinery Hail and Ghasha sour gas development Al-Raha Beach development Etihad railway network Kizad: Phase 2 Al-Falah development Aljada urban district Mohammed bin Zayed City development Expo 2020 development

63%

12% Energy & industry 15%

83,600

Real GDP growth (% change) Nominal GDP ($bn) GDP per capita ($k) Inflation, average consumer prices (%) Fiscal balance (% of GDP) Government debt (% of GDP) Current account balance (% of GDP)

Construction

54%

AREA

Pre-execution $719.5bn

Owner Enec/Kepco Adnoc/Eni/OMV Adnoc Aldar Properties Etihad Rail ADPC Aldar Properties Arada Abu Dhabi Municipality Expo 2020 Bureau

Value ($m) 40,000 15,000 15,000 15,000 11,000 7,800 7,300 6,500 6,500 6,000

Due 2026 2026 2024 2030 2030 2030 2023 2025 2030 2021

Adnoc=Abu Dhabi National Oil Company; ADPC=Abu Dhabi Ports; Enec=Emirates Nuclear Energy Corporation; Kepco=Korea Electric Power Corporation. Source: MEED Projects

COVID-19 FIGURES* Total recorded cases Thousand

178+

Total recorded deaths

594

Testing volume

Tests per thousand people

1,820+

*=As of 9 December 2020

YB 2021 \ 129

Gulf Projects Index

Gulf projects index records 9.1 per cent drop Double-digit declines in project markets across the region see sharp fall in activity GULF PROJECTS INDEX Value of projects planned or under way ($bn) 1,600 1,400 1,200 1,000 800 600 400 200 0

c De

Saudi Arabia

c De

UAE

c De

Iraq

Kuwait

he impacts of Covid-19 and low oil prices in 2020 have dealt a twin blow to the projects market in the Gulf region, resulting in a dramatic decline in the value of both planned and underway project activity. Across the eight markets covered by the index – the six GCC countries together with Iran and Iraq – the overall value of project activity was $352bn or 9.1 per cent lower in the first week of December than the value recorded a year earlier. Contributing to this once in-a-decade downshift in project activity were double-digit declines in the value of the projects markets in five countries: GCC members Kuwait, Oman and the UAE, and Iran and Iraq. The most extreme decline in percentage terms was witnessed in Iraq, where the overall value of the projects market fell by $81.7bn or 17.9 per cent, as the lower, well-below-fiscal-breakeven oil prices forced the government to sharply cut ministry-led capital expenditure plans across industries.

130 \ YB 2021

c De

Iran

c De

Oman

c De

Bahrain

c De

Other GCC

c De

20 20

Source: MEED Projects

The next most severely affected market by the same measure was Kuwait, where the total value of the projects market fell by $43.5bn or 15.1 per cent, as ministries made similarly forceful cuts. Real estate woes The UAE saw the sharpest decline in pure value terms, with its projects market declining by $111bn or 12.1 per cent. The weakness in the UAE has been most keenly felt in Dubai’s real estate sector, where the steep drop-off in property sales and rental values has curtailed new project undertakings. In contrast, Saudi Arabia has only experienced a decline in its total projects market of $42.9bn or 3 per cent, reflecting the continued on-boarding of new megaprojects to the market. Oman’s projects market shed $21.5bn or 11.2 per cent of its total value, while across the GCC, a total of $231bnworth of project value was lost, or the equivalent of 7.4 per cent of the projects market across the six countries. John Bambridge

GULF PROJECTS MARKETS, 4 DECEMBER Value ($bn)

Saudi Arabia

1,378

UAE

805

Iraq

375

Kuwait

245

Iran

243

Other GCC

229

Oman

169

Bahrain

65.4

Gulf total

3,511

Source: MEED Projects