By Santhosh V Perumal
Business Reporter
Qatar is the second most attractive market in the world for investment in infrastructure, according to EC Harris, a global built asset consultancy firm.
The country ranked second globally and first regionally for its strong business environment, healthy pipeline of development work and growing economy, making it an attractive country for investors including pension funds and banks, the report said.
“The most dynamic infrastructure investment markets in the Middle East are located in the Gulf with Qatar, the UAE and Saudi Arabia all scoring in the top third of the index. These cash rich, economic powerhouses have some of the highest investment profiles of anywhere in the globe with average growth in construction services reaching double digits,” it said.
Despite their cash-rich, hydrocarbon enriched positions these countries are all experienced in harnessing private investment, with the UAE and Qatar in particular having relied on access to cheap debt to finance investment.
“Looking ahead, there are expectations that governments will seek to diversify funding streams further, accessing capital market finance to support spending plans,” the report said.
The power sector is particularly mature in this regard with the Middle East having a long history of Independent Water and Power Projects. In August 2013 Ruwais Power Company in Abu Dhabi secured $825mn in project bonds to support its Shuweihat 2 power and desalination plant refinancing, a move that Standard & Poor’s says could kick-start project bonds as a finance mechanism.
Highlighting that access to finance will be critical as these countries scale up investment, EC Harris said in Qatar and the UAE in particular, national vision strategies combined with major international events have led to expectations of phenomenal peak spending in the next four-five years.
Almost half of the investment planned relates to transportation, with every major city in the region planning to build a metro system with lines being constructed simultaneously in a relatively short period of time.
At the same time ports, airports and a heavy rail network are all under construction leading to increased competition for resources. The key risk in these markets therefore is inflation in construction resources from manpower and specialist skills to construction commodities.
An earlier report had predicted that project inflation in Qatar could reach 18% between 2016 and 2019. However, given overall investment levels around the region, up to 20% construction inflation is more probable. This is compounded because of the firm deadlines around projects related to Qatar’s 2022 FIFA World Cup and Dubai’s 2020 World Expo.
“What the three Gulf countries have in their favour is their clear vision strategies delivered through five-year investment plans which do offer certainty to investors. Their strong credit ratings and enviable taxation regimes will continue to appeal to investors despite the potential for rising inflation,” the report said.
