Infrastructure expert warns GCC megaprojects could cost 40% more than budget

DUBAI-  With more than $2.5 trillion worth of projects in prospect in the years to 2030, the GCC is set to enjoy one of the greatest construction booms the world has ever seen.

But there are risks as well as rich prizes for those bidding for major projects in the region, says Anthony Holmes, director of the UK’s Institute for Infrastructure Studies and an internationally recognised authority on the economic impact of megaprojects.

“The chances of there being problems with the region’s megaproject programme are enormous,” Holmes says. “Elsewhere in the world, these projects tend to go 40-80 per cent over budget. International experience has also shown that big projects don’t get delivered on time.”

“What’s happening in the Middle East region to suggest the outcome will be different?” says Holmes. “There is nothing. It is all being done in the same way. This could mean that the project programme in Qatar alone is going to cost at least $80bn more than budgeted.”

MEED estimates that at least 150 projects each worth a minimum of $1bn are due to be completed in the GCC by 2030. Their combined value is estimated at close to $900bn, more than one-third of the value of all projects under way at present or planned in the region.

Details of some of these megaprojects will be comprehensively discussed at the forthcoming Arabian World Construction Summit on May 12-14, 2014 in Dubai. During the conference, local and international experts will also discuss project opportunities and challenges throughout the Arab world, with rising costs as one of the most important factors that could impact on completion and delivery of mega projects.

“What is clear is that there’s an enormous concentration of planned project activity in the region,” Holmes says. “You have to think about the material needed to execute all that work. There doesn’t seem to be sufficient work done on quantifying the needs in the years to 2030.”

The rise in costs may be something that Qatar can absorb, but competition for building material, equipment and talent will have an impact on poorer nations in the region.

“If you look at places like Turkey and Egypt, you see that they won’t be able to do the things they want,” says Holmes. “Resources are going to be diverted to Qatar and other GCC markets.”

“GCC countries also don’t have to go to the international capital market,” says Holmes. “But others in the region like Egypt, Oman and Turkey will have to. So even if GCC countries can afford the additional costs, there will be regional implications.”

Holmes, an economist and former investment banker, will moderate the infrastructure mega project development Masterclass during the Arabian World Construction Summit which opens in Dubai on 12 May. He will also participate in the conference as an expert panelist.

At the AWCS, Holmes will highlight the risks facing all those involved with delivering megaprojects. But his focus will be identifying actionable solutions.

“What can be done is better co-ordination, particularly in information,” he says. “You can’t make decisions about material resources unless you have information .We need someone to establish a non-partisan body and capture data about future trends in the regional projects market. And there needs to be a regional investment bank that looks only at infrastructure projects.”

Adding to Holmes’ comment on the importance of capturing hard data about future trends, Alistair Kirk, industry expert and Middle East Head of Infrastructure at EC Harris says, “Key pieces of infrastructure stimulate wider economic growth and generate agglomeration benefits – from supporting urbanisation and industrial growth to providing stronger trade links. With the major construction boom expected in the region over the next 14 years, relevant industry data and research, pertaining to the infrastructure sector, is fundamental for industry players.”

“Highlighted within the 2014 Global Infrastructure Investment Index (GIII), the UAE and Qatar are highly ranked among the world’s 40 most dynamic countries with greatest potential for growth and investment in infrastructure. The analysis reveals insights into the peculiarities and opportunities in these countries, showcasing areas for long-term growth, financial risks and financial investor prospects.”

EC Harris’ GIII report is expected to launch regionally this quarter to further support the regions’ infrastructure mega projects. Regional experts across the sectors from EC Harris will participate and speak at the conference this week.