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Analysis

Qatar beyond 2022

Qatar’s construction sector has seen strong and buoyant growth since the announcement of the 2022 FIFA World Cup, but look beyond the stadiums and the industry is alive with record breaking infrastructure projects that will pave the way for the state’s next wave of growth

This December marks five years since the award of the 2022 FIFA World Cup to Qatar – a decision which has been mired in controversy, but one which has brought about an untold level of economic stability and opportunity to a Gulf state that was previously happy to live on its hydrocarbons revenue.

In the tiny Gulf state, which a mere 2 million people call home, nearly $350bn of projects are currently in the planning or construction phase; each designed to contribute to creating an urban playground with the ability to attract a skilled expatriate workforce and steady influx of tourists.

From the necessary requirements to complete infrastructure projects such as Doha Metro and Doha International Airport, to the pressing need to secure water supplies through Ashghal’s multi-contract, multibillion dollar roads and drainage network, to show stopping stadia required for the 2022 World Cup, Qatar is a hub of construction activity akin to the Dubai of a decade ago.

According to Project Qatar organisers, IQPC, some of the major initiatives in the pipeline include a $7bn deep water port and a $1bn transportation corridor in the capital city Doha.

New roads, stadiums and facilities will account for a further $200bn in spending over the coming decade, with key projects including a metro system, the 433,000 square metre Doha Festival City mall and the Sharq Crossing, aka Doha Bay crossing, worth $5bn.

While nobody is claiming almost the entire world’s stock of tower cranes currently reside in Doha, anybody with an ear anywhere near the ground realises the significance of what is unfolding in the country.

Fast growth

In an analysis of the entire economy – of which hydrocarbons contribute over 50% to GDP – Qatar’s construction sector remains the fastest growing of all economic areas, with the government pledging $200bn of investment. According to analysis from Oxford Business Group contractors specialising in projects related to transport, retail, real estate, tourism and education, are poised to benefit first.

These projects alone could contribute up to $70bn to the total project pipeline volume of $350bn.

According to a report by BMI Research, Qatar’s construction sector is expected to grow by an average of 10% a year until 2025 – making it the strongest in the GCC and going some way to show that the industry is far from a one trick pony.

Transport

Last month, delegates at MEED’s Qatar Transport Forum were informed that more than $40bn worth of planned transport projects are currently in the pipeline.

These include the expansion of Hamad Port, the Doha Metro and long-distance passenger and freight network, an expressway programme and the $8bn expansion of Hamad International Airport (HIA), including an expansion of the main terminal building and concourse D and E.

Also revealed for the first time were plans for two additional container terminals at Hamad Port that would increase the $7.3bn project’s handling capacity to 6 million TEUs by 2020. The first phase of the megaproject, which involved installing more pre-cast blocks than the pyramids, is due to open at the end of 2016.

Transport Minister Jassim Seif Ahmed al-Sulaiti said in January 2014 that the plan to merge the first and second phases of the $7.5bn project will lead to third phase completion by 2020, a decade ahead of its original target date of 2030. The first phase of the new port is due to be completed in 2016.

Qatar Rail’s Chief of Service Delivery Andrew Tailor updated the Forum on Qatar’s $20bn-plus integrated transport plan. A world record 21 tunnel boring machines are being used on the Doha Metro project, which so far has completed almost 50km of tunnels. A total of 26,000 workers are working on the project, equating to more than 78 million man hours worked as of end of August.

Work on the Lusail tram scheme is even more advanced, with four of the five at grade stations completed, while the tender for the first phase design and build of the long-distance freight and rail network will be issued to contractors early next year.

On the roads side, Eng. Nasser al-Kuwari, Manager of Highway Projects department at Ashghal, presented an overview of the QR40bn ($10.8bn) expressway programme. The massive project, which involves 1,000km of new or upgraded roads, 240 major interchanges and 360 bridges, has already seen 43 major contracts awarded. A total of 15 contracts are either in the market or are being prepared, while a further 23 are in the planning stage.

The bankroll

However, the phenomenal growth has contributed towards a disparity between need and cost.

In the lead up to The Big 5, 2015, Mohamed Sheikh Al-Souk, deputy general manager, Construction Development Contracting and Trading, has come forward to highlight the difficulty companies face in generating financial support from Qatari banks due to “ever more restrictive” regulations. It’s a problem which does not exist in isolation.

He has been quoted by dmg events, as saying: “Since there is so much demand and the infrastructure here has not quite caught up yet, there are always very high costs associated with the growth of any company such as high rent and consequently high wages.

“It is extremely difficult to obtain banking services from local banks because they have raised their requirements in such a way that it is now more difficult than ever. This directly affects the progress of work because lack of banking facilities ‘negatively’ impacted on the cash flow, implying lesser ability to maintain the momentum of projects through timely payments and material sourcing. The scale of the construction boom in Qatar has brought significant difficulties along with a host of fresh opportunities.”

Mark Rudman, former regional director of Faithful+Gould, echoed Al-Souk’s concerns: “Delayed payment is all too common and it affects the whole of the supply chain, it is almost taken for granted that the contract terms will be ignored or only used when convenient.”

Adding to such concerns, the International Quality and Productivity Centre (IQPC) calls inflation a “serious problem”.

While steep rises in construction material prices has long been anticipated, in June Reuters quantified the potential hike with estimates in the range of 15 to 20% from 2018.

“The pinch point will likely be in 2017-19 when the construction work peaks, but the government can take measures to mitigate that,” said Nick Smith, partner at engineering consultants Arcadis in Qatar, was quoted as saying.

“This will include early supply chain engagement, standardisation of products and direct procurement of certain items. Qatar is already pursuing some of these initiatives.”

According to the Qatar Inflation Report by EC Harris, If the forecasts for the scale of construction in Qatar are correct, the construction materials market could be $6 billion to $9 billion over the next two to three years.

The report stated: “Whilst some major projects may need to be re-scoped or deferred until after the tournament, a wider re-timing exercise will need to take place in order to shift as much construction away from the anticipated peak construction period and into the post-tournament period. This activity would require programme planning co-ordination between all the key public and private developers and a centralisation of decision making related to programme interdependencies and timings.”

Further issues remain with the availability of work visas, which is delaying some project and leading to additional costs. However the overall sentiment remains positive and, with the combination of a strong project pipeline, boundless ambition and solid sovereign wealth, the tiny Gulf state is still set for very big things.

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