GCC on Recovery Path
On the back of higher oil prices, countries around the Middle East are looking forward to a strong recovery in 2017. Momentum is anticipated in the GCC projects market which has seen a constant decline since 2014.
The 2015-16 slump in oil prices resulted in postponement of a number of energy projects. In response to the OPEC deal, oil prices have increased substantially stimulating investment in 2017. The IMF report has estimated oil prices to rise to an average of $55 per barrel in 2017/18. The GCC states are back on track to let new deals.
Total value of contracts awarded in the GCC has increased by 20% in the first quarter of this year compared with the last three months of 2016. Over $27bn of deals have been awarded in Q1, 2017. Country-wise break-up of the contract award activity shows the UAE leads the six-member bloc with $10.8bn of contracts awarded during this period. Saudi, Kuwait, Oman, Qatar and Bahrain let $4.7bn, $4.6bn, $3.3bn, $2.7bn and $750mn of deals respectively in the first quarter of 2017.
The largest contracts valued at around $1.3bn and $950mn were awarded in the oil sector by Kuwait Oil Company and UAE’s Takreer for gathering centre 32 and Ruwais refinery operations respectively. In the power sector, the largest deal inked was again in the UAE for ADWEA’s PV solar plant.
Tough economic situation has urged the GCC states to raise funds through local and international bond issuances. The part-privatization of state-owned oil companies is also a part of the move to repair their battered finances. A number of initial public offerings (IPOs) are being considered which will probably come out by year-end.
The PPP (public-private partnerships) option also has gained much popularity in the region in downslide period. The well-structured PPPs are better able to manage the associated risk and improve efficiency of the schemes while simultaneously playing a major role in financing, which is now much more flexible with multiple debt funding options.
Eventually, the regional banking system and the finance industry has grown robustly over the past years. It now stages strong liquidity and profitability.
Global energy demand will continue to grow and there are clear signs of recovery in the GCC, though it will be ensured with successive quarters’ performance of this year. The continued growth is expected with higher levels of foreign reserves and investment and availability of multiple financing opportunities.