Arranging finance a ‘challenge for contractors’
01 November 2020
The biggest challenge for companies in the Middle East projects industry since 2015 has been finding new work, with 2020 being the nadir of a five-year slowdown. Now added to that comes the nightmare for contractors to bring in finance as the region adjusts to new normal, said a report by GlobalData after reviewing the region’s $3.4-trillion pipeline of future projects.
According to GlobalData’s Meed, bringing project finance will be a key factor for success in the market next year.
“Project contract awards hit an all-time low in 2020, as governments focused on battling the Covid-19 health crisis and providing financial support for the economy,” remarked Richard Thompson, the editorial director of GlobalData’s Meed. “As we enter the final quarter of 2020 without a vaccine, further lockdowns and disruption are still on the cards. However, we are unlikely to see a repeat of the total economic shutdown in March and April.”
While the region’s pipeline of planned future projects is vast, at around $3.4 trillion, the majority of this value is still at the early stage of design or feasibility study. With government finances under stress as a result of Covid-19, many projects on the drawing board will be delayed, reduced or cancelled, he added.
According to him, new opportunities in 2020 and 2021 will come largely from the $280 billion of projects currently undergoing tendering, although not all of them will proceed as planned.
Saudi Arabia and the UAE are the two biggest markets, accounting for over 40 per cent of projects being tendered. While oil and gas, transport and power projects make up over 70 per cent of the value by sector.
“The biggest challenge is financing. The World Bank estimates that there is a $100 billion shortfall in the funding needed to deliver the region’s infrastructure requirements,” stated Thompson.
Governments can raise debt more efficiently than anyone else and are doing so, as well as drawing on their reserves. However, they must manage rising debt and deficits.
“Any company able to bring in financing to a project, whether through export credit guarantees, or direct finance through public private partnerships (PPP) will be well placed to win new work in 2021,” he added.
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