TEXT-Fitch:Construction growth likely to continue in oil-rich MENA in 2013
(The following statement was released by the rating agency)
Feb 06 - Fitch Ratings says the oil-rich MENA construction sector will continue to be supported by government spending with another year of solid economic performance ahead for the region's oil exporters rated by Fitch (Bahrain, Kuwait and Saudi Arabia and the two members of the UAE federation (Abu Dhabi and Ras Al-Khaimah)).
Saudi Arabia's expansionary 2013 budget based on a conservative oil price will support another year of healthy economic growth. The FY13 (31 December 2012 to 30 December 2013) budget unveiled on 29 December projects record spending of USD219bn (34% of GDP), up by almost 20% on the 2012 budget. Budgeted capital spending is 28% higher than in 2012. Government spending has been the main impetus behind the strength of the private sector (construction was the fastest growing sector in 2012) and with policy remaining expansionary in 2013, further healthy private sector growth is anticipated
In Abu Dhabi, infrastructure spending continues to be strong, with recently announced project spending including a US90bn five-year spending plan on housing, schools, infrastructure and leisure projects. Nevertheless Fitch still expects that the government will continue to follow a cautious budgetary stance. On 8 January 2013, Abu Dhabi-based Tourism Development & Investment Company (TDIC, 'AA'/Stable) awarded the main construction contract for the Louvre Abu Dhabi, one of three iconic museum projects TDIC is developing as part of the wider master plan for Saadiyat Island. Work under the AED2.4bn contract is to commence immediately with completion and opening of Louvre Abu Dhabi scheduled for 2015.
Construction sector activity in Qatar during 2012 witnessed delays mainly in non-core projects, where they either being shelved or put on hold with a shift in the government's focus towards World Cup related projects. Nevertheless, key projects remain in the pipeline and the outlook for 2013 remains stable.
South Korean companies continued to dominate the hydrocarbons sector. That said, over the past five years, Turkish firms have secured more than USD17bn of contracts (according to MEED ) on some of the largest construction schemes in the GCC. One of the construction companies is Yuksel Insaat AS (Yuksel, 'B-'/RWN), where the diversity of the company's portfolio of operations, particularly the presence of stable Gulf Cooperation Council (GCC) operations, has provided benefits to the company's operations as Qatar has contributed to more than 15% of sales, KSA, 11.9% and Iraq 7.6% as at FYE11. On the other hand, Yuksel's exposure to Libyan operations affects the order book and future cash flow and increases the risk of machinery loss on construction sites.
From an international view, organic international growth, divestment strategies and dividends from complementary infrastructure concession assets allowed the Fitch EMEA engineering and construction universe to offset a still weakl European construction market in 2012, and the outlook for 2013 is stable. Successful growth in international order books during 2011 and 2012 has been in selective eastern European countries, Russia, Brazil, Mexico and MENA.
Fitch believes long-term infrastructure growth is likely to continue across these areas and will be a key area for tendering activity in 2013. Many of these growing economies lack local expertise in completing large-scale infrastructure projects. Fitch expects that more local partnerships, JV agreements and bolt-on acquisitions will be entered into to capture this growth. However, Fitch expects some margin compression in emerging-market contracts as growth opportunities become rarer and competition more intense.
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