Construction finance industry 'ripe for change in Mena region'

The construction finance sector is ripe for change in the Middle East and North Africa (Mena) region, according to a report by GlobalData.


This report comes following recent news from the G20 Global Infrastructure (GI) Hub that the Mena region is one of the fastest growing regions globally for private investment in infrastructure.


"Liquidity challenges in the Middle East's investor community are paving the way for financially sound contractors to play a bigger role in regional project development," remarked Neha Bhatia, Construction & Infrastructure Editor at GlobalData’s Meed. 


Capital spending is on the decline as real estate developers look to conserve cash and governments redirect budgets to fund crisis expenditure amid the Covid-19 pandemic, stated Bhatia.


According to her, spending power has weakened in the region in the aftermath of the oil price crash of 2014/15, and Covid-19 has exacerbated the cash crunch. 


For civil contractors in the regional real estate and transportation sectors, this has translated into steadily declining opportunities to win work, explained Bhatia. 


"The investment climate, however, has become a new area of growth for contractors backed by institutional financiers," she added. 


Bhatia pointed out that the clients in the GCC as well as growing regional infrastructure markets such as Egypt and Jordan, were more actively pursuing contractors who could work on an engineering, procurement, construction and finance (EPCF) basis.


Recent history shows the combination of Asian contractors and funding can help to successfully drive forward large-scale projects in the Gulf region, she noted. 


In October 2016, the Barakah nuclear energy plant received $2.5 billion funding from the state-backed Export-Import Bank of Korea, as one of the direct loans that would finance the overnight cost of the prime contract for construction and commissioning, interest during construction and the cost of initial nuclear fuel.


"Korean contractor Kepco was awarded the deal to build Barakah’s four nuclear reactors in December 2009. It also holds an 18% stake in Nawah Energy Company, which is majority held by the state-backed Emirates Nuclear Energy Corporation, and operates the Barakah plant, she added.


Over the past decade, countries in the Middle East and Africa have experienced the lowest default rates in infrastructure debt as well as the highest recovery rates, according to GI Hub. 


Backed by public sector initiatives and private sector interest, EPCF and similar public-private partnership arrangements are rapidly gaining prominence in the regional utilities sector, stated the GlobalData report. 


With liquidity challenges expected to persist in 2021, it is likely that construction contracts in the region, particularly for large-sized transportation schemes such as ports and airports, will move in a similar direction, it added.-TradeArabia News Service



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