In the MENAT region, continuing investment in infrastructure development is driving economic growth. David Sanders, HSBC’s Regional Sector Head, Infrastructure, CMB, MENAT, says investments in the sector are aligned to regional transformation so that societies can benefit from increased connectivity and urbanisation.
Every dollar spent on infrastructure gives returns manifold in the form of increased economic output. Better roads, higher-capacity air and seaports, digital connectivity, educational, healthcare and social infrastructure are the building blocks of development. Despite such recognised benefits, the world will face a USD 15 trillion gap between projected investment and the amount needed to provide adequate global infrastructure by 20401.
In the coming 20 years, non-OECD states are projected to spend more than USD 57 trillion on infrastructure projects, compared to USD 34 trillion by OECD countries2.
The infrastructure sector is an integral part of national vision statements in the Middle East, North Africa and Turkey (MENAT) region. Investments in building, retrofitting or refurbishing infrastructure are increasing connectivity and optimising urbanisation. This is delivering improved quality of life for residents as economies diversify from oil and gas.
In the Gulf Cooperation Council (GCC) nations alone, the total value of active infrastructure projects reached USD 1.14 trillion in 2019 with roads, highways and bridges among the highest number of projects, claiming a combined value of USD 122.6 billion3. Dubai’s 2019 budget sets aside AED 9.2 billion (USD 2.5 billion) for infrastructure. The city awarded contracts worth USD 23.8 billion between January and December 20184.
Key trends that are shaping the sector include:
Historically, the infrastructure sector has been dominated by governments. This is giving way to the PPP approach in several countries like Kuwait5, Oman6, the UAE7, Egypt8, and Turkey9, with new laws in various stages of implementation across sectors. There is recognition of a growing need for greater private venture capital investment alongside government funding. This in turn has increased interest from overseas investors, particularly infrastructure funds.
At the same time, there is more recognition of the need for applied innovation to drive efficiency and productivity in the sector, to offset its reliance on labour costs. Government and private sector initiatives are promoting the use of drones, 3D printing10 and offsite manufacturing to implement global best practice.
MENAT governments have already introduced regulatory reforms to increase accountability in the construction sector, thus positively impacting risk. There is also an enhanced drive to improve industry standards for dispute resolution11.
Well-funded contract finance solutions are required for both construction and contracting companies. This allows them to remain competitive and helps mitigate challenges around delayed payments, which can otherwise result in cash flow crises and eventual project failure.
As the role of the private sector increases, a financial services partner like HSBC can add value at any stage of the process, from contract finance at inception, including tender bonds, advance payment guarantees, performance bonds, Project Payment Certificate discounting, invoice discounting, and other certifications as the project progresses. Efficient working capital solutions can tilt the balance towards profitability when margins are low.
At the same time, HSBC’s focus on the sector translates into the ability to support firms that are seeking a foothold in diverse markets. A deep knowledge of local and international markets and a network of relationships can support companies in gaining an advantage in this competitive landscape.
HSBC is providing the building blocks to help MENAT flourish
Governments across the region are tapping into China’s expertise in developing and maintaining their fast-expanding railway infrastructure.
Today’s institutional investors are looking for sustainable futures. Green financing is expected to gain more traction, as governments, citizens and consumers gravitate towards companies that can help mitigate the impacts of climate change.