Qatar: Building momentum

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Qatar’s already busy construction industry is about to step up a gear, and it is not just the major undertaking of hosting the 2022 World Cup football tournament that is going to spur growth. A massive state investment programme to expand the nation’s infrastructure and private sector spending on residential and commercial properties are also tipped to build momentum in the sector.

According to Craig Plumb, head of research at Jones Lang LaSalle for the Middle East and North Africa (MENA), Qatar is responsible for 19% of all construction-related investments in the region, a total that will only rise as the investment taps are turned on for the World Cup building programme.

“The upcoming World Cup in Qatar will lead to significant infrastructure and construction contracts being awarded in Qatar to facilitate the event, and also to develop the wider city offering and economic base to ensure sustainable levels of demand after the event,” Plumb said in comments published by the Gulf News on May 21.

Qatar is planning to invest at least $53bn in new projects between now and 2015, with the construction sector poised to expand by an average of 12% a year, according to a report issued by research firm Ventures Middle East in late April. The scale of investment will increase further in the following seven years leading up to the staging of the World Cup, with another $100bn or so of investments in the pipeline. In total, Qatar intends to spend some $160bn over the coming 11 years on infrastructure and other construction projects, Sheikh Abdulrahman bin Khalifa, the Minister of Municipality and Urban Planning, said on May 2.

Though it is the World Cup that tends to get star billing when Qatar’s construction sector is mentioned, the planned expenditure for the event is just a fraction of the total investment budget referred to by the minister. The budget allocated for the development of a national rail network, including a light rail system for Doha, is $35bn, dwarfing the $4bn cost of the nine new football stadiums to be built for the games. Throw in the $23bn New Doha International Airport, along with heavy investments in ports, roads and highways – part of the government’s plans to upgrade logistics capacity to keep pace with domestic growth. – and the World Cup outlays come to be seen as what they are: just one part of a far larger economic and social development scheme.

While the building activity will see benefits flow through the economy, there could also be pitfalls. One concern over the construction boom is its potential to fuel inflation. A sharply increased demand for materials and labour could push up costs in the sector and beyond, bringing a ripple effect for inflation similar to that seen prior to the global financial crisis in 2008, a year in which Qatar’s consumer price index hit an annualised rate of 15%.

Qatar’s building plans will be impacted by its neighbours, who are similarly investing heavily in new projects, with Saudi Arabia and the UAE in particular pouring billions into infrastructure, residential and commercial developments. This heightened activity, with Saudi Arabia alone looking to invest up to $200bn in new or already announced projects, will add to the competition for supplies, and could well inflate costs further.

However, demand-side pressures could be in part balanced out by the scaling back on construction projects elsewhere in the region, such as has occurred in the commercial and residential segments in Dubai. This possible slowdown is likely to be short-term, with some projects in countries such as Egypt already being resumed now that stability has returned.

Local materials producers, such as the Qatar National Cement Company are looking to increase their output to meet the requirements for building supplies – with the firm’s general manager Mohamed Al Sulaiti saying in early May new capacity could be added to cope with demand. However, the sheer scale of the government’s infrastructure programme means that there will be a sharp rise in imports of materials.

All of this will provide international builders and suppliers with a gilt-edged opportunity, with Qatar and some of its wealthy neighbours competing for their goods and services. With the 2022 World Cup imposing some very hard deadlines for transport, hospitality and infrastructure projects to be completed the opportunities are immense, but the pressure will certainly be on in terms of performance.


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