A flurry of activity: Building infrastructure for more diversified growth

The state’s economic development strategy has until recently focused on building the infrastructure required to maximise production in the energy sector. As production levels have stabilised, and with most major energy-related investments either completed or on hold until the moratorium on new development at the North Field is lifted, the government has the opportunity to focus on putting in place the foundations for more diversified economic growth.

Vision For Growth

The National Development Strategy 2011-16 (NDS 2011-16) and Qatar National Vision 2030 (QNV 2030) provide an overarching trajectory for this growth. In parallel, the successful 2022 FIFA World Cup bid has given additional momentum and a firm deadline for many major projects, including a metro rail network, a new port and airport, roads, hotels, and other amenities such as retail spaces, museums and parks. While 2013 did not see too many new contracts and construction tenders, the sheer scale of new projects in the pipeline continues to sustain the sector and makes Qatar a major target market for international construction companies. The World Cup’s significance cannot be overstated because it involves firm commitments that have been publicised globally. In addition to infrastructure and stadia, the World Cup will also require Qatar to deliver on massive investments in building urban centres, tourist facilities and other amenities.

The scale of construction activity in Qatar and in neighbouring Saudi Arabia and the UAE has provided a significant boost to the construction industry, but has also created a number of challenges that Qatar, in particular, will have to overcome in order to meet its targets. The demand for building materials and basic bottlenecks in transport and logistics, for example, are driving up the overall cost of construction projects. Furthermore, the number of organisations with the capacity to manage large-scale, complex infrastructure projects is small. Besides construction workers, demand for management firms, architects and engineers to design and oversee all the projects will be difficult to meet. There is also some concern that banks in Qatar are overextending exposure in construction and real estate, and this has prompted the Qatar Central Bank (QCB) to issue notices and guidelines to reduce exposure.

The Numbers

The sector has been expanding rapidly after a period of slow growth following the global financial crisis. AK Saksena, the director of Qatar operations at ETA Star Engineering, said, “The past few years have been difficult, but the market is slowly picking up. All of the projects we have seen coming out are in infrastructure. As a subcontractor, we have started to see the work trickling down, and also some associated projects not directly related to infrastructure have started moving forward as well.”

Middle East Economic Digest (MEED) reports that Qatar was the third-most-active construction market in the GCC region in 2012. However, construction across the entire region faced a slump of more than 18% in 2012, with the value of construction projects within the GCC dropping to $51.9bn compared with $63.4bn in 2011, according to figures from MEED. The UAE and Saudi Arabia have maintained their status as the biggest markets for construction in the GCC region, issuing contracts worth more than $16.2bn and $15.6bn, respectively, during 2012.

Data from Qatar National Bank (QNB) reveals that the construction sector showed signs of recovery in 2013 and was a major factor contributing to growth in the national economy. According to the Ministry of Development Planning and Statistics, in the third quarter of 2013 GDP increased by 6.2% year-on-year (y-o-y). The construction sector expanded 13% y-o-y in the third quarter of 2013 on the back of state spending on infrastructure projects and is forecast to grow 15% or more in 2014. Industrial output from the recently completed Pearl gas-to-liquids plant was another key factor. QNB expects the level of economic activity will be sustained through 2014 as major new construction projects are started. The transport sector has been particularly active in Qatar, with major tenders being issued for roads and railway projects. MEED also reported that construction projects in Qatar totalled at least $7.7bn in 2013, driven in large part by the Doha metro rail development. This is a small portion of the estimated $222bn worth of projects currently being implemented or planned. Infrastructure investments being prioritised for the World Cup will total more than $150bn until 2022. This indicates the pipeline of projects is likely to remain strong, with an expected growth rate of at least 9% in 2017-21, according to MEED.

There have been concerns about delays in tendering and approving projects. However, transport will account for 58% of total investments in construction, which is likely to sustain interest in the sector. Tenders for the first contract issued for the $20bn Doha metro rail project, for example, received more than 60 bids. Other major investments are likely to include $22.7bn on roads and expressways, $35bn for the Qatar Rail Development Programme, $15.5bn on the Hamad International Airport and $7.4bn on the New Port Project (see Transport chapter).

While infrastructure and utilities will account for a majority of the construction contracts, there will be significant investments in other sectors, such as in developing Qatar’s industrial base. Qatar Petroleum is still expected to spend QR88bn ($24.1bn) between 2011 and 2016, with QR7bn ($1.9bn) allocated for the petrochemicals sector.

Despite the abundance of projects, not all contractors have benefitted. “One of the biggest problems with the tendering process is that there are sometimes over 50 companies tendering for construction works. A number of foreign companies have come into the market and are operating at a loss, just to get jobs,” Erhan Ekermen, CEO of Promer Qatar, told OBG. “This is not a sustainable model for the future and we have seen a number of highly qualified contractors leaving the market because of this situation.

Financing

Qatar’s construction industry depends heavily on financing from government revenues. The government has indicated that 40% of the budget until 2016 will be invested in constructing infrastructure. Public sector borrowing from banks has also increased in recent years. According to Global Investment House, bank credit to the public sector grew at a compound annual growth rate of 47% between 2007 and 2012, while exposure to private sector clients only increased by 25% during the same period. Government bonds also add to the revenue base to finance construction activity.

The NDS 2011-16 calls for greater private sector involvement in developing industry and infrastructure. At present, private participation is fairly limited in the construction sector. The Public Works Authority, known as Ashghal, has financed several independent wastewater treatment plants under a public-private partnership (PPP) model, but these financing structures have not been used outside the power and water sector. Markab Advisory has said, however, that Qatar would benefit from increased private sector participation in construction. The firm estimates that the economic benefits of PPPs could add up to $30bn each year.

Rail Project

Qatar Rail’s Doha Metro Project is a key part of the transport strategy and the Qatar Rail Development Programme. When complete, the network will connect a number of major urban areas to Doha. The project is seen to be a vital item in Qatar’s bid for the 2022 FIFA World Cup as it will link stadia and key destinations. Services will be free for all passengers with game tickets. The metro is expected to have four lines that will travel through the Greater Doha area, and further to town centres and important residential and commercial areas in all parts of the city. The metro will run underground in the central zone and above ground in the outskirts of the city, travelling at a speed of 80 km per hour inside the city and 160 km per hour on longer routes.

The network will have a total track length of approximately 216 km and have more than 100 stations, including major hubs such as Education City, Msheireb, Al Khor and Lusail. Qatar Rail has tendered contracts for drilling and excavations for 25 of the 37 stations under the first phase of the project, which is expected to be completed by 2019.

According to Hamad Al Bishri, the deputy CEO and chief programme officer, Qatar Rail has signed contracts worth more than $32bn for the entire project. The first contract for the project was issued in 2013, attracting 60 bids for this $7bn phase of construction. “The tendering process for the Doha metro has been the most sophisticated process we have seen in the market to date. It was done in an efficient and professional manner,” Helmut Landahl, the general manager of Hochtief Solutions, told OBG.

Stadia

The “2022 FIFA World Cup Bid Evaluation Report” highlights that Qatar’s bid includes developing 12 stadia in seven cities. Three of the stadia are existing facilities that will be upgraded, while the remainder are to be built from scratch. The current estimated cost for building new and upgrading existing stadia is around $4bn. Qatar has started designing stadia that will eventually be used to host World Cup matches and is likely to start issuing construction contracts in 2014. The recently renamed Supreme Committee for Delivery and Legacy (SCDL), which is tasked with managing the World Cup preparations, has awarded a project management contract for the Al Wakrah Stadium and has issued a tender to design a stadium at Al Rayyan. Deloitte’s “GCC Powers of Construction 2013 Report” quotes the technical director of the SCDL, Yasir Al Jamal, as saying that contractor and sub-contractor appointments will be tendered between 2014 and 2018.

The new stadia pose several technical challenges that arise from the government’s goal of making the tournament carbon-neutral. The initial design for stadia includes solar facilities to power lights and a cooling system. The cooling technology, however, is yet to be tested on a large scale. After the World Cup, most stadia will be reconfigured for local use, although Qatar also intends to repurpose sections to build 22 new stadia around the world.

However, building new stadia for the 2022 event is only part of Qatar’s long-term investments in sporting infrastructure and events (see analysis and Sports chapter). Jassim Telefat, technical director of the Qatar Foundation’s (QF) capital projects, outlined the future visions for these investments at a conference in Doha in November 2012. “We strive, through the construction of these modern sport facilities, to support the efforts of Qatar to host a multitude of international events and world sports championships.” Through this project, we are keen to contribute towards achieving the foundation’s vision of developing the community and encouraging Qatar’s residents to lead a healthy lifestyle by providing them with the latest sports facilities.”

Hotels & Tourism

Qatar’s World Cup bid requires building facilities and accommodation to host tourists and athletes during the tournament. The Qatar Tourism Authority (QTA) has announced plans to invest $20bn on infrastructure to support tourism. According to the QTA, the country has 14,000 hotel rooms at present and 5000 more are currently under construction. An additional 15,000 rooms will be added based on demand, bringing the total to 34,000. The anticipated demand for hotel rooms has presented a significant challenge, as the government does not expect to maintain visitor numbers at the same level in the years after the event. It is therefore considering using cruise ships as temporary floating hotels and having neighbouring countries help host visitors. Qatar’s long-term diversification strategy does include a strong focus on the meetings, incentives, conferences and exhibitions sector, however, and this is expected to help sustain investments beyond the World Cup (see Tourism chapter).

New Port Project

All of these projects require large quantities of construction materials that are being shipped into the old Doha Port or overland from Saudi Arabia. The existing seaport, located in the centre of the capital city, has been operating above capacity, creating bottlenecks with significant financial repercussions across the economy. To remedy this, the government has embarked on the construction of a new seaport around 30 km south of Doha, with the first phase set to be operational by 2016.

The $7.4bn facility will accommodate more than 2m twenty-foot containers by 2016, vastly overtaking the old port, which handled roughly 376,000 containers in 2012. It is expected that this will be further expanded to 6m containers by 2030.

The new site is located close to Mesaieed Industrial City and will include a large aggregate storing facility. The 26.5-sq-km site is one of the largest greenfield port developments in the world. In line with the environmental goals outlined in QNV 2030, the project is incorporating Leadership in Energy and Environmental Design models of design, construction and operation. The final facility will include walkways for a pedestrian-friendly environment and the use of grey water for toilets and landscaping. The port should help reduce delays in transporting construction materials for Qatar’s projects and support efforts to position the state as a regional and global centre for trade and commerce.

International Airport

Qatar is also nearing completion on the Hamad International Airport, previously known as the New Doha International Airport, which is expected to accommodate rapid growth in passenger and freight traffic over coming years. The new airport will also serve as the principal air link into the country for the 2022 FIFA World Cup. The airport, which was scheduled to begin operations in 2012, has missed a series of deadlines and is now slated to open in 2014. The new airport marks a number of records for Qatar. Located 4 km away from the old airport, the new airport covers a total land area of over 22 sq km, which is almost one-third the size of the city of Doha. Of this, more than half of the land has been reclaimed from the Gulf.

Now that it has been completed, the main terminal at the airport is the largest building in Doha. The site for the airport used to function as a domestic waste dump. Construction of the new facilities required excavating and transferring 8m cu metres of mixed waste to a remote landfill, giving the project the distinction of being Qatar’s biggest environmental clean-up effort to date. As with a number of other major projects under way in Qatar, the airport also incorporates elements designed to reduce its environmental impact. The terminals will employ energy-efficient technologies, such as solar-resistant coatings, overhangs that are designed to reduce the need for indoor cooling, an insulated roof and innovative ventilation technologies like carbon dioxide sensors that regulate air intake based on occupancy demand. The airport will have a capacity of 30m passengers per year in the first phase of operations. This will eventually expand to 50m when fully complete. It will also eventually have the capacity to handle 2.5m tonnes of cargo, with 320,000 landings and take-offs annually. The first phase of construction includes two runways that have been specially designed to accommodate the new Airbus A380 superjumbo plane. The $15.5bn airport commenced cargo services in December 2013 and will start handling passenger traffic in 2014.

Power & Water Infrastructure

Ashghal is currently investing in a number of large construction projects to deliver power and water to Qatar’s residents and businesses. It manages a large portfolio of projects and is expected to oversee over QR100bn ($27.4bn) worth of contracts over the next seven years. The authority is also expected to invest an estimated $18.9bn in expanding core utility networks, according to MEED.

According to figures from the Qatar Electricity and Water Company, the main producer of power and water in the country, demand for power has increased from 3550 MW in 2007 to 6412 MW in 2013, while demand for water during the same period has increased from 160 MIGD to 338 MIGD. This is against a current total capacity of 8761 MW of electricity, implying a current excess capacity of 2348 MW, and 327 MIGD of water, which is already projected to fall short by 11 MIGD. The gaps will increase significantly by 2020 without further investments to boost supply (see Utilities chapter).

One major project will include carrying out the Inner Doha Re-sewerage Implementation Strategy, which seeks to modernise and expand the existing drainage infrastructure to keep up with the rapid pace of development in Doha. The current system has sewers that are too shallow and pumping stations that are overloaded. The project will serve the Doha, Al Wakra and Mesaieed areas. Ashghal is partnering with CH2M Hill to create an expansive deep tunnel sewer network and advanced sewage treatment system that will treat and recycle wastewater so that it can be used for irrigation purposes. The project will replace sewage pump stations that are currently flooding in various parts of the city. With a total cost of $2.7bn, the estimated initial capacity of the project is 500,000 cu metres per day, with plans to eventually triple capacity. The system will include more than 40 km of deep main trunk sewers and 70-plus km of lateral interceptor sewers. Contracts are expected in 2014 for completion by 2019.

Commercial Space

According to figures from MEED, commercial construction accounts for 23% of total investments in Qatar’s construction sector. Some of the biggest projects include the $1.37bn Doha Festival City, Lusail City and Hamad Medical City.

Lusail City is a fully planned city that will add commercial, residential and retail space close to Doha. Under construction since 2005, Lusail City is being developed by the Lusail Real Estate Development Company (LREDC) and is the largest single development in the entire country. Located 15 km north of Doha, the site covers a 38-sq-km footprint and comprises a self-contained ecosystem of residential, commercial and retail areas, hospitals, entertainment venues and resorts. The site will be one of the main locations for housing for people visiting Qatar during the 2022 FIFA World Cup. The city is set to host the opening and final games at the Lusail Iconic Stadium, which will have a capacity of over 86,000.

The project has reserved 200,000 sq metres of land for open green space for its estimated population of 450,000, composed of 200,000 residents, 170,000 employees and more than 80,000 visitors. Further, the city will feature a district cooling system that is expected to save 675m kg of carbon dioxide annually, a large-scale underground gas network, pneumatic waste collection and underground walkways. The major construction projects within the development include the Lusail Iconic Stadium, Lusail Light Rail Transit (LRT), Lusail Expressway, Al Khor Highway, Al Sidra Golf Residential Development, the Medical and Education District, Lusail Entertainment City and Qetaifan Islands. According to Yanick Garillon, the CEO of QDVC, the Lusail LRT is Qatar Rail’s first project initiated under its development plan. “We are currently under negotiations for the rolling stock, which has not been awarded yet.

The southern portion of the LRT should be finished by 2017 and the northern portion by 2019,” Garillon told OBG. According to Qatar Rail, as of February 2014 the tunnels had been entirely excavated and the line’s stations were 80% complete. Environmental impact assessments carried out by LREDC found that the adverse effects of the construction of the Lusail development would mainly be focused around issues of waste disposal, disposal of groundwater from draining, noise and emissions. The environmental management plan for the development lays down stipulations for the various contractors to minimise these effects.

Reclaiming Land

The Pearl, being developed by United Development Company (UDC), is another mega-project that is expected to add to Qatar’s residential, commercial and retail space. The project consists of an artificial island that, when completed, will cover nearly 4m sq metres of reclaimed land and create 32 km of new coastline. Its location approximately 400 metres away from the West Bay Lagoon shore in Doha marks it as prime real estate. Most of the basic infrastructure is already functioning. The island has mixed-use residential, retail and hospitality developments and offers freehold ownership to foreigners. The construction cost was listed at $15bn, according to UDC.

Social Infrastructure

In addition to residential, retail and commercial space, Qatar is also investing in health and educational facilities to serve its growing population. QF plans to spend around $7.9bn on constructing the Sidra Hospital and more than $8.25bn on building Education City, according to figures from Construction Week Online.

In addition, Hamad Medical City is set to become one of the largest hospital complexes in the world. The first phase of the project has already been completed, and the next one is currently under construction with a scheduled completion date of 2018. The 500,000-sq-metre project will reportedly cost more than $1bn to construct and will eventually include three hospitals with a total capacity of 1100 beds, specialised medical facilities, residential buildings for staff and office space for the National Health Authority. Construction for the project includes three towers, with the largest being 12 storeys high.

Ensuring access to affordable housing is another growing social issue in the GCC region. Luxury developments like The Pearl and Lusail are more attractive and profitable for developers, but Qatar also has a large population of lower-income workers. The demand for housing in Doha has been increasing rapidly alongside the burgeoning population. The onset of the global financial crisis in 2008 resulted in a drop in prices, both for rentals and sales, but by late 2010 and early 2011 demand began to increase once again. The QCB’s real estate price index, which uses 2009-10 as the base year, was at 189.8 as of December 2013, up 21.1% from 157.2 in the same month of the previous year (see Real Estate chapter).

According to a 2013 report by Ernst & Young and the Affordable Housing Institute, 75% of nationals in Qatar are satisfied with the housing services provided to them (see analysis). This is relatively high when compared with other countries in the Middle East and North Africa. The same report uses the residual income method of measuring housing affordability to conclude that Qatar and the UAE are more affordable for citizen housing.

Petroleum & Petrochemicals

While Qatar’s transport and utilities projects have been highlighted because of their size and the role they will play in the World Cup, Qatar will also continue to invest in constructing new facilities in the energy sector. “The EPC market has become quite competitive. Most of the major contracts awarded have been brownfield projects, such as the Ras Laffan Refinery 2 expansion. However, with the new petrochemicals drive and several new projects announced, there is an opportunity going forward for several greenfield projects in the petrochemicals industry,” said Shizuka Ikawa, the managing director of local engineering firm Chiyoda Almana Engineering.

The Barzan Gas Development, for example, is a $10.4bn project that aims to tackle the ever-increasing demand for energy in Qatar. Initiated in 2011, the project is being developed jointly by Qatar Petroleum and ExxonMobil, with RasGas functioning as the project manager and operator. The project is located near Ras Laffan Industrial City. The facility will produce an estimated 2bn cu feet of gas per day, with the first phase said to start operations in 2014. The natural gas produced will be supplied to power plants, desalination plants and industry; the ethane will be used as feedstock; and the liquid hydrocarbons will be sold on local and international markets.

The project site will have three offshore wellhead platforms, 30 offshore wells, subsea pipelines and subsea cables. A total of six trains will eventually be used to compress the natural gas into liquefied natural gas for ease of transportation. The contract for onshore engineering, procurement and construction has been awarded to Japan’s JGC, while that for offshore developments and installation of pipelines went to Hyundai Heavy Industries of South Korea.

Competition

Qatar’s numerous construction projects have attracted a number of both international and local firms looking to secure work. Competition for contracts has been intense, with dozens of companies frequently competing for tenders, resulting in tighter margins for the winners. “One of our main challenges has been competition from international firms entering the market and undercutting prices. It has become an issue where firms are bidding so low that local contractors cannot even compete. We aren’t asking for favouritism, but it’s important to ensure local contractors are included in these projects in order to gain know-how, assist with local issues and help contribute to the country,” Issam Salem, the executive manager of Bojamhoor Trading and Contracting, told OBG. This sentiment is echoed by other companies. According to Nasser Mohamad Hatab Al Kaabi, chairman of Tadmur Holding, pricing has been one of the main challenges for the industry. “The prices have been so low that building contractors are having to price at cost or below cost just to try to win projects. It has become a difficult environment to operate in due to the instability and decreasing nature of pricing in the market,” he told OBG. Meanwhile, according to Turgut Dizdaroğlu, country manager of construction group STFA, the tendering process has been slow, meaning companies are desperate for work. “They will end up tendering for a project along with over 40 other companies, and often will be outpriced by almost a quarter of them. There are lots of contractors from Dubai that have come into the market and are undercutting the prices, but bidding below the profit margin just to win a project to help their balance sheets.”

Local Benefits

The government is making efforts to ensure that local firms benefit from numerous projects in the pipeline by splitting them into various sizes and dedicating some projects solely to local contractors, as well as promoting joint ventures between international and local companies. “A recent positive step for local contractors was the announcement by the prime minister that all projects must use a minimum of 30% of local resources. Hopefully this measure will ensure that the local construction industry gets at least 30% of projects going forward; however, some foreign companies will inevitably try to skirt around this requirement, so we hope to see the enforcement of this measure going forward,” Osama Hadid, CEO of Al Jaber Engineering, told OBG.

Wael M Shtayyeh, the CEO of Investment Holding, a local industrial group, said, “The government should ensure priority is given to local companies or that foreign companies enter into a joint venture with local companies. The future economic development of Qatar will depend on the development of the local private sector. Once the international firms finish their work, they will leave. Where does that leave the local private sector in the future?” Nevertheless, the large number of planned projects should ensure that there is plenty of work to go around in the coming years.

Providing Oversight

The surge in construction projects has increased demand for companies providing quality control services for the sector. Tighter regulations are also likely to support growth in this area, particularly the implementation of the Qatar Construction Standards (QCS). The new QCS put a strong emphasis on fire safety, and also make building inspections and fire safety licences mandatory.

According to Ghassan Oueijan, managing director of Al Nakheel Agriculture and Trading, the market for landscaping has also changed in the past few years. “It’s no longer just soft-scaping and irrigation, but also hard-scaping under the landscaping category as well. This has allowed the landscaping business to grow tenfold by putting these under one umbrella. Instead of going to three subcontractors, now you just go to one,” Oueijan told OBG.

Green Standards

In line with the goals of QNV 2030, the government is promoting green building practices and supporting plans to develop sustainable infrastructure. Its ambitious plans include hosting a carbon-neutral World Cup in 2022. Key to the broader sustainability drive is the Qatar Green Building Council, established in 2009, which works to coordinate between designers, builders and state agencies to promote sustainable development. It is tasked with increasing awareness and knowledge of green building practices through the development of technical expertise, research and innovation, and education and training. As part of this, it recently signed a memorandum of understanding with the Qatar Society of Engineers to educate and train professionals in the construction industry.

Improving Labour Conditions

The developments under way in preparation for 2022 are extensive, and some of the large-scale projects have faced criticism for reportedly poor labour and safety conditions. The Hamad Medical Corporation reported in 2013 that falling from heights was the number two cause of injury in Qatar, after traffic accidents. Furthermore, the number of deaths caused by injuries sustained from falling from heights has increased from an average of 600 in 2008 to more than 1000 each year. However, the government is working to address this issue and there are signs of improvement. According to reports in February 2014, the Ministry of Labour and Social Affairs had increased the number of trained labour inspectors by 30% and carried out 11,500 spot checks in the past three months. QF is working to improve construction workers’ rights by issuing mandatory standards on migrant welfare for all its contractors. To comply with the standards, new contractors and sub-contractors must attend induction trainings to familiarise themselves with the regulations, and the processes and policies for the recruitment and retention of workers will be regularly assessed. Welfare audits will take place as an extension to ongoing health, safety and environment audits and to ensure contractors’ compliance.

In addition, in February 2014 Qatar announced the introduction of new and improved standards of welfare for World Cup migrant workers. The details were published in a document that sets out standards on payment of wages, accommodation and welfare, and promises to introduce a tough new inspection regime. The workers’ charter will require employers to install a telephone hotline for workers to raise grievances and report concerns; grant workers a minimum of three weeks’ paid annual holiday based on a 48-hour week that cannot exceed eight hours per day; guarantee workers a rest day or compensate them; and create welfare officer posts as well as a forum for grievances to be resolved. The Supreme Committee for Delivery and Legacy said that it hopes that by setting its own standards, it will encourage wider change.

Managing Supplies

The authorities acknowledge that in the years leading up to the 2022 FIFA World Cup, construction logistics could get tricky. The construction boom in the country and across the GCC region has led to an unprecedented demand for materials. The prices of building materials are estimated to be up to 25% higher in Qatar than in other countries in the region. As a result, according to a recent report by EC Harris, Qatar has the highest construction costs in the Middle East, and the price of materials is likely to increase even further as the pace of construction picks up over the next few years. “The prices might not go up in the short term, but they are likely to go up with increasing demand,” Ahmad Jassim Al Jolo, the chairman of the Qatar Society of Engineers told local media in August 2013. “With the country having a monopoly in steel and cement, the prices may be more or less stable. But we do not know how the market is going to react when demand reaches its peak.” According to EC Harris’s “2013 International Construction Costs Report”, the cost of construction in Qatar is the 15th highest in the world. Cement, in particular, is in short supply as the old port limits access to global supply chains. There are, however, two local cement producers: the Qatar National Cement Company (QNCC) and Al Khalij Cement. Al Khalij Cement recently announced plans to double its capacity of 6000 tonnes per day (tpd) of clinker and 2.25m tonnes per annum (mtpa) of cement, bringing the total for clinker to 12,000 tpd and for cement to 4.5 mtpa. “We expect the expansion project to be completed by the third quarter of 2015,” Faisal Abdullah Al Mana, managing director of Al Khalij Cement Company and vice-chairman of Redco Construction Almana, told OBG. QNCC also has plans to expand production and has already issued a tender to build a new cement plant that will have a capacity of 5000-7000 tpd of clinker. Mohammed Ali Al Sulaiti, the general manager of QNCC, told OBG that production from the new line will begin in 2015, taking the total production capacity to 6.6 mtpa. This will add to existing capacity of 3.9 mtpa of clinker and over 5.12 mtpa of cement. The total production capacity for cement in the country will increase to 11.1 mtpa when construction of the new plants is complete (see analysis). Despite opportunities for domestic manufacturers to expand production, most building materials are imported at present. Costs are one of the major reasons for this. “It is difficult to build a startup manufacturing business that requires land assets. The government wants the economy to be self-sustaining, so better incentives need to be provided to mitigate cost constraints. New industrial estates with large plots for value-added manufacturing would help reduce imports and stimulate the local manufacturing,” Nishad Azeem, founder and CEO of trading and construction firm Coastal Qatar, told OBG.

Outlook

The construction industry has grown significantly over the past year, buoyed by a number of major projects in the transport and infrastructure sectors. In addition to these large-scale developments, a number of smaller urban projects of a lower profile have supported the sector, particularly for local construction firms. As a response to the significant activity, the country’s regulatory framework has also received a number of improvements.

The industry does, however, face challenges. Neighbouring Saudi Arabia and the UAE are the biggest construction markets in the GCC, and growth in these countries will place pressure on the supply of skilled and unskilled workers and lead to an increase in labour costs. This has the potential to become a significant issue considering that Qatar will need to import a large number of workers in the years ahead.

Furthermore, the supply of basic building material is also increasingly under serious pressure. Qatar will depend almost entirely on its existing supply chains, which are creating bottlenecks, until the New Port Project opens. Additionally, regional supplies of cement are also limited. The UAE, for example, is the only supplier for some raw materials used in making concrete in the GCC region. Its output is likely to go towards supporting local construction, which is thriving, before being exported. Bitumen supplies, which are used to make asphalt for road construction, are also increasingly limited. Saudi Arabia, one of the biggest suppliers to the region, has indicated it will export less, reallocating output to supply local projects, leaving Bahrain as the only other supplier. The pipeline of projects going forward includes more than $150bn in planned investments over the next seven to 10 years. While there have been delays of late, the importance of the 2022 FIFA World Cup tournament provides a clear timeframe and will help to reassure the industry that projects will move from planning to implementation in a timely fashion.

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The Report: Qatar 2014

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