Qatar's construction industry expands with strong public investment

Although growth has slowed following a banner year in 2014, Qatar’s construction industry remains one of the most vibrant and fast-expanding in the Middle East, and a key driver of non-oil growth in the state. Major infrastructure projects including the Doha Metro, Long Distance Rail, Hamad Port, the next phase of expansion at Hamad International Airport (HIA), and a network of new roads and drainage systems are expected to keep the industry on track in 2016, while new builds in the health, education, real estate and hospitality segments will further augment growth.

Many of these projects benefit from enhanced government spending aimed at delivering critical projects in time for the 2022 FIFA World Cup, which should help offset some of the challenges contractors are facing as a result of project delays, high build costs, delayed payments and lack of available labour. At the same time, reforms to construction standards will improve the sustainability and longevity of major planned projects, ensuring a smoother long-term growth path.

Driving Non-Oil Growth 

Qatar’s construction industry is a critical non-oil growth driver, accounting for around 10% of GDP at the end of 2015, according to the Ministry of Development Planning and Statistics (MDPS). According to the MDPS’s “Labour Force Sample Survey, Annual Report 2014”, published in December 2015, the construction sector is the state’s single largest employer, with an estimated 37% of Qatar’s 1.7m-strong workforce employed in it.

Under Qatar’s long-term development plan, Qatar National Vision 2030 (QNV 2030), the state is seeking to diversify its economy and reduce hydrocarbons reliance, in addition to creating high-quality education and health care facilities and providing supportive long-term infrastructure for its residents. In the nearer term the state’s winning bid for the 2022 FIFA World Cup will see construction and refurbishment of eight new stadia, and intensify deadline pressures on infrastructure projects, including construction of a metro and light rail transit (LRT) system, HIA’s expansion and hundreds of kilometres of new expressway.

Public Support 

Qatar’s robust foreign reserves and ambitious development agenda have kept public expenditure as the driving force behind construction growth. The Public Works Authority (Ashghal) was created in 2004 with the mandate to design, deliver and manage infrastructure and public amenities projects, most notably roads, sewage and drainage systems, as well as social infrastructure including schools and hospitals.

Contracts are awarded by the Central Tenders Committee, launched in 2005 to handle tendering of all government projects, and major infrastructure works are overseen by their respective authorities, including the New Doha International Airport Steering Committee, Qatar Rail (QR) and the Hamad Port Steering Committee. In addition, the Supreme Committee for Delivery and Legacy (SC) is tasked with overseeing World Cup stadium development and construction. Ashghal, the Ministry of Municipality and Environment, and the Ministry of Transportation and Communications are responsible for macro policy and oversight.

Recent Expansion 

Although Qatar holds a relatively small share of the top-100 projects within the GCC – 9.3% according to a December 2015 report in Qatar Construction News – its construction industry is expanding rapidly. According to estimates by MEED Projects, the total value of projects planned or under way in the state is more than $200bn, while growth is forecast to average 11.4% annually between 2015 and 2022. According to latest available data published by the MDPS in April 2016, the fourth quarter of 2015 saw the industry grow, with construction’s total contribution to GDP at current prices climbing by 2.1% to QR13.9bn ($3.8bn), up from QR13.6bn ($3.7bn) in the third quarter of 2015. Year-on-year (y-o-y) growth during the quarter was 14.8%, and the sector’s performance was strong compared to the overall Qatari economy, which saw total GDP at current prices fall by 19.8% y-o-y in the fourth quarter of 2015 to QR147bn ($40.3bn) and by 0.4% between the third and the fourth quarters.

Budget 

Although Qatar has been affected by low oil and gas prices, with crude falling by two-thirds between June 2014 and December 2015, government spending on critical infrastructure projects will remain steady in 2016. The state is expected to record its first budget deficit in 15 years in the 2016 budget, which envisions QR202.5bn ($55.6bn) of spending and QR156bn ($42.8bn) of revenues, with a significant portion of expenditure allocated to construction. According to the Ministry of Finance, QR50.6bn ($13.9bn), or 32.4% of the total, will be spent on infrastructure in 2016. Infrastructure and transport projects received QR75.6bn ($20.7bn) in the 2014/15 budget, a 21.9% increase over 2013/14, and representing 34.6% of total expenditure that fiscal year.

Ali Shereef Al Emadi, the minister of finance, told media that the 2016 budget’s main goal is to ensure the completion and implementation of major projects in key sectors, including rail projects, Hamad Port, road works and World Cup stadia. The total cost of government projects under way stood at QR261bn ($71.6bn) as of December 2015, including QR87bn ($23.9bn) in transport projects, QR54bn ($14.8bn) in other infrastructure, QR30bn ($8.2bn) in utilities projects and QR24bn ($6.6bn) in sports infrastructure.

2022 Stadia

There are an estimated $276.3bn worth of projects planned or under way in Qatar, with the SC putting the cost of the World Cup stadia at $4bn, while World Cup-related infrastructure is valued at $10bn, according to Reuters. World Cup stadium projects have received high levels of international attention and have been viewed by some as a construction industry barometer as the state moves forward on QNV 2030. Although ongoing concerns regarding labour rights and reforms remain an issue for stakeholders, progress on the projects themselves has been largely strong and steady, and as of May 2016 eight stadium locations had been announced, with work currently under way on six venues.

First Six

The design for Al Wakrah Stadium was the first to be released, when authorities revealed in November 2013 that its structure will be modelled on a dhow boat used for pearl diving. Design works were carried out by AECOM and Zaha Hadid Architects. On December 15, 2015 the SC announced that it had selected a main contractor for Al Wakrah Stadium, awarding the contract to Midmac, in a joint venture (JV) with PORR Qatar. The value of the contract was not specified, and construction is expected to finish in 2018.

Al Bayt Stadium, which is modelled on a Bedouin tent, was the next facility to be unveiled, in June 2014. In July 2015 a JV between Italian firms Salini Impregilo Group and Cimolai, and Qatar’s Galfar Al Misnad, announced that it had signed a QR3.11bn ($853.4m) contract for the construction, operation and maintenance of the stadium, which will be built in Al Khor and completed by 2018. Construction began in September 2015.

Khalifa International Stadium, located in the Aspire Zone in western Doha, was the third to be announced, with authorities unveiling plans in November 2014 to refurbish the existing stadium, which was built in 1976 and renovated for the 2006 Asian Games. Dar Al Handasah and Projacs were awarded design consultant and project manager contracts, while a JV between Midmac Contracting and Belgian company Six Construct won the stadium’s construction contract.

In October 2014 the SC scrapped plans to renovate the existing Al Rayyan Stadium to double its capacity to 40,000, announcing that it will instead demolish and rebuild the stadium. In April 2015 UK-based firm Ramboll and Pattern unveiled its design, which was inspired by sand dunes and, like the other stadia, will offer air-conditioning to keep indoor temperatures between 24°C and 28°C. The construction contract on Al Rayyan Stadium was awarded to a JV of Qatar-based Al Balagh Trading & Contracting and Indian construction firm Larsen & Toubro. In December 2014 authorities announced the design for the Qatar Foundation Stadium, which will be located in Education City. The stadium will feature a complex, reflective geometric-patterned exterior paying tribute to traditional Islamic architecture, and it will offer capacity for 40,000 spectators, which will be reduced to 25,000 following 2022. Construction of the stadium is expected to finish in 2018.

Lusail Iconic Stadium, which will host the tournament’s opening match and the final, will be constructed on a 1m-sq-metre site in Lusail City, and will provide capacity for 80,000 spectators. In March 2015 the SC announced that British firm Foster & Partners had won the stadium’s design contract, and the final design will be revealed in 2016. Contractors were invited to bid on the stadium in May 2016, with the SC asking for work to begin in December 2016 and setting a maximum bid price of QR2.8bn ($768.3m).

New Locations

In December 2015 Qatari authorities revealed the next two locations for Qatar’s planned new World Cup stadia. The SC announced it had selected Al Thumama, which is west of Najma Street between E-ring and F-ring roads, and Ras Abu Aboud, near HIA and the Marriott Doha Hotel, as the locations of its seventh and eighth stadia. The following week FIFA reported it was satisfied with progress at six stadia currently under construction, telling local media that it expects all facilities will be operational by 2020.

On December 21, 2015 Qatar’s Arab Engineering Bureau was selected to design Al Thumama Stadium, which will be located on a 515,400-sq-metre site that is already home to four outdoor training pitches and office facilities used by the Qatar Football Association Technical Committee.

The Ras Abu Aboud stadium, meanwhile, will replace the Doha Port Stadium concept, which was previously planned to be constructed on an artificial peninsula and resemble a surfacing marine animal. Part of a new waterfront district, the 40,000-seat arena will be located off the Ras Abu Aboud Expressway on a 450,000-sq-metre site. The venue will be designed by Populous, the company responsible for the design of the 2012 Olympic Stadium in London, while project management firm Time Qatar, which is part of US company Turner Construction, will oversee the project. According to the SC, the stadium is one of the first to be created with a design-for-legacy concept that is tied in with plans for a larger mixed-use neighbourhood after the tournament. The SC is expected to make an announcement on construction tenders for both stadia in 2016.

Transport Infrastructure

Although stadia remain the most high-profile of Qatar’s World Cup projects, construction of supporting transport infrastructure for the estimated 1m visitors who will arrive in the state for the event is an equally critical government priority, and continues to present new opportunities to contractors.

Chief among these infrastructure projects is Qatar’s multi-pronged railways development programme, which comprises three separate rail projects; the Lusail LRT system, the Doha Metro, and a long-distance freight and passenger rail line connecting Qatar to the wider GCC. The Qatar Rail Development Programme is one of the most expensive infrastructure projects under way in the state, with an estimated budget of $35bn-45bn.

Metro

One of the largest construction projects under way in Qatar is the Doha Metro, the first phase of which is made up of three lines – Green, Red and Gold – and is expected to be operational by 2019. According to QR figures, the project comprises 37 stations connecting major residential and business areas in the city. Its second phase, expected to be completed by 2026, will see the addition of the Blue Line, which will add 72 new stations to the total (see Transport chapter).

Construction on the first phase is now under way, with QR reporting in June 2016 that it had dug over 100 km of tunnels. All tunnelling work required for the first phase is expected to wrap up in 2016. As of 2015, some 26,000 workers were engaged in the metro construction, and the project holds the Guinness World Record for the highest number of tunnel-boring machines used at one time, 21. Contract awards began in June 2013 when the company announced $8.2bn worth of design and build contracts for the Red and Green lines, with the Red Line split into two separate packages. This was followed, in April 2014, with the award of an additional $4.4bn contract for Gold Line construction to a consortium including Greece’s Aktor, Turkey’s STFA Group and Yapı Merkezi, India’s Larsen & Toubro and Qatar’s Al Jaber Engineering.

The contract for rolling stock and railway systems, as well as up to 20 years of maintenance on phase one of the metro, was awarded to a consortium led by Mitsubishi Heavy Industries and including Mitsubishi, Hitachi, Kinki Sharyo and Thales in February 2016. The following month Dubai-based Drake & Scull was awarded a QR340m ($93.3m) contract to supply, install, test and commission the mechanical, electrical and plumbing services for the metro’s depot and stabling yards on the metro’s Red and Green lines, with an end date of 2019.

LRT & Long-Distance Rail

Progress is even more advanced on Lusail City’s 38.5-km LRT system, which consists of four lines – Red, Green, Purple and Yellow – and 37 stations, as well as two interchange stations at Legtaifiya and Lusail Central, allowing for connections to the metro.

In June 2014 a consortium including QDVC and Alstom was awarded the main construction contract for the network, which is scheduled to open in stages between 2019 and 2020. The system’s southern portion is expected to be the first to open to the public in February 2019. In March 2015 QDVC awarded France’s Thales a contract to supply and maintain the supervision, telecoms, security and automatic fare collection systems for the network, and in December of the same year QR reported that 100% of the tunnels for the LRT had been completed. QR plans to award mechanical, electrical and plumbing, and architectural contracts for its network of metro stations in 2016, with a full-scale mock-up for the integrated LRT/ metro network also planned for release.

A 486-km long-distance freight and passenger network is next up, with QR releasing a list of 15 pre-qualifying consortia in August 2015 for the design and build contract (see Transport chapter). By 2021 QR expects 8000 passengers will travel on the railway daily, rising to 24,000 by 2031.

HIA Expansion

Although the $17bn HIA opened its doors in May 2014, further expansion is planned at the airport to bring existing capacity from 30m to 53m passengers annually.

In September 2015 authorities unveiled design plans for the next phase of work, which include the extension of the main terminal building, construction of two new concourses, D and E, and a connection to the Red Line of the Doha Metro (see Transport chapter). The project’s main construction packages are expected to be tendered later in 2016, while the steering committee also plans to award contracts for construction of the airport’s north node expansion, which will add some 130,000 sq metres of space, as well as a construction tender for a new hotel.

Material Costs

One of the most significant challenges facing construction stakeholders has been construction inflation and high build costs, with Qatar continuing to be one of the most expensive countries in the Gulf region in which to build offices, retail stores and homes. EC Harris reported in January 2015 that Qatar has the highest construction costs in the Middle East, while consulting firm Arcadis forecast in 2014 that the state’s construction inflation could reach 20% between 2016 and 2019. In June 2015 investment bank Alpen Capital reported that Qatar experienced the highest construction materials inflation in the GCC between 2002 and 2013, with its construction cost index nearly doubling to 197. Alpen forecasts that regional demand for limestone and gabbro will reach 515m tonnes and 364m tonnes, respectively, between 2013 and 2017.

Rising Costs 

In 2016 Doha was again ranked as the region’s most expensive city for construction. According to the “International Construction Costs 2016” report by Arcadis, Doha stood as the world’s 12th-most-expensive city in which to build in 2016, ahead of Jeddah (16th) and Dubai (18th).

Several factors will help Qatar manage these challenges, however, the first being a rising number of delayed and cancelled projects. Helmut Landahl, general manager of Hochtief Solutions, told OBG, “As a consequence of budgetary constraints caused by the reduced oil prices and to avoid the construction industry overheating locally, a number of previously announced projects are either being phased or delayed.”

Although these delays and cancellations have affected contractors operating in the state (see analysis), they will also help to cool demand for construction materials. At the same time, trends in global markets will help keep materials prices in check, despite rising demand. According to a December 2015 report published by CW Research, cement prices in the GCC fell by 10% in 2015 as a result of both the commodity’s price decline and appreciation of the US dollar, to which many Gulf currencies, including the Qatari riyal, are pegged.

Taking Action

The state-owned Qatar Primary Materials Company (QPMC) is also helping curb materials costs through bulk purchases, giving it a modicum of control over price volatility. QPMC made strong moves to increase Qatar’s materials stockpile in 2015, signing deals with local quarries and traders, including one with Doha Quarry to provide 3m tonnes of gabbro over a one-year period; with MFH for 7.5m tonnes of limestone over five years; and with Oryx Trading for 2m tonnes of gabbro over one year.

These deals will increase the domestic stockpile of primary materials to 58m tonnes, with QPMC telling media in October 2015 that the company had signed supply agreements with 24 local contractors for 1.1bn tonnes of materials.

QPMC added to its stockpile in December 2015 as the company signed four new agreements to supply 20m tonnes of limestone aggregates and gabbro to the industry over the next three years. In addition, Qatar’s new Hamad Port, as well as new developments at its Port of Ras Laffan and Port of Mesaieed, will significantly reduce the supply bottlenecks that have affected Doha Port, which is located in the Corniche tourist area and is due to be transformed into a terminal for cruise ships over the coming years (see Transport chapter).

Hamad Port

Expected to become one of the largest multipurpose ports in the GCC, Hamad Port began partial operations in December 2015, with its first phase scheduled to commence full operations by the end of 2016.

The port, which is designed to handle 6m containers annually once fully operational, will feature a cargo terminal with capacity for 1.7m tonnes of general goods, 1m tonnes of food grains and 500,000 vehicles. The new port will serve as a regional trans-shipment hub, and – with an estimated budget of $7.4bn – stands as the world’s largest greenfield port project.

Road Development 

Further development of expressways and local roads will also be critical in the lead-up to 2022, as demonstrated by a spike in Ashghal contracts in recent years. The authority awarded more than QR26bn ($7.1bn) in contracts during 2014 alone, including QR22.63bn ($6.2bn) of infrastructure projects, building contracts worth an estimated QR2.5bn ($686m), and QR762m ($209.1m) worth of contracts for operation and maintenance of roads and sewerage networks. During the 2013/14 fiscal year, total contracts awarded by the authority rose by 200% over 2012/13 to hit QR38.4bn ($10.5bn).

Although some of Ashghal’s activities slowed in 2015 – it awarded four consultancy tenders during the first six months of the year, compared to 25 between February and December 2014, for example – the authority continues to push forward on critical projects. Nasser Mohammed Hatab Al Kaabi, chairman of Tadmur Holdings, told OBG, “We did expect the market dynamics to change, but the construction industry is still extremely competitive, with a number of Asian contractors in particular underpricing the market. As margins have got tighter, local contractors have even resorted to pricing lower and still often do not win tenders.” This is particularly true in the roads and utilities sector, through key initiatives including the Expressway Programme (see Transport chapter), Local Roads and Drainage Programme (LRDP) and the Inner Doha Re-Sewerage Implementation Strategy (IDRIS). In May 2015 Ashghal awarded 11 new contracts worth a cumulative QR6.06bn ($1.7bn), all of which were allocated to IDRIS, along with local roads projects.

LRDP

The LRDP, a QR50bn ($13.7bn) programme entailing extensive upgrades to road networks across all five regions of the country, has seen steady progress. The LRDP envisions delivering more than 200 projects over the next five to seven years. Many of these will prove critical as population growth continues, and major planned educational, health and cultural projects come on-line.

In May 2015, for example, Ashghal announced that roads surrounding the National Museum of Qatar, which is currently under construction and expected to open in 2017, had been redeveloped and widened to improve traffic flow and reduce congestion along the Corniche, a popular tourist area. The QR79m ($21.7m) project widened the roads from one to two lanes in each direction, and created new entrances and exits to the museum. It also added utilities upgrades, as well as new streetlights, pedestrian crossings and cycle paths.

Local Areas Infrastructure 

Work on local roads has also been supported by Ashghal’s Construction and Development of Infrastructure in Local Areas programme. In May 2015 Ashghal announced that out of 11 new contracts awarded that month, eight had been devoted to the programme. These included the third package of a project to improve roads and infrastructure in Al Wakrah West, worth QR287m ($78.8m); a QR113m ($31m) award to build roads and infrastructure in a government residential division in Al Wukair; a QR674m ($184.9m) contract for roads and infrastructure in a government residential division north of Al Wukair; package three of the West of Al Meshaf project, valued at QR518m ($142.1m); and a roads and infrastructure contract for the Al Sailiya-North of Salwa Road project, worth QR573m ($157.2m). In December 2015 Ashghal reported that five LRDP projects had been completed, with an additional 30 still under construction.

IDRIS 

The state’s sewage system is also benefitting from investment under IDRIS, which is slated to provide a critical sewage and drainage network across southern Doha, including a sizeable deep tunnel sewer network and advanced sewage treatment works by 2019.

The project entails construction of a 40-km deep main trunk sewer, more than 70 km of lateral interceptor sewers, a 70-metre-deep terminal pumping station and a new sewage treatment plant in New Doha South, offering an initial capacity of 500,000 litres per day. IDRIS’s total cost is estimated at more than QR10bn ($2.7bn).

In May 2015 Ashghal announced that it had awarded three new contracts under IDRIS for design and construction of the Main Trunk Sewer project, which was split into three work packages worth a total of QR3.21bn ($880.8m). A JV between UrbaCon and Bouygues won contracts one and three, while a consortium comprising Hochtief, Strabag and Petroserv was awarded contract two.

Ashghal reported in December 2015 that two further contracts are expected in mid-2016 for a planned terminal pumping station and New Doha South Sewage Treatment Works facility, as well as a treated sewage effluent return system. The authority expects all works for the project will be commissioned by 2020.

Flood Prevention 

Both the LRDP and IDRIS have become particularly critical in the wake of heavy rains which struck Doha at the end of November 2015, causing extensive flooding across major highways and causeways, and leading to an investigation into contractors on projects where design and build flaws were exposed. As such, the government has moved to improve construction standards across the state, most recently through the June 2015 issuance of new construction standards and regulations (see analysis). IDRIS will also boost capacity ahead of an anticipated surge in population growth across Doha’s southern catchment, where 1m new residents are expected in the coming years. According to Ashghal officials, IDRIS will meet demands in the region for the next 50 years when construction finishes.

Real Estate 

Aside from sports, utilities and transport infrastructure, the real estate sector continues to offer new opportunities to contractors and investors. Although the real estate market could face over-supply within the retail, office and high-end residential segments, a severe shortage of affordable housing continues to present challenges to Qatar’s single workers and middle-class families. At the same time, large-scale mixed-use residential projects, including The Pearl-Qatar and Lusail City, have seen a spate of contracts awarded in recent years, with more expected over the medium term as these developments prepare to welcome hundreds of thousands of new residents and visitors (see Real Estate chapter).

Outlook 

Although falling oil and gas revenues have exacerbated ongoing industry challenges, including project and payment delays (see analysis), Qatar’s construction industry remains well positioned to continue leading non-oil economic growth, driven by steady public expenditure and the deadline imposed by the upcoming 2022 FIFA World Cup. Public spending is likely to remain a critical industry growth driver in the coming years, although rising demand for new residential units and housing, as well as tourism facilities, could see private projects play a much more prominent role in expansion of the industry in the coming years.

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The Report: Qatar 2016

Construction chapter from The Report: Qatar 2016

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