meed-logo

line1 line2 line3
SIGN IN / REGISTER

Saudi leads MEED’s latest economic activity index

31 January 2023

 

Saudi Arabia has continued to sit atop the MEED Economic Activity Index with the close of 2022, as its repeat of another bumper year of project contract awards set it well clear of the next most competitive regional projects market.

The index has generally seen the division between energy exporters and importers sharpen, with the former enjoying current account and, for the most part, fiscal surpluses, and the latter invariably facing trade deficits and persisting fiscal deficits.

High inflation, compounded by rising interest rates and high fuel prices, continues to erode economic prospects in the region. It has also pressured the finances of countries with artificially high currency pegs. Egypt has been forced to drop its currency peg three times in the past year, leaving it increasingly at the mercy of inflation.

Saudi Arabia stands largely apart from these pressures as the region’s largest oil producer. Its inflation rate in 2023 is projected by the IMF to be a minimal 2.2 per cent. While its rate of real GDP growth is expected to come down from 7.6 per cent in 2022 to 3.7 per cent in 2023, this remains high amid the glum projections that up to a third of the global economy could enter recession this year.

Together with the UAE, Qatar, Kuwait and surprisingly Iraq, Saudi Arabia is expected to maintain a double-digit current account surplus in 2023, as well as a fiscal surplus, despite the kingdom’s rising project spending.

There is a further $95bn-worth of project value in the bidding stage [in Saudi Arabia], boding well for the potential of 2023 to be another bumper – if not record – year for the Saudi contracting sector

Project potential

Saudi Arabia’s project market maintained its momentum in 2022, seeing the award of 53bn-worth of project value, 1.3 per cent more than in 2021 and 46 per cent higher than the annual average over the preceding five years. 

The award figure also exceeded the value of projects coming to completion over the course of the year by $21bn – a strong net positive result for the market. 

There is a further $95bn-worth of project value in the bidding stage, boding well for the potential of 2023 to be another bumper – if not record – year for the Saudi contracting sector.

Mixed performances

The UAE, while retaining the second position in the index, has seen its score slip. Despite having strong real GDP growth and fiscal projections for 2023, the country remains well down from historic highs – the $18.7bn-worth of project awards in 2022 was just 53 per cent of the $35.1bn average in 2017-21. The market also shed $20bn in value as completions outstripped awards. 

The $56.4bn of projects in bidding and due for award in 2023 makes the prospect of a turnround a possibility, but there is no guarantee given the global uncertainty.

Qatar has meanwhile risen strongly in the index since the third quarter of 2022, despite a real GDP growth projection by the IMF of just 2.4 per cent in 2023 – as the boost to non-oil GDP from the Fifa World Cup wears off. 

Qatar’s project awards also fell in 2022 following a spike in 2021. The $14bn of awards in 2022 nevertheless remained almost level with the five-year average.

Kuwait also has a slightly lower real GDP projection in 2023, but strong overall fundamentals. Project activity also continues to tick over in the country, albeit at a slower than usual pace. The country has $27.6bn-worth of projects in the bid stage – a figure nearly 10 times the $2.8bn-worth of awards in 2022, which fell well below the $5.6bn average for the preceding five years.

The remaining GCC nations, Oman and Bahrain, and another Gulf energy exporter, Iraq, all also boast healthy current account surpluses. From there however, the countries diverge. 

Oman is in a much better position heading into 2023, having stabilised its fiscal situation and eliminated its deficit. The country also has the lowest forecast consumer price inflation rate in the region heading into 2023, at just 1.9 per cent. Furthermore, the country has a burgeoning $19.7bn-worth of projects in the bid stage that could soon bolster its projects market.

Bahrain continues to struggle with both a persisting fiscal deficit and a debt burden – equivalent to about 120 per cent of its GDP. The country’s projects market slumped in 2022, with the less than $1bn of contract awards compared to $2.6bn in completions.

Iraq remarkably sits just below the GCC countries in the index thanks to its oil-fuelled GDP growth and twin double-digit current account and fiscal surpluses. Iraq’s project activity nevertheless fell away in 2022, which saw just $5bn-worth of awards – compared to $17bn the previous year and a $12bn five-year average. The $28bn-worth of projects in the bidding stage could nevertheless make for better things to come.

Egypt’s projects market has recently been in the ascendant, but its broader economic fortunes are now in sharp decline. The full impact of the country’s currency crisis has yet to be revealed, but Cairo already has twin current account and fiscal deficits.

Iraq remarkably sits just below the GCC countries in the index thanks to its oil-fuelled GDP growth and twin double-digit current account and fiscal surpluses

Facing challenges

Algeria, Morocco, Jordan and Tunisia are all struggling to break even in the current economic climate and have double-digit unemployment. This is ironic in the case of Algeria, which is an energy exporter with a current account surplus and yet double-

digit fiscal deficit.

Below this, Iran continues to be hampered by sanctions, creeping economic malaise and an estimated 40 per cent consumer price inflation rate amid a steadily collapsing import subsidies regime.

Libya, despite resurgent oil growth, has nearly 20 per cent unemployment and 50 per cent youth unemployment due to the civil war. Reconstruction efforts in the country also showed signs of stalling in 2022 as the project award value dropped off, with many projects stuck in the bid stage.

Yemen and Lebanon close out the index with dismal economic performances due to their respective ongoing conflict and economic crisis. Remarkably, with almost one-in-three out of work and unchecked inflation, Lebanon is managing to underperform even Yemen.

About the index

MEED’s Economic Activity Index, first published in June 2020, combines macroeconomic, fiscal, social and risk factors, alongside data from regional projects tracker MEED Projects on the project landscape, to provide an indication of the near-term economic potential of Middle East and North African markets.

View the November 2022 index here

https://image.digitalinsightresearch.in/uploads/NewsArticle/10553253/main.gif
John Bambridge

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • GE Vernova invests in Xlinks

    2 May 2024

    US-headquartered GE Vernova has invested $10.2m in Xlinks First, the investment company established by UK-based startup Xlinks to deliver the $18bn Morocco-UK power project.

    This investment equates to a minority shareholding in the company, which is developing a project comprising wind and solar generation as well as battery storage, with a total combined capacity of 3,600MW, to be transmitted from Morocco to the UK.

    Xlinks said the investment will “further accelerate delivery and buildout of the project”.

    GE Vernova joins at least four other investors in the project.

    Other investors include Africa Finance Corporation, which invested $14.1m in April; Abu Dhabi National Energy Company (Taqa), $30.7m; the UK’s Octopus Energy, $6.23m; and France’s Total Energies, $25.4m.

    The planned electricity generation and battery storage facilities, located in south Morocco, will be connected exclusively to the UK via 4,000-kilometre high-voltage, direct current (HVDC) cables.

    In December last year, Xlinks signed a contract with Canada-headquartered WSP to provide technical advisory services for the project.

    WSP will support Xlinks with route optimisation, power systems and interface management for the plan to construct the project.

    The Morocco-UK power project entails building 10,500MW solar and wind farms in Morocco’s Guelmim-Oued Noun region and sending 3,600MW a day of energy exclusively to the UK via four 3,800-kilometre HVDC cables.

    The HVDC network is envisaged to run from the UK’s south coast, passing France, Spain and Portugal undersea and then onshore to a planned solar and wind energy project in Morocco.

    This renewable energy-sourced electricity amounts to nearly 8% of the UK’s current requirements, equivalent to powering 7 million homes by 2030.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11734222/main5830.jpg
    Jennifer Aguinaldo
  • Awards buoy Oman’s green hydrogen strategy

    2 May 2024

    Commentary
    Jennifer Aguinaldo
    Energy & technology editor

    Oman has awarded two additional land blocks designed to develop green hydrogen projects.

    The latest land block concessions in Dhofar were awarded to two consortiums. One comprises a team of France's EDF Group and EDF Renewables, with partners Japanese Electric Power Development Company (J-Power) and the UK-headquartered Yamna Company.

    Another team comprises UK investment firm Actis and Australian metals firm Fortescue.

    This brings the total number of land blocks awarded through the public auction process spearheaded by Hydrogen Oman (Hydrom) to four, exclusive of the four legacy initiatives signed or agreed upon already.

    *Budgets are MEED estimates if not publicly disclosed. Sources: MEED, Hydrom

    A limited gas supply and network strongly incentivises Oman to build a green hydrogen-centric downstream sector that will provide feedstock to domestic industrial plants and generate derivatives for the local and export markets.

    Stakeholders have implemented a strategy, including setting up an infrastructure company catering to these projects. The target is to generate 1 to 1.5 million tonnes a year (t/y) of green hydrogen by 2030 and 7.5 to 8.5 million t/y by 2050.

    The blueprint envisages a complete green hydrogen ecosystem, from the production of renewable energy and its distribution to electrolysis plants and hydrogen derivatives conversion plants to storage and export terminals.

    Omani ports' existing relationships with European stakeholders and growing alliances with other countries could also help seal future offtake agreements for the planned facilities.

    As things stand, the consortiums that won the land auctions and the legacy initiative partners provide much gravitas to Oman's green hydrogen programme. They comprise energy old guards such as BP and Shell that are keen to decarbonise, private companies aiming to balance their investment portfolios with clean energy investments, and offtakers or trading companies that are grappling with net-zero targets.

    Yet the most obvious question remains. Given the eye-popping foreign direct investments these complex projects entail, not all are likely to achieve a final investment decision within three years. This seems to be the window required for the projects to start production before 2030.

    But like any emerging industry, the risks can only be properly assessed and mitigated as the first projects move toward the execution phase.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11733331/main.gif
    Jennifer Aguinaldo
  • Operationalise loss and damage fund says Al Jaber

    2 May 2024

    Steps must be taken to ensure a fully functioning Loss and Damage Fund, following an agreement at Cop28 to operationalise the fund, according to Cop28 President Sultan Al Jaber.

    “While delivering an agreement to operationalise the Fund at Cop28 was a huge breakthrough for climate progress more needs to be done,” Al Jaber said during the first board meeting of the fund on 30 April.

    The Loss and Damage Fund, which was first proposed in the 1990s, aims to help developing countries cope with the impact of extreme global warming events such as droughts and floods.

    Al Jaber cited the need to build a fully functioning fund, which will be endorsed at Cop29 in Baku, which will be “disbursing funds soon after and a Fund that delivers lasting, positive, socio-economic impact for decades to come."

    "While it took over three decades to establish this Fund, climate change has not stood still. Every region of the world is now vulnerable…the impacts of climate change are a clear and present danger to lives and livelihoods everywhere."

    Al Jaber’s message resonates closer home given the recent storms hitting the UAE, which brought some emirates to a standstill in mid-April.

    Heavy rainfall inundated Dubai and the Northern Emirates on 16 April, causing flooding and significant property and infrastructure damages.

    A total of $792m has been pledged for loss and damage funding arrangements – of which $662m has been pledged to the Fund to date – including a $100m contribution each from the UAE and Germany and $75m from the UK.   

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11732746/main.jpg
    Jennifer Aguinaldo
  • Norwegian firm to develop Oman wave energy project

    2 May 2024

    Oman's shipping and logistics firm Asyad Group has signed an agreement with Norwegian wave energy company Havkraft to explore the development of wave energy.

    It is the first project of its kind in the sultanate and across the region.

    Havkraft is known globally for pioneering technologies that enable the production of renewable electricity from wave energy.

    According to Havkraft Middle East adviser Matt Minshall, wave power has the potential to be the “most eco-friendly and cost-effective route to net zero”.

    Oceans cover 78% of the earth’s and waves have the potential for energy with the reliability of a constantly charged battery, and have remained untouched, according to Minshall.

    The Norwegian startup reached a breakthrough in 2013 when it successfully developed the Havkraft Wave Energy Converter (H-Wec), which is suited for "all types of wave climates globally."

    Since then, the company has launched several solutions, including the deployment of a floating power-plant powered entirely by wave energy.

    Havkraft envisages a supersystem – a combination of solar, wind and wave power – to achieve a more resilient and sustainable energy mix while reducing dependence on expensive storage.

    Photo: Asyad

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11732539/main.jpeg
    Jennifer Aguinaldo
  • Saudi Arabia foregoes April nuclear deadline

    2 May 2024

     

    Register for MEED's guest programme 

    The 30 April bid deadline for nuclear technology providers to submit bids for a contract to build Saudi Arabia’s Duwaiheen nuclear power plant project has passed without any clear indication of a new tender closing date, according to two sources familiar with the project.

    “The understanding is that the tendering process requires a level of [political] stability in the region. This seems like an automatic postponement for the project tendering process,” one of the sources said.

    Companies that have been invited and are expected to bid for the contract include:

    • China National Nuclear Corporation (CNNC, China)
    • Korea Electric Power Corporation (Kepco, South Korea)
    • Rosatom (Russia) 
    • EDF Group (France)

    The project is in the so-called bid invitation specification stage, and there are no direct negotiations between the client and the potential bidders at this stage, MEED reported in July 2023.

    Saudi Arabia plans to build a large-scale nuclear power plant facility as part of its energy diversification agenda. 

    However, the ongoing conflict between Israel, Gaza and other neighbouring countries appears to be a major contributing factor in the extended procurement timeline of the Duwaiheen nuclear plant project.

    In October, an industry source said the ongoing conflict in Gaza is not likely to help advance negotiations between the countries with a key stake in the project.

    It is understood that Riyadh is using its nuclear power plant project, along with its plan to enrich uranium sources as part of its industrial strategy, as a bargaining chip with the US government. The White House is pushing for the normalisation of relations between Israel and Saudi Arabia and opposed to uranium enrichment.

    A month before the latest conflict between Israel and Hamas started, it was reported that senior Palestinian officials were in Riyadh for talks with senior Saudi and US officials.

    According to a BBC report in September 2023, the Palestinians were negotiating for hundreds of millions of dollars and more control of land in the occupied West Bank in the event of a three-way deal between Israel, Saudi Arabia and the US.

    On 14 October, Saudi Arabia suspended the talks on potentially normalising ties with Israel, which it never officially recognised as an independent state.

    Consultants

    Duwaiheen Nuclear Energy Company received three bids for the project management consultancy package for the nuclear plant project last year.

    MEED understands the following companies submitted proposals for the contract:

    • Atkins (UK/Canada)
    • Worley (Australia)
    • Assystems (France)

    Two of the three bidders have had previous engagements with the Saudi nuclear energy project. 

    2.8GW project

    The Duwaiheen nuclear power plant is expected to be procured using a traditional design-and-build model. 

    In September 2016, MEED reported that Saudi Arabia was carrying out technical and economic feasibility studies for the first reactors, and was also looking at possible locations for the kingdom’s first nuclear project, a 2.8GW facility.

    A site at Khor Duwaiheen, on the coast near the UAE and Qatari borders, was subsequently chosen for the first project.

    In March 2022, Saudi Arabia announced the establishment of a holding company – understood to be the Duwaiheen Nuclear Energy Company – to develop nuclear power projects in the country to produce electricity, desalinate seawater and support thermal energy applications.

    MEED's April 2024 special report on Saudi Arabia includes:

    > GVT & ECONOMY: Saudi Arabia seeks diversification amid regional tensions
    > BANKING: Saudi lenders gear up for corporate growth
    > UPSTREAM: Aramco spending drawdown to jolt oil projects
    > DOWNSTREAM: Master Gas System spending stimulates Saudi downstream sector
    > POWER: Riyadh to sustain power spending
    > WATER: Growth inevitable for the Saudi water sector
    > CONSTRUCTION: Saudi gigaprojects propel construction sector
    > TRANSPORT: Saudi Arabia’s transport sector offers prospects

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11729932/main3634.jpg
    Jennifer Aguinaldo