Bridging the infrastructure capacity gap
2 April 2024
The Middle East and North Africa (Mena) region faces a massive infrastructure gap, with estimates of the shortfall ranging from $75bn to $100bn annually.
This translates to a cumulative need for $2-2.5tn in infrastructure investment alone by 2050. Bridging this funding gap will require a drastic increase in the level of investment.
In 2020, the World Bank stated that Mena countries needed to spend at least 8.2% of GDP to meet their infrastructure goals through to 2030. However, it had been averaging a spend of just 3% over the prior decade – mostly from public sector funds, alongside multilateral and bilateral debt financing.
In the intervening years, the additional fiscal constraints imposed by the pandemic and global economic shocks, such as food price inflation, have further hindered regional public spending on infrastructure.
In 2023, the ICD-Refinitiv OIC Infrastructure Outlook valued the region’s outstanding funding gap for infrastructure development at $994bn. The gaps included a $685bn shortfall in investment in road infrastructure; a $111bn funding gap in the water sector; a $65bn gap in telecoms; $47bn in rail; $34bn in port infrastructure; $27bn in electricity network investment; and $25bn in airport infrastructure investment.
This funding gap has real, material impacts on economic prosperity and the prospects for economic growth. The shortfall in investment in road infrastructure, for example, is estimated to cost the Mena region a staggering 5.5% in GDP a year due to inefficiency and accidents, according to the World Bank.
A 2020 study in the Review of Middle East Economics and Finance found that manufacturing firms in the Mena region faced the most severe durations of power outages a month of any region, at 64 hours a month. The perceived value of the business losses due to these power outages was estimated to be around 4.8% of total sales.
Meeting the region’s annual investment needs could generate about 2 million direct jobs and 2.5 million direct, indirect and induced infrastructure-related jobs, according to the OECD.
This is critical when half of the region’s population is under 24 years old, and 29% are not in employment, education or training, as per the OECD figures.
Another very tangible infrastructure gap is water capacity. The current annual water shortage in the Mena region is about 42 cubic kilometres, but by 2050, this is projected to grow fivefold to 199 cubic kilometres a year under average climate scenarios and potentially up to 283 cubic kilometres a year under drier conditions.
These examples highlight the need for substantial investments to bridge the infrastructure deficiencies, ensure the conditions for economic growth, and enhance overall sustainability in the Mena region.
To address the challenges, a comprehensive and multi-faceted approach is needed to incentivise the private sector to support regional infrastructure investments. This includes governments establishing clear policy directions and regulatory frameworks to attract private capital mobilisation.
This funding gap has real, material impacts on economic prosperity and the prospects for economic growth
Technological adaptation
In parallel with the need for governments to proactively improve the conditions for investment, the delivery of future infrastructure requirements also anticipates the adoption of emerging technology.
The goal of many countries to achieve net zero by 2050 also layers further complexity onto existing infrastructure challenges. Regional efforts such as the Middle East Green Initiative and the Circular Carbon Economy framework nevertheless demonstrate the region’s commitment to achieving its net-zero targets.
Reaching net zero will entail building infrastructure that is not just bigger and better, but smarter. At the Global Infrastructure Initiative Summit hosted by McKinsey in Dubai in February, disruptive thinking and technology were identified as vital to the industry’s evolution to meet the needs of a net-zero future.
Industry leaders called for a nuts-and-bolts overhaul of the industry from the bottom up, with more sustainable alternatives to even centuries-old staples such as Portland cement and rebar. The digitalisation of the industry and the advent of machine-learning and AI also hold huge potential for cutting waste and designing more organic, efficient structures.
The summit highlighted that solving future infrastructure requirements will also likely necessitate overcoming technology hurdles and bringing costs down through research and development, much like the costs of solar power or reverse osmosis desalination have come down in the region.
Alistair Green, a senior partner in McKinsey’s global infrastructure practice, pointed to the technologies that “are not at conviction, yet: the technology hasn’t even really been proven outside of the lab – like flow batteries, which are an alternative to lithium-ion batteries that can be used for grid-scale storage of long duration, energy storage. This is a technology problem that we’re actively investing in researching in order to bring the costs down.”
Strategy& and engineering consultancy Dar recently reported that sustainable construction technologies can potentially reduce lifecycle emissions from the Mena region’s $2tn construction pipeline through to 2035 by 50%-60% for planned projects. Simple changes can be highly effective, such as incorporating dynamic facades into building designs, which can deliver energy savings of up to 55% in hot countries.
The key is the level of innovation, not the level of technology. In the right application, a low-tech solution may be more efficient. If a low-tech solution is scalable, it is also likely to be more cost-efficient.
In the arid Ait Baamrane region of Morocco, a 2015 project by the NGO Dar Si Hmad has created the world’s largest operational fog-harvesting system, providing potable water using a system of shore-side nets that capture and condense the fog rolling in off the ocean. Launched after a decade of research, the system yields approximately 22 litres of water a day for each square metre of net. It demonstrates that infrastructure does not need to be expensive or complex to have a positive sustainability outcome.
The most pressing need for the Mena region is to improve the attractiveness of its infrastructure investment opportunities
Accessing finance
Without sufficient finance, the effectiveness of infrastructure development, including technological innovation within the sector, will be throttled. The most pressing need for the Mena region is to improve the attractiveness of its infrastructure investment opportunities.
Many governments, especially in the Gulf, have been focused on encouraging the private sector through better and wider public-private partnership (PPP) arrangements, with mixed results. Some countries have struggled to deliver PPP frameworks with sufficient commercial appeal and bankability, a problem usually linked to unattractive risk allocations on the private sector side.
Nevertheless, the mobilisation of PPPs and the creation of more transparent and efficient regulatory frameworks around them are routinely identified as vital for attracting and mobilising private capital.
The delivery of more sustainable infrastructure with a view to net-zero targets also brings the potential to tap into green finance, including green bonds and sharia-compliant sukuk. Projects targeted towards carbon neutrality open themselves up to more diverse avenues of potential finance, including international climate mitigation and adaptation funds.
Multilateral development banks, such as the Asian Infrastructure Investment Bank, support initiatives like the Catalyst Mena Climate Fund 2, which works to mobilise private capital for infrastructure projects focused on renewable energy, sustainable utility schemes and green hydrogen capacity.
Governments in the region are also taking steps to mobilise climate finance by issuing green sovereign bonds and sukuk to fund clean transportation, waste management and green building schemes.
The UAE’s infrastructure development is guided by the Green Agenda 2030 policy framework. Under this aegis, UAE banks, including Mashreq Bank and First Abu Dhabi Bank, have pledged to mobilise $270bn in green financing by 2030 for environmentally impactful projects.
Infrastructure financing schemes are an important step towards drawing more private sector liquidity into the infrastructure industry, but it is also just a start compared to what will be required to deliver the region’s infrastructure needs.
Deep regional inequality also needs to be addressed. While countries such as Saudi Arabia and the UAE may currently be meeting the World Bank’s 8.2% of GDP infrastructure spending targets, the region’s hydrocarbon importers will likely need far more outside assistance.
For the region as a whole to thrive, countries will also need to work together and synergistically to deliver holistic infrastructure roadmaps. Just as the GCC is working together to deliver the Gulf Railway, the Levant and North Africa must work together to develop their shared infrastructure.
Only through cooperation and joint initiatives will the Mena region stand to bridge its infrastructure gap.
Exclusive from Meed
-
Dubai receives $22bn tunnels investor prequalifications
30 October 2024
-
TotalEnergies $11bn hydrogen project starts pre-feed
30 October 2024
-
Decarbonising steel is hard to resist
29 October 2024
-
Neom to tender hydropower contract
29 October 2024
-
TotalEnergies signs $11bn Morocco green hydrogen deal
29 October 2024
All of this is only 1% of what MEED.com has to offer
Subscribe now and unlock all the 153,671 articles on MEED.com
- All the latest news, data, and market intelligence across MENA at your fingerprints
- First-hand updates and inside information on projects, clients and competitors that matter to you
- 20 years' archive of information, data, and news for you to access at your convenience
- Strategize to succeed and minimise risks with timely analysis of current and future market trends
Related Articles
-
Dubai receives $22bn tunnels investor prequalifications
30 October 2024
Potential investors have submitted their statements of qualifications (SOQs) for a contract to develop and operate various packages of the $22bn Dubai Strategic Sewerage Tunnels (DSST) project.
MEED understands the project client, the Dubai Municipality, received SOQs from over a dozen companies, including several that have been prequalified as engineering, procurement and construction (EPC) contractors for the project's first four packages.
According to industry sources, the companies that are keen to prequalify as investors or sponsors of the planned public-private partnership (PPP) project include:
- Abrdn Investcorp Infrastructure Investments Manager (UK)
- Besix (Belgium)
- China Railway Construction Corporation (CRCC)
- China Railway Engineering Group (CREG)
- China State Construction Engineering Corporation (China)
- Itochu (Japan)
- Plenary (Australia)
- Samsung C&T (South Korea)
- Vision Invest (Saudi Arabia)
- WeBuild (Italy)
The project client and its consultants held a consortium match-making event for prospective contractors and sponsors or investors in Dubai on 7 October.
MEED previously reported that the bidders for the six public-private partnership (PPP) packages will be prequalified consortiums comprised of sponsors or investors; engineering, procurement and construction (EPC) contractors; and operations and maintenance contractors.
The overall project will require a capital expenditure of about AED30bn ($8bn), while the whole-life cost over the full concession terms of the entire project is estimated to reach AED80bn.
The investor prequalification process for the scheme comes after the client prequalified EPC contractors that can partner with the developers or investors to bid for the contracts.
MEED understands that packages J1 and W will be tendered together as separate contracts first, followed by J2 and J3, with the requests for proposals to be issued sequentially, staggered about six to 12 months apart.
Dubai Municipality is expected to invite prequalified companies to submit bids for the contracts to develop the first two packages of the DSST project in the fourth quarter of 2024.
DSST packages
Under the current plan, the $22bn DSST project is broken down into six packages, which will be tendered as PPP packages with concession periods lasting between 25 and 35 years.
The first package, J1, comprises Jebel Ali tunnels (North) and terminal pump stations (TPS). The tunnels will extend approximately 42 kilometres (km), and the links will extend 10km.
The second package, J2, covers the southern section of the Jebel Ali tunnels, which will extend 16km and have a link stretching 46km.
W for Warsan, the third package, comprises 16km of tunnels, TPS and 46km of links.
J3, the fourth package, comprises 129km of links.
J1, J2, W and J3 will comprise the deep sewerage tunnels, links and TPS (TLT) components of the overall project.
J1, J2 and W will be procured under a design-build-finance-operate-maintain model with a concession period of 25-35 years.
J3 will be procured under a design-build-finance model with a concession period of 25-35 years. Once completed, Dubai Municipality will operate J3, unlike the first three packages, which are planned to be operated and maintained by the winning PPP contractors.
The project’s remaining two packages entail the expansion and upgrade of the Jebel Ali and Warsan sewage treatment plants.
https://image.digitalinsightresearch.in/uploads/NewsArticle/12804424/main.jpg -
TotalEnergies $11bn hydrogen project starts pre-feed
30 October 2024
France’s TotalEnergies has started the pre-front-end engineering and design (feed) for its planned $11bn integrated project to produce green hydrogen and ammonia in Morocco, according to a company spokesperson.
TotalEnergies signed the joint development agreement with the relevant authorities and ministers in Morocco on 28 October, during French President Emmanuel Macron’s visit to the North African state.
It was previously reported that the planned integrated facility would be located in Guelmim-Oued Noun in southern Morocco.
TotalEnergies’ chairman and CEO, Patrick Pouyanne, signed the agreement for the local production of green hydrogen and ammonia in the presence of Morocco’s King Mohammed VI and Macron.
The counterparties included Morocco’s Energy Minister, Leila Benali; Economy and Finance Minister, Nadia Fattah; Interior Minister, Abdelouafi Laftit; and Minister Delegate in charge of Investment, Karim Zidane.
It is understood that the project will require the development of 10GW of solar and wind energy and a land area of 187,000 hectares.
It was reported that Morocco’s Unified Regional Investment Commission had approved the project’s launch in November 2022.
The other agreements signed during Macron’s visit to Morocco cover financial cooperation in the rail, forestry, aviation, logistics and energy sectors, with a particular focus on decarbonisation and energy transition.
TotalEnergies has been exploring green hydrogen and other related projects in the Middle East and North Africa region.
In August, the Courbevoie-headquartered firm and Abu Dhabi Future Energy Company (Masdar) signed an agreement to assess the viability of developing a commercial green hydrogen-to-methanol-to-sustainable aviation fuel (saf) project.
It is also among the early investors in UK-based Xlinks First, which aims to deliver the $18bn Morocco-UK power interconnector project. TotalEnergies acquired a minority stake in the company following an investment of $25.4m announced in November last year.
https://image.digitalinsightresearch.in/uploads/NewsArticle/12819510/main.gif -
Decarbonising steel is hard to resist
29 October 2024
Commentary
Jennifer Aguinaldo
Energy & technology editorA pilot green hydrogen plant supplying a small amount of colourless gas that will be used to extract iron from iron ore – a key steelmaking step – is not a big deal, especially given the multibillion-dollar industrial and petrochemicals investments that this region has grown accustomed to over the past decades.
The project can be seen as a just one element of Abu Dhabi's multi-pronged strategy to decarbonise large swathes of its economy, given that the client for this project, the newly rebranded Emsteel, holds a 60% share in the local steel industry and exports products to about 70 countries.
The global steel industry accounts for about 7% of annual greenhouse gas (GHG) emissions.
On one hand, it will take a lot more than a few electrolysers to produce hydrogen that will be used to further decarbonise Emsteel's production and operations; on the other, a small first step is required to make a future big leap given the enormity and urgency of the challenge, and the vast investment it requires.
Specific details are sparse regarding the pilot plant and the future timeline to scale hydrogen production at Emsteel's manufacturing complex in Abu Dhabi.
However, as the executives of Emsteel and its hydrogen partner, Abu Dhabi Future Energy Company (Masdar), have said, the completion of the pilot project is a vital first step towards producing certifiable green steel, which is expected to enjoy brisk demand as pressures to decarbonise sectors such as construction increase across the globe.
As it is, Emsteel's credentials include being the world's first steelmaker to capture part of its carbon dioxide emissions, thanks to Abu Dhabi National Oil Company's (Adnoc) Al-Reyadah carbon capture, utilisation and storage facility. This has enabled the company to operate with "45% less carbon intensity than the global average". Its utilisation of clean energy also rose above 80% last year.
Today, from the vantage point of the stakeholders, the specific details of the pilot project matter less than what it signifies, which is that Abu Dhabi intends to become a major green steel producer, and that it can transform a hard-to-abate sector into a hard to resist one.
https://image.digitalinsightresearch.in/uploads/NewsArticle/12812275/main.jpg -
Neom to tender hydropower contract
29 October 2024
Neom's utility subsidiary Enowa is expected to issue the request for proposals (RFP) for a contract to develop and operate the first phase of a pumped hydropower storage (PHS) network catering to Saudi Arabia's Neom gigaproject before the end of the year.
The planned first phase of Neom’s PHS project, known as Nestor, will have an installed capacity of 2,200MW and a storage capacity of 23.1 gigawatt-hours, or about 11 hours, according to industry sources.
Enowa received statements of qualifications from international and local developers and investors on 30 June.
However, it has yet to release the prequalification evaluation results.
"As far as we know, the RFP is set to be issued some time in December this year," a source familiar with the project tells MEED.
The Nestor project will be developed using a build-own-operate-transfer model that is expected to cover 40 years, excluding the construction period.
The expected capital expenditure for the project is $2.7bn.
Enowa received expressions of interest in bidding for the project from developers and contractors in January this year.
PHS network
The overall infrastructure will involve developing four PHS stations in Neom. The planned schemes will form the backbone of an energy storage infrastructure at the SR1.5tn ($500bn) development.
The other three planned PHS projects will be located in Al-Qimmah, Nima and Beach Mountain, and will have capacities of about 3,000MW, 1,000MW and 3,000MW, respectively.
UK-based HSBC and US-based White & Case are advising the client on the scheme.
The PHS independent power project will complement Neom’s planned multi-gigawatt renewable energy infrastructure, in line with its vision of being 100% powered by renewable energy by 2030.
A PHS facility typically comprises two water reservoirs at different elevations that can generate power when water passes through a turbine and moves down or is discharged from the upper reservoir to the lower reservoir.
https://image.digitalinsightresearch.in/uploads/NewsArticle/12812234/main.jpg -
TotalEnergies signs $11bn Morocco green hydrogen deal
29 October 2024
France's TotalEnergies has signed an agreement to develop an $11bn project to produce hydrogen and green ammonia in Morocco.
It was previously reported that the planned integrated facility will be located in Guelmim-Oued Noun in southern Morocco.
The deal is one of 22 that were signed during French President Emmanuel Macron's visit to the North African state on 28 October.
TotalEnergies' chairman and CEO, Patrick Pouyanne, signed the agreement for the local production of green hydrogen and ammonia in the presence of Morocco's King Mohammed VI and Macron, according to local media reports.
The counterparty includes Morocco's Energy Minister, Leila Benali; Economy & Finance Minister, Nadia Fattah; Interior Minister, Abdelouafi Laftit; and Minister Delegate in charge of Investment, Karim Zidane.
It is understood that the project will require the development of 10GW of solar and wind energy and a land area of 187,000 hectares.
It was reported that Morocco's Unified Regional Investment Commission had approved the project’s launch in November 2022.
The other agreements signed during Macron's visit to Morocco cover financial cooperation in the rail, forestry, aviation, logistics and energy sectors, with a particular focus on decarbonisaton and energy transition.
TotalEnergies has been exploring green hydrogen and other related projects in the Middle East and North Africa region.
In August, the Courbevoie-headquartered firm and Abu Dhabi Future Energy Company (Masdar) signed an agreement to assess the viability of developing a commercial green hydrogen to methanol to sustainable aviation fuel (saf) project.
It is also among the early investors in UK-based Xlinks First, which aims to deliver the $18bn Morocco-UK power interconnector project. TotalEnergies acquired a minority stake in the company following an investment of $25.4m, which was announced in November last year.
https://image.digitalinsightresearch.in/uploads/NewsArticle/12811486/main.gif