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
  • Masdar and Etihad plan pumped hydro project

    19 April 2024

    Abu Dhabi Future Energy Company (Masdar) and Etihad Water & Electricity (Ethad WE) have signed a memorandum of understanding (MoU) to develop several clean energy projects in the UAE's northern emirates.

    The planned projects include a solar photovoltaic (PV) project, a pumped hydro storage project and a potential battery energy storage system facility.

    The two companies signed the MoU on 18 April, the final day of the World Future Energy Summit in Abu Dhabi.

    "This agreement aims to formalise the intention of the parties to further discuss the potential areas of collaboration and possible projects," Masdar said in a social media post.

    Etihad WE is responsible for the procurement and offtake of water and power production services in Umm Al Quwain, Ras Al Khaimah, Ajman and parts of Sharjah.

    Masdar and Emirates Global Aluminium (EGA) announced an agreement to work together on aluminium decarbonisation and low-carbon aluminium growth opportunities during the same event.

    As part of the agreement, Masdar and EGA will also work together internationally to find opportunities through which Masdar will support EGA to power new aluminium production facilities with renewable energy sources.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11697806/main5424.jpeg
    Jennifer Aguinaldo
  • Ewec signs Ajban solar PV contract

    19 April 2024

    Abu Dhabi state utility Emirates Water & Electricity Company (Ewec) has signed an agreement for the development and operation of Abu Dhabi’s third utility-scale solar photovoltaic (PV) independent power project (IPP).

    A team led by French utility developer EDF Renewables and including South Korea's Korea Western Power Company (Kowepo) won the 1,500MW Al Ajban solar PV IPP contract.

    Ewec announced the official signing of the contract on 18 April, the final day of the World Future Energy Summit in Abu Dhabi.

    As with previous solar PV projects in the emirate, Abu Dhabi Future Energy Company (Masdar) will own a stake in the special purpose vehicle that will implement the project.

    It is the second major contract won by the French-South Korean team in the GCC since March last year. The team previously won the contract to develop and operate the 500MW Manah 1 solar IPP in Oman.

    EDF, along with Masdar and Saudi contracting company Nesma, also won the contract to develop and operate the 1,100MW Hinakiyah solar IPP project in Saudi Arabia in November.

    The EDF-led team submitted the lowest levelised electricity cost of 5.1921 fils a kilowatt-hour (kWh) or about 1.413 $cents/kWh for the Al Ajban solar PV IPP contract, as MEED reported in July 2023.

    Japan’s Marubeni submitted the second-lowest bid of 5.3577 fils/kWh.

    Ewec requested proposals for the contract in January 2023 and received bids in late June 2023. It qualified 19 companies to bid for the contract in September 2022.

    Delivering goals

    The Al Ajban project – similar to the 1,584MW Al Dhafra solar IPP, which was inaugurated in November, and the operational 935MW Noor Abu Dhabi plant – supports the UAE Energy Strategy 2050 and the UAE Net-Zero by 2050 strategic initiative.

    Ewec aims to install up to 17GW of solar PV capacity by 2035.

    The plan will require the procurement of about 1.5GW of capacity annually over the next 10 years. Over the intervening period, ending in 2030, Ewec plans to have an additional 5GW of solar capacity, reaching a total solar installed capacity of 7.3GW by 2030.

    Ewec expects its first battery energy storage system to come online in the late 2020s to boost balancing the grid's load as more renewable energy enters the system.

    The UAE published its updated national energy strategy in July last year. It includes a plan to triple the nationwide renewable energy capacity to 19GW by 2030.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11697793/main.jpg
    Jennifer Aguinaldo
  • Egypt resumes power cuts

    18 April 2024

    Power cuts resumed across Egypt on 15 April, with scheduled power outages lasting a maximum of one hour per grid zone between 11am and 5pm daily.

    The scheduled power outages began last year and were suspended during Ramadan.

    The electricity ministry has confirmed that, since no new amendments to the load reduction plan have been issued, the power cut plan will continue indefinitely, adding that the outages are expected to last "until at least the end of summer, due to increased grid demand during the hotter months".

    The government-initiated load-shedding programme initially aimed to rein in rising electricity consumption and reduce pressure on the country's gas network.

    According to the country’s Electricity & Renewable Energy Ministry, national electricity consumption reached 43,650MW in mid-July last year, up significantly from previous highs of about 31,000MW.

    While the record-high consumption level is still below the official generation installed capacity of close to 60,000MW, consumption levels of 34,000MW–36,000MW will require about 129-146 million cubic metres of gas and diesel a day.

    Barring load-shedding, any increase in consumption beyond 36,000MW will require a commensurate increase in gas and diesel, which is understood to be beyond the government’s capacity to procure.

    Crucially, the other side of the electricity rationing initiative has to do with the need to save gas for exports, to boost the government’s dollar reserves in the face of the ongoing currency crisis.

    MEED’s latest special report on Egypt includes:

    > Cairo secures a cumulative $54bn in financing
    > Egypt faces political and economic trials
    > Cairo beset by regional geopolitical storm
    > More pain for more gain for Egypt
    > Egypt oil and gas project activity declines
    > Familiar realities threaten Egypt’s energy hub ambitions
    > Egypt’s desalination projects inch forward
    > Infrastructure carries Egypt construction

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11694938/main5714.jpg
    Jennifer Aguinaldo
  • Ewec wants carbon-capture readiness for next gas power plant

    17 April 2024

    The request for proposals (RFPs) that will be issued for the next combined-cycle gas turbine (CCGT) plant in Abu Dhabi will explicitly require the developers or developer consortiums to accommodate the installation of carbon-capture facilities once they are commercially viable.

    "A key part of the RFP is to make a declaration that this project will be carbon-capture ready … that such facility will be installed as part of the project once carbon-capture solutions become commercially viable," Andy Biffen, executive director of asset development at Emirates Water & Electricity Company (Ewec), told the ongoing World Future Energy Summit in Abu Dhabi.

    As MEED previously reported, Ewec is considering issuing a tender in the next few weeks for its first gas-fired independent power producer (IPP) project since 2020.

    The greenfield Taweelah C gas-fired IPP is planned to reach commercial operation by 2027, according to a recent Ewec capacity procurement statement.

    "We understand that they might skip the expressions of interest and request for qualifications stage and directly invite qualified developers to bid for the contract," two sources familiar with the project previously told MEED.

    The planned Taweelah C gas-fired IPP is expected to have a power generation capacity of 2,457MW.

    Ewec awarded its last CCGT IPP nearly four years ago. Japan's Marubeni Corporation won the contract to develop the Fujairah F3 IPP in 2020.

    The state utility is considering new gas-fired capacity in light of expiring capacity from several independent water and power producer (IWPP) facilities.

    The plants that will reach the end of their existing contracts during the 2023-29 planning period include:

    •  Shuweihat S1 (1,615MW, 101 million imperial gallons a day (MIGD)): expires in June 2025
    •  Sas Al Nakhl (1,670MW, 95MIGD): expires in July 2027
    •  Taweelah B (2,220MW, 160MIGD): expires in October 2028
    •  Taweelah A1 (1,671MW, 85MIGD): expires in July 2029

    Ewec and the developers and operators of these plants are expected to enter into discussions before the expiry of the contracts to decide whether a contract extension is possible. Unsuccessful negotiations will lead to the dismantling of the assets at the end of the contract period.

    In 2022, MEED reported that Abu Dhabi had wound down the operation of Taweelah A2, the region's first IWPP. The power and water purchase agreement supporting the project expired in September 2021 and was not extended.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11690735/main2323.gif
    Jennifer Aguinaldo
  • Flooding spotlights Dubai construction quality

    17 April 2024

    Commentary
    Colin Foreman
    Editor

    Register for MEED's guest programme 

    The storm that engulfed Dubai on 16 April and the resulting flood damage will raise questions about the quality of construction in the emirate.

    Videos of extensive flood damage to property and infrastructure have been widely shared across social media, and those personally affected have questioned why the damage was so severe.

    There is not one single answer. The storm was said to be the most severe to have hit Dubai for decades, and some have described it as a 100-year storm. One other theory widely circulated during the day about it being caused by cloud seeding has been officially dismissed by the government.

    With such extreme weather, most will accept that some damage is inevitable. The question will be whether elements of the damage could have been prevented, which is where questions over construction quality will emerge.

    The two main concerns will be why buildings are not better waterproofed and infrastructure is not more effectively drained.

    Each flooding incident will have its own specific issues, but the reasons will come from three key areas: design, construction and maintenance. 

    Many projects will not have been designed to cope with such a deluge. Others will have been poorly constructed, allowing water to ingress into properties, and others will have drainage that was poorly maintained and failed when it was most needed.

    Dubai is heavily incentivised to address these concerns. In the past, Dubai has been a transient city with many expatriates living and working in the emirate for only a few years. There has been little collective memory of major weather incidents.

    As the emirate establishes itself as a permanent home for more people, including many property owners, that memory will now remain. Those memories may be painful today, but they will help guard against such severe damage in the future.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11690636/main.gif
    Colin Foreman