UAE economy regains regional lead
29 May 2024
The UAE has edged ahead of Saudi Arabia again to take the lead in the MEED Economic Activity Index, which assesses the near-term economic health of regional markets, as a gap has opened up between the economic and fiscal performances of the two countries in 2024 to date.
Saudi Arabia and the UAE entered 2024 with similarly buoyant 4% real GDP growth projections from the Washington-based IMF, but have since diverged. In April, the IMF revised its growth forecast for the UAE to 3.5%, and the forecast for Saudi Arabia 2.6%.
The World Bank has meanwhile maintained a more optimistic 3.9% real GDP growth projection for the UAE in 2024, but an even lower projection of 2.5% for Saudi Arabia.
The trade and fiscal balance performances of the two countries have also diverged. The UAE is forecast for a 7.8% of GDP current account surplus and 4.5% of GDP fiscal surplus, while Saudi Arabia’s current account surplus has narrowed to 0.5% of GDP, while its budget has slipped into a 2.8% deficit.
Oil price impact
Saudi Arabia’s reduction in its growth and slide into fiscal deficit have both partially been brought about by the impact of softer oil prices and Opec-led production cuts, which have naturally hit the more heavily oil-dependent Saudi economy to a greater extent than the more diversified UAE economy. The UAE Central Bank is forecasting a non-oil GDP growth rate of 4.7% for the country in both 2024 and 2025.
Together, the two countries remain comfortably in the lead at the top of the index, due in large part to the buoyancy of both of their projects markets. Contract award values in the past 12 months for both countries were double the long-term average, while new work outstripped completed work twofold in the UAE and fourfold in Saudi Arabia.
Wider market
Elsewhere in the GCC, Qatar and Oman have both seen their real GDP growth slip in 2024, to 2% and 1.2%, respectively – driven by slight weakness in both the hydrocarbons and non-hydrocarbons sectors. Both countries remain in fiscal surplus, however, and have stable projects markets, with work being tendered at or above the long-term average award values and above the rate of completion.
Kuwait is projected to see its GDP contract for the second year in a row as a weaker oil market and production cuts hit hard. Kuwait is the most heavily oil-dependent and least diversified country in the region, with 95% of exports and 90% of government revenue coming from the oil sector, making the country and its real GDP metric highly sensitive to fluctuations in the oil price – though it still has a fiscal surplus. At the same time, the country’s projects market also continues to underperform, with contract awards 40% below the long-term average and 25% below the rate of completion.
Algeria has meanwhile risen up the ranking and boasts a forecast of 3.8% real GDP growth in 2024 – the strongest in the region, according to the IMF. While it is still expected to remain deep in fiscal deficit, inflation is on a downward trend, and the projects market has above-average contract award activity.
Bahrain, despite a projected 3.6% growth rate in 2024, remains in concerning fiscal and debt positions. Its short-term risk rating was recently elevated to the second-highest level by insurance group Allianz. The Bahraini projects market is also in steep decline, with the value of contract awards in the last 12 months coming in at just over a third of the long-term average and at little more than half the level of project completions.
Morocco, Jordan and Egypt are all expected to experience moderate 2-3% real GDP growth rates this year, while continuing to struggle with persisting current account and fiscal deficits. All three countries also have elevated unemployment and government debt, as well as underperforming projects markets, with awards over the past 12 months at two-thirds or less of long-term historic averages.
Iraq is another country with high oil market dependence and oil price sensitivity and is forecast for just 1.4% real GDP growth this year. Short-term risk in the country is also in an elevated state amid political turbulence and weaknesses in the security situation that have seen repeated attacks by non-state actors on oil sector infrastructure. The projects market nevertheless remains nominally steady for now, with sustained award activity at the level of long-term averages and also at the rate of project completions.
Tunisia has sunk to the bottom of the index with a weakened 1.9% growth rate in 2024 and an even lower growth projection of 1.8% in 2025 as the country continues to be caught up in political chaos and an economic crisis. Short-term risk is high, as are the rates of unemployment and inflation. The projects sector is reasonably active, but contract awards remain below the long-term average.
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.
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In an official statement published by the Saudi Press Agency, the PIF said that Al-Marri "is expected to lead the Expo 2030 Riyadh team in delivering a world-class exhibition that reflects the kingdom’s ambitions and rapid development, in alignment with the objectives of Saudi Vision 2030".
Al-Marri has previously held several senior executive roles at Saudi Aramco, including president and CEO of Aramco Europe, senior vice president of community services and senior vice president of industrial services.
The announcement follows the establishment of ERC as a wholly-owned subsidiary of the PIF that will build and operate facilities for Expo 2030.
In a statement, the PIF said: “During its construction phases, Expo 2030 Riyadh and its legacy are projected to contribute around $64bn to Saudi GDP and generate approximately 171,000 direct and indirect jobs. Once operational, it is expected to contribute approximately $5.6bn to GDP.”
The masterplan for Expo 2030 Riyadh encompasses an area of 6 square kilometres, making it one of the largest sites designated for a World Expo. Situated to the north of the city, the expo site will be located near the future King Salman International airport, providing direct access to various landmarks within the Saudi capital.
Countries participating in Expo 2030 Riyadh will have the option to construct permanent pavilions, contributing to the event's legacy. This initiative is expected to create opportunities for business and investment growth in the region.
The expo is projected to attract over 40 million visitors. After the event concludes, ERC plans to convert the expo's secured area into a global village, to serve as a multicultural centre for retail and dining. This development will also include an international residential community with various amenities, with a focus on sustainable tourism practices.
Expo 2030 Riyadh will run from 1 October 2030 to 31 March 2031.
In mid-May, MEED reported that Riyadh had begun talks with stakeholders in preparation for the start of the construction works for the event.
The discussions were understood to have been held with the Royal Commission for Riyadh City and the PIF.
German architectural firm Lava Architects and US-based engineering firm Jacobs are assisting with the project masterplan and the design of infrastructure for the site.
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Adnoc Offshore is preparing to start the tendering process for the next expansion phase of the Upper Zakum field development in Abu Dhabi, the objective of which is to increase the asset’s oil production potential to 1.5 million barrels a day (b/d).
MEED reported in November that the offshore oil and gas production business of Abu Dhabi National Oil Company (Adnoc Offshore) had awarded a contract for pre-front-end engineering and design (pre-feed) and feed services on the project to France-headquartered contractor Technip Energies.
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Located 84 kilometres offshore in Abu Dhabi, Upper Zakum is the world’s second-largest offshore oil field and fourth-largest oil field.
The UZ 1.5MMBD project is the latest crude output expansion project that Adnoc Offshore has undertaken at the Upper Zakum field development.
Upper Zakum expansion
The first phase of the programme to raise the Upper Zakum offshore field development’s oil production capacity to 1.2 million b/d was launched in 2019. The initial goal was to increase the field’s output potential to 1 million b/d by 2024, which was later increased to 1.2 million b/d, with the project execution timeline eventually extended.
In April last year, MEED reported that Adnoc Offshore had awarded the main EPC contract for the UZ 1.2MMBD EPC-1 project to UAE-based Target Engineering Construction Company. The value of the contract was estimated to be $825m.
The project’s main scope involves the EPC of several surface facilities and plants at the Upper Zakum offshore development’s four main artificial islands: Al-Ghallan, Umm Al-Anbar, Ettouk and Asseifiya – also known as Central Island, West Island, North Island and South Island, respectively.
Spanish contractor Tecnicas Reunidas won the contract for the feed works on the UZ 1.2MMBD EPC-1 project in 2019. UK-headquartered Wood Group was appointed as the project management consultant for the EPC phase.
In November, MEED reported that Adnoc Offshore had also selected Target for the second phase of the Upper Zakum 1.2 million b/d project (UZ 1.2MMBD EPC-2). The value of the contract was estimated to be about $500m, according to sources.
Target began work on the project in December, MEED previously reported.
The scope of work on the UZ 1.2MMBD EPC-2 project covers the EPC of several structures on Assefiya Island.
Adnoc Offshore performed the feed work on the UZ 1.2MMBD EPC-2 project in-house.
Upper Zakum oil production
Adnoc Offshore has committed to a total capital expenditure budget of approximately $30bn, along with its operating partners in the Upper Zakum hydrocarbons concession, Japan Oil Development Company (Jodco) and US-based ExxonMobil.
The strategic objective is to first raise the asset’s oil output from 640,000 b/d to 750,000 b/d through the UZ 750 project, then to 1.2 million b/d through the two phases of the ongoing UZ 1.2MMBD project, and eventually to 1.5 million b/d.
Zakum Development Company (Zadco), which later merged into Adnoc Offshore, awarded EPC contracts for the UZ 750 project in 2012 and early 2013.
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EPC work on UZ 750 began in 2014 and was completed in 2022.
In October 2022, Adnoc Group subsidiary Adnoc Drilling set a world record for drilling the longest oil and gas well at the Upper Zakum concession, stretching 50,000 feet.
The extended-reach wells will tap into an undeveloped part of the Upper Zakum reservoir, potentially increasing the field’s production capacity by 15,000 b/d without expanding or building any new infrastructure, Adnoc said.
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