Governments worldwide are looking for ways to stimulate their respective economies as part of their recovery from COVID-19. Increased infrastructure spending has been a popular strategy. The United States Senate passed a $1 trillion infrastructure bill in September 2021, and many other countries have invested in large-scale projects as part of their economic recovery from the pandemic.
Increased infrastructure spending is especially critical in the Middle East North Africa (MENA) region, where an estimated 5.5 percent of gross domestic product (GDP) per year is lost as a result of poorly maintained road systems and car accidents. Moreover, studies have shown that a $1 billion investment throughout the region could increase GDP growth by 0.48 percent and create 138,000 jobs in the immediate future.
1. MENA Governments Need to Increase Spending
The “Prospects for Public Infrastructure Projects, Middle East and Africa” report, published in June 2021 by Research and Markets, details which MENA governments have the resources to accelerate infrastructure spending as well as key projects in development. It also identifies how much spending needs to increase to meet regional infrastructure goals.
According to the World Bank, governments need to spend at least 8.2 percent of GDP on infrastructure annually. This is a drastic increase from the decade prior, during which time government infrastructure spending averaged just 3 percent of GDP. Oman, for instance, had a GDP of $63.19 billion in 2020. Taking the World Bank suggestion into account, Oman would have to spend more than $5 billion per year on infrastructure.
The report identifies Saudi Arabia, Qatar, the United Arab Emirates (UAE), and Egypt as the four Middle East countries most capable of boosting infrastructure spending.
2. More Private Funding Is Required
The decline in oil prices, combined with the COVID-19 pandemic, drastically affected Middle East government finances and delayed significant projects. Public sector funding has accounted for most of the financing for large-scale infrastructure projects in the region, but increased involvement from the private sector will be crucial moving forward.
Public-private partnerships have already become more common. The “Public Private Partnership (PPP) in the Middle East and North Africa 2021 and beyond – MEED Insights” report, also available through Research and Markets, lists more than 240 in-development PPP projects in MENA worth $223 billion.
New projects, especially those in nuclear and renewable energies as well as water desalination, will require significant funding from private sources. However, one key concern is that some Middle East countries lack the appropriate regulatory frameworks to facilitate PPP and renewable energy projects. This must be addressed immediately considering the need for countries to decrease emissions. The World Bank notes that all MENA governments need to plan infrastructure investments to align with the UN Agenda for Sustainable Development and the Paris Agreement on Climate Change.
3. Governments Are Emphasizing Technology and Green Energy
Sustainability, digital innovation, and technology are key points of emphasis for many Middle Eastern countries regarding infrastructure spending. For instance, they are core components of Saudi Arabia’s Vision 2030 and the UAE’s Vision 2021. Investments in these and other infrastructure projects can be especially fruitful for private investors. In May 2021, the UAE’s National News reported that private infrastructure assets offer an average yield of about 7.2 percent and have outperformed many other asset classes.
Data centers and fiber-optic assets will be among the key drivers in digital infrastructure assets. Spending on data center systems in the Middle East was expected to increase by 6.8 percent in 2021 and an additional 2.8 percent in 2022. Solar installations will also account for a large portion of infrastructure investments. The UAE intends to source 44 percent of its electricity from renewable sources by 2050, while Saudi Arabia plans to achieve 40 gigawatts of solar photovoltaic capacity by 2030.
4. There Are Several Key Projects in the Region
The Sheikh Jaber al-Ahmad Al-Sabah Causeway (Kuwait) and Al-Shera’a (UAE) are among the most important and influential planned or recently completed infrastructure projects in the Middle East. The former is a 48-kilometer two-road bridge over Kuwait Bay connecting Kuwait City and Subiyah. It’s part of a much more ambitious 25-year plan to develop a free trade zone that will include a new shipping port and create as many as 450,000 jobs. The Al-Shera’a, meanwhile, is expected to be the world’s “tallest, largest, and smartest” zero-energy government building once complete.
In addition to developing critical infrastructure, Middle East governments are following through on loftier goals to develop futuristic megaprojects. These planned tourism infrastructure projects include sports stadiums, mega-hotels, and billion-dollar entertainment complexes.
Diriya Gate in Saudi Arabia, for instance, is a $17 billion development that will feature more than 100 dining and entertainment destinations as well as multiple luxury resorts. Other mega projects include the $3.2 billion Yas Bay, which will encompass 19 parks and dozens of food and beverage outlets along the south shore of Abu Dhabi’s Yas Island, and the Grand Egyptian Museum.