Regional Infrastructure Development Imperatives Drive Future Project Prospects in Middle East-North Africa

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources--Diversifying away from hydrocarbon-based industrial projects is a priority for most countries in the Middle East-North Africa (MENA) region. This does not mean that traditional investments in oil, gas and petrochemical projects are dwindling, but that available funds are being put into massive infrastructure and social-development projects, with a view to having a balanced industrial and social base in place as hydrocarbon resources begin to run out. The steel industry is in a good position to gain from both the traditional hydrocarbon and new infrastructure investment trends. Industry sources see major growth in crude steel production, special steels with added value, and downstream metal and manufacturing sectors in the region.

Project investment in Saudi Arabia and the United Arab Emirates (UAE) illustrates the parallel growth of new infrastructure projects and steel industry expansion. Saudi Arabia will have invested an estimated $1.49 trillion in infrastructure upgrades in the five-year period from 2008 through 2013. In 2010, the construction industry is forecast to grow 5.89% from 2009 levels, and will have a nominal value of more than $22 billion. Projects currently under construction include the power plant at Riyadh; the expansion of the Rabigh power plant; the Ras Al Zour water and power plant; the Haramain high-speed railway that links Jeddah to Makkah and Madina; and the expansions of the King Khaled International Airport and the international airport in Madina.

As 65% of Saudi Arabians are under the age of 30, it is estimated that 4 million housing units will be needed by 2022. That means doubling the number of units available within 12 years. This socio-economic challenge is what is driving the greenfield development of the King Abdullah Economic City, which will cover 168 million square meters, including an industrial city.

Another key macro project that should progress in 2011 is the GCC Railway project, which will be a catalyst for the development of regional integration with inter-Gulf commerce, transport and travel. Currently, the targeted launch date for the project is 2017, after studies have been completed.

The Gulf Organization for Industrial Consulting (GOIC) is preparing a Gulf Industries Map to support and enhance coordination and industrial integration between Gulf Cooperation Council (GCC) countries, as well as the launching of industries currently absent in the region. Industrial sectors have seen studies conducted resulting in 85 technical reports. Work is now proceeding on industrial opportunities in each country with regard to laws, regulations and policies and their contribution to industrial development. Special attention is being given to new areas of activity. The map should be completed by mid-2011.

Abu Dhabi Basic Industries Corporation subsidiary Emirates Steel has targeted expansion of its steel production capacity to 6 million tons per year by 2013. Phase I, which was completed in 2009, includes a 1.6 million-ton-per-year direct reduced iron (DRI) plant, a 1.4 million-ton-per-year melting plant, and rolling mills. Phase II is under construction and includes a second DRI plant, a steel melt plant and a 1 million-ton-per-year heavy sections rolling mill. All phases will be completed by 2012. Emirates Steel is currently looking for partners to construct a $1.5 billion rolling mill with a capacity of 350,000 to 500,000 tons per year.

Oil and gas production will remain the basic growth driver for the MENA region's oil-exporting countries--Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Sudan, UAE and Yemen, riding on an oil price rise of 23% in 2010 and a projected rise of more than 3% in 2011. The International Monetary Fund (IMF) forecasts that the current account surplus will rise by about $80 billion, of which $50 billion will be accounted for by GCC countries. The surplus will allow investments in diversification to proceed at pace. The GDP growth rate for the oil-exporting group will rise from 3.5% in 2010 to 4.3% in 2011. The GCC alone will see its growth rate increase from 4.5% in 2010 to 5.9% in 2011. The MENAP region, which includes Pakistan and Afghanistan along with the MENA countries, will see GDP growth rise from 4.2% in 2010 to 4.8% in 2011.

Plans for investment in energy projects in the GCC will reach $277 billion by 2015. Upstream and downstream oil projects will receive $111 billion, and the gas supply chain will have $108 billion invested. The water and power sectors will receive $53 billion in investments.

Both global oil and steel demand and price trends could affect the growth forecasts negatively for the region. At the end of September, Algeria had amassed reserves of $157 billion, but is anticipating a decline in energy production and exports in 2011, with oil and gas earnings down 4.5%. Algeria supplies 20% of Europe's energy feeds and is the world's eighth-largest oil exporter. The economic output of the country's energy sector is forecast to fall 0.8% in 2011, although total GDP will grow 4%, up from 3.8% in 2010.

Mauritania's Societe Nationale Industrielle et Miniere (SNIM) is planning to raise the excavation of iron ore body to 105 million tons in 2011, which will represent a 20% increase over the 2010 production figure. SNIM has been making strategic investments into technical systems and the export supply chain. Iron ore is the chief source of funds for infrastructure and social development in this state. The country is targeting processed iron ore exports of 12 million tons in 2011.

Algeria's demand for steel products is growing 8% per year and tops 4 million tons per year. This demand is largely met with imports, but new domestic projects are in hand that will add 2 million tons per year of crude steel capacity and 3.3 million tons per year of long product locally. Since 2005, $150 billion has been invested in infrastructure, and there is a need for 1 million housing units in the near future.

Egypt's Industrial Development Authority (IDA) is issuing new steel licenses with a maximum capacity of 500,000 tons each. New permit holders will be provided with the required amounts of natural gas and electrical power. Egypt has a current annual domestic demand of 6.5 million tons of rebar per year. To meet this demand, 1 million tons are imported annually. The IDA has called for bids for licenses for the production of 2 million tons of rebar and 1 million tons of billets by 2017. Bidding opportunities are available for successful bidders in the last round and those still in the queue. Foreign steel majors are bidding with local joint venture partners.

The IMF reports that the challenge for the oil-importing countries in the MENA region over the next 10 years is to increase the growth rate to provide employment for a working-age population that is growing faster than almost all other global regions. Assuming that the ratio of jobs created to economic growth remains constant, annual growth would need to reach 6.5% annually.

The statements on economic strategy, growth and investment being made by the governments of the region repeat with increasing frequency that infrastructure development will be the key driver for future investments and will help economic growth for all sectors of the population. In a region that is often portrayed as rigidly hierarchical, this is a remarkable development. Industrialinfo has listened to developers, industrialists and financiers, and the consensus is that the MENA countries are good places to do business over the next decade. And, they say with some conviction, North Africa will be just as rewarding as the GCC.

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