The UAE will require the maximum amount of money for financing its infrastructure needs in the entire GCC.
According to Dr Nasser Saidi, Chief Economist of Dubai International Financial Centre (DIFC), "the value of infrastructure projects in GCC has increased to $2.3 trillion [Dh8.45trn] as of January 11, 2010."
Of this, the UAE will require the biggest chunk – "$926,082 million or 42.6 per cent of the total amount – as of data given for end-November 2009," he told Emirates Business.
As for the other countries in the region, Saudi Arabia is second on the list of financing requirements. It needs $614,353m, making up 28.3 per cent of the total amount needed. Next on the list is Kuwait with $271,647m (12.5 per cent), followed by Qatar at $230,150m (10.6 per cent) and Oman at $104,867m (4.8 per cent). Last is Bahrain, which requires $65,581m or three per cent of the total amount. Figures provided by DIFC have been taken from Meed data.
As far as sectors are concerned, (according to the latest data provided by DIFC to this newspaper until June 2009) requirements of the construction sector are high at 74.5 per cent.
Next is oil and gas at 10 per cent, power at nine per cent, petrochemicals at five per cent, industry at one per cent, and water and waste at 0.50 per cent.
"Investments in the pipeline for power, district cooling, wastewater plants, road networks and railways, ports, and industrial infrastructure are all big ticket items, and are all part of the development of the GCC nations as well as specifically for the UAE," said Dr Dirk Buchta, Vice-President and Managing Director at AT Kearney Middle East.
The investments required are in the long-term and money raised from bond markets should be a viable option, believe experts.
"The UAE infrastructure and public works projects have medium to long gestation projects, extending up to 15 years. Financing is not required immediately: each project will be financed as and when the decision is taken to launch the project," said Saidi. "The financing structure should be designed to suit the project and avoid mismatching. The bond market should be able to raise 50 to 60 per cent of the financing required to meet the infrastructure needs, depending on the nature of the project and the stream of revenue from the project."
"It is better to tab the bond market (and preferably in dirhams) as this avoids exposing the banking sector to long-term financing and maturity mismatching. This will also lead to a 'market test' of the projects, helping ensure that only feasible and economically viable projects are financed and able to pay for themselves," he added.
On tabbing the bond market, Buchta added: "Private sector investments in UAE infrastructure either directly or through debt instruments is a real opportunity. Investments in infrastructure underwritten by the government are traditionally low risk propositions, as long as the government risk is in good standing. In fact, before the crisis many private equity funds and institutional investors were seeking to invest in infrastructure-backed bonds as a means to diversify from equities and treasuries."
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