THE BLOG

Transforming the GCC, The Coming Tide: Middle East Infrastructure Spend

The first sight to greet travelers to Saudi Arabia upon exiting King Khalid International Airport in Riyadh is no longer a dusty desert dotted with the occasional palm tree, but a massive construction complex.

On a par with the world's biggest building sites it is adorned by countless cranes and men feverishly working to finish what will become Princess Noura University, the kingdom's largest female college. The frenetic pace of construction has displaced so much sand that it obscures the scale of this $6 billion government project when driving by it.

On the other side of Riyadh, cranes are moving just as quickly to finish the King Abdullah Financial Center, which will become the kingdom's financial hub at a cost of $7.8 billion. Both mega-projects have been fully financed by the government of Saudi Arabia, which views them as critical to the country's strategic development.

Saudi Arabia has embarked upon a never-before-seen spending spree on infrastructure in the public and private sectors, and it is not alone in doing so. The story is similar, if not identical, among Saudi Arabia's partner nations in the Gulf Cooperative Council. The GCC construction boom is well underway.

The GCC as a whole is struggling to deal with two issues. The first is that of a very young and fast growing population for which it needs to provide education, healthcare, and jobs; the second is a decaying infrastructure which has not been meaningfully improved since the 1970s when the population was a fraction of what it is now.

When looking at the Gulf today, it is natural to think of Dubai and its gleaming buildings. Dubai has largely been able to convey this image, because unlike the rest of the Gulf it began spending on infrastructure in the early 1990s, giving it a 20-year head start on the rest of the region. By doing so, it transformed what was once an arid patch of sandy desert into a luxury destination with unparalleled infrastructure.

The images of Dubai, however, belie the reality of the rest of the Arabian Peninsula where antiquated airports and dated developments predominate. What took Dubai nearly 20 years is only now being embarked upon in the rest of the GCC on any real scale. Up the road from Dubai, Abu Dhabi is remaking itself from the ground up with new hotels, hospitals, museums, nuclear power-plants, and schools.

Kuwait, despite all its wealth, has poor infrastructure and buildings that are stuck in time. In Qatar, the government is busy demolishing decrepit parts of Doha, constructing a new airport, and building the world's longest suspension bridge, which will span the distance from Doha to Bahrain. Oman is also engaged in its own infrastructure upgrade, with the construction of a new airport.

With the Gulf's largest population and economy, the largest spender is Saudi Arabia where $545 billion worth of projects are currently ongoing. The UAE is not far behind and is investing $529 billion in projects. The question then is not whether the GCC is willing to spend so much domestically, but rather how it will be fund doing so. The answer lies at the petrol pump.

GCC state budgets are balanced on average at an oil price range of $40 to $50 per barrel. Any price greater than that results in a surplus. As such, for the foreseeable future, GCC governments will continue to invest.

The GCC states are spending in an order of magnitude more than they have ever done before domestically. Whether or not this metamorphosis will address the challenges of a rapidly growing population remains unknown. What is clear, however, is that the GCC is prepared to spend on its problems and can do so with relative ease. That in and of itself will be a huge boon in addressing development issues.