The Gulf countries will require a combined investment of $1.6 trillion for development of infrastructure between 2019 and 2023, Oliver Wyman, a global management consultancy, said in a recent report.
The higher investment is fueled by population growth in the GCC countries, which has grown 11-fold since 1960. The current birth rates are 50 percent higher than in countries in the 36-member Organization for Economic Co-operation and Development, the report added.
A more affluent population, with a gross domestic product per capita higher than most developed economies, is further putting pressure on resources.
However, the regional governments do not have sufficient funds to meet swelling infrastructure demand and will have to look at alternatives such as private investment to bridge the funding gap.
Oliver Wyman forecast that governments will be able to fund about $300 billion of the overall requirement from their budgets, leaving a massive funding gap even if state-owned enterprises and sovereign wealth funds step in to prop-up investment in support of governments.
“Indeed, private investment to the tune of $400 billion will be needed over the next five years to plug the funding gap,” the report noted.
Meanwhile, public private partnerships (PPPs) is emerging as the preferred path to bring private investors in to fund major projects, reducing the fiscal burden on governments. But, privatization programs and PPPs require a conducive environment to thrive, the report said.
Looking at planned government infrastructure projects until 2040 based on Gulf countries’ national development plans (and assuming a 70:30 debt-equity split), forecasts indicate that over the next five years nearly $120 billion of private equity and around $280 billion of private-funded debt will be required.
Moreover, if planned mega projects in the region materialize, an additional $130 billion in private investment will be necessary.
“Gulf countries are actively introducing PPP programs to ensure they reach their strategic and sustainable goals”, Jeff Youssef, partner, public sector, Oliver Wyman, said.
He also noted that the region's macroeconomic fundamentals are solid, adding that it is clear that the factors driving demand for the improved and established infrastructures will prevail in the future.
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