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The Middle East - Pressing Ahead

Martin Dronfield

Sunday, 26 July 2009 12:35

Despite the global economic slowdown, the Middle East is pressing ahead with industrial development plans, writes Martin Dronfield, vice-president global strategy & business development, Simon Carves...

Although 2008 saw an end to the development boom of recent years, and the downward trend in project announcements is set to continue throughout 2009, we believe the Middle East region will continue to present the most significant opportunities in the global petrochemicals sector over the medium to long term.

The effects of the current financial crisis are obvious to all. Delays to projects already under way risk adding hundreds of million dollars in lost revenue to overall project costs, with start-up required as quickly as possible to repay loans and little or no scope to renegotiate funding. Contractors are being asked to re-bid for contracts already won, extending the already lengthy bid process for capital projects and hiking bid costs even further.

Projects still in the planning phase are frequently experiencing cancellation or postponement due to a combination of difficulties in developers securing and maintaining funding, and the overall atmosphere of uncertainty in a climate of falling petrochemical prices and supply-chain instability. Contractors are in a state of limbo, waiting for the much-anticipated invitation to bid with no way of either expediting the bidding process or knowing if it will be curtailed or cancelled half-way through. And yet some optimistic signs remain.

There are corrections in prices for raw materials and improved delivery schedules following the end of the worldwide construction boom and sustained decreases in oil prices. While this in itself is causing the postponement of both contract announcements and awards, a return to a less volatile supply market will enable contractors to offer more stable and competitive bids, reversing some of the double-digit increases to EPC contract costs seen recently.

Another key factor unique to the region is the ability of its governments to use their significant reserve funds, largely amassed from surplus oil revenues, to support their ambitious regional growth plans by funding key development projects.

While development will undoubtedly be affected and marginal projects shelved until economic recovery is well under way, the Middle East can afford to keep development going during a slowdown and, above all, cannot afford not to if it is to continue its objective of becoming the world's new industrial powerhouse.

Global Arab Network

This article was first published in Business Focus (Issue 2, 2009), a Middle East Association publication produced by Newsdesk Media Ltd.