Non-technical sessions tend to provide a welcome break in overwhelmingly technical seminars. Thus I came to be at two finance sessions last year, one at the IDA Desalination Congress in November and the second one at the MEED Wastewater Conference in December, with both looking at the future of privatisation in the Middle East’s water sector in the aftermath of the global financial crisis. The key takeaway was that only properly structured projects, in correctly unbundled sectors, backed by financially solid sponsors, and (surprisingly) government support stood a decent chance of getting project finance.
From 2003 to 2008, massive infrastructure investment was a major factor and contributor to economic growth, productivity gains, increased private sector investment and diversification in the GCC countries. As Dr Nasser Saidi, Chief Economist, Dubai International Financial Centre (DIFC) reaffirmed at a recent seminar, continued infrastructure spending has helped stabilise the region’s economies, insulated them to some extent from the contagion effect of the credit crunch and helped sustain growth.
However, given the major restructuring of the financial sector underway, post-2008, there is a question mark on the availability of sufficient project finance to fund infrastructure projects, water included. Private sector investment seems to be taking a back seat to increased government involvement while developers and EPC contractors are cribbing about higher fees and decreasing pool of lenders. But not every government can step in and do a Ras Azour, like the Saudis; so alternative fund raising options doing the rounds included tapping the local bond market.
This is easier said than done, as Middle Eastern capital markets are dominated by bank assets and equities. Bond financing for infrastructure projects did not get due consideration since the region’s large current account and fiscal surpluses, thanks to its hydrocarbon wealth. encouraged funding via banks or the government.
However, post-crisis, things are being looked at afresh. Lower hydrocarbon revenues, reluctant lenders and very high long term borrowing costs are resuscitating interest in the development of debt markets in local currencies. According to a DIFC note, given the pool of wealth accumulated in the region, local investors could be relied on to provide liquidity since alternative options, like US treasuries, aren’t too attractive. The steps needed to taken to develop such debt markets are beyond the scope of this editorial. But it would suffice to say that a strong local currency debt market can become a alternative financing resource for the region’s infrastructure and development projects, and simultaneously, strengthen the overall resilience of the region’s economies against external shocks.
On a different note, starting with this issue of H20, we are launching a supplement, called Retrofit News and Chronicle which will track the retrofit activities in the region across the power, water and HVACR industries. As the name suggests, the supplement will contain news relating to ongoing retrofit projects in the region, the people involved and the products and services infrastructure available. In addition, it will feature case studies of marquee projects in the region and elsewhere and chronicle the evolutionary stages of ongoing projects. This may be a case of stating the obvious, but the aim of chronicling the projects is to get a feel for the progress being made, the challenges encountered along the way and the expertise and solutions at work to surmount the obstacles.
