Qatar Infrastructure Report Q4 2009

Qatar continues to be one of the best prospects for growth in the infrastructure sector in the Middle East in 2009. Despite a further downward revision to our forecasts for the country in 2009, we are still optimistic for the sector's potential, and thus expect it to achieve one of the highest growth rates in the region. In BMI's Q409 Qatar Infrastructure Report we are forecasting the construction sector to grow by 5.63% year-on-year (y-o-y) to reach a value of QAR19.01bn (US$5.22bn).

Over the last quarter there has been continued development in the country's flagship infrastructure projects. A new contract was signed for the New Doha International Airport in July 2009, with the Sinohydro-Gamuda-WCT joint venture (JV) awarded additional works on the airport worth US$209mn.

In total, the JV has been awarded orders worth US$922mn. Work on the Qatar-Bahrain Causeway is due to start in 2010, according to reports in the local press. However, negotiations are still under way regarding costs with the Vinci-led consortium awarded the construction contract.

In the utilities sector, Al Habtoor Leighton was awarded a US$206mn contract for the construction of water stations and a pipeline in September 2009. The contract is part of the country's efforts to overhaul its water sector, which is outdated and insufficient. A major regional development was accomplished over the quarter in the utilities sector, with the completion of the GCC North Grid. This is the first phase of the GCC Grid project, which aims to connect the power grids of all the GCC countries. Completion of the first phase involved the connection of the Kuwaiti, Saudi Arabian and Qatari power grids. The entire project is due to be completed in 2011.

BMI believes that the number of ongoing mega projects in Qatar's relatively small construction industry will continue to fuel growth in the sector, especially in the transport and utilities subsectors. The residential and commercial construction sectors, however, are unlikely to experience the same growth.

One key indicator is house prices, which have fallen by 30% in the six months to May 2009, leading to over-supply and therefore delays on new projects.

This drag on overall construction value is one of the reasons behind the downward revision of our growth forecasts for 2009. The revision is also informed by data from the Qatar Statistics Authority, which showed the nominal value of the country's construction industry was not as high as we were anticipating for 2008; in turn, data for the first quarter of 2009 showed a quarter-on-quarter slowdown in growth in the industry.

Qatar comes top in our Middle East Business Environment ratings for the quarter with a score of 68 out of 100. The country performs well, mostly owing to the potential for its infrastructure market over our 2009- 2013 forecast period. It presents few limits to potential returns and limited risks; however, middling scores for the country's legal framework and financial infrastructure prevent its score from being even higher. Recent contract disputes and alleged payment disagreements regarding the Doha Expressway may taint the country's high score.