Qatar's growing population and 2022 FIFA World Cup creating much construction activity

A quick look at the Doha skyline reveals just how much activity there is in Qatar’s construction sector currently, with cranes and scaffolding-clad towers, the thump of piledrivers and convoys of cement trucks snaking through the city’s streets. Activity in the capital is just one aspect of the work being done, with highways, housing estates and hypermarkets now also being built around the country. A huge amount of investment is going into Qatar’s infrastructure, along with its real estate, providing some of the largest contracts of recent decades for construction companies.

Despite this flurry of activity, there are still challenges as the sector faces an economic slowdown. Falling oil and gas revenues have affected government spending, with many of the mega projects currently under construction seeing reprioritisation, while new contracts have become scarcer. The blockade imposed on Qatar by Saudi Arabia, the UAE, Bahrain and Egypt in June 2017 has also had notable effects on the economy.

Nonetheless, Qatar remains a global centre for the industry as it gears up for 2022 FIFA World Cup. Indeed, sector players now expect a flurry of smaller contracts in the second half of 2018 and beyond, as the country’s plans for the tournament are realised and major projects are speeding up to meet their pre-2022 deadlines.

Macro Moves

Recent years have seen strong economic and population growth in Qatar, with the former coming on the back of the development of major oil and gas reserves. Possession of one of the world’s largest non-associated natural gas fields has led the country to its position as the top exporter of liquefied natural gas. The government has channelled much of the revenue from this into infrastructure development, while government-linked and private sector developers have forged ahead with major real estate projects.

Qatar’s GDP grew from $7.83bn at current prices in 1980 to $17.76bn in 2000, $125.12bn in 2010 and $164.64bn in 2015, according to the World Bank. Meanwhile, the population – swollen by large numbers of expatriate construction workers, designers, architects, financiers and other professionals – jumped from 223,715 in 1980 to 593,453 in 2000, 1.77m in 2010 and 2.7m in May 2017.

The sector has proved to be a growing power behind the domestic non-oil and gas sector in recent years. Figures from the 2016 Quarterly Statistical Bulletin of June 2017 published by the Qatar Central Bank (QCB) show that construction accounted for 4.6% of total GDP in 2012, 5.4% in 2013, 6.7% in 2014, 9.6% in 2015 and 11.9% in 2016. Over the same period, construction’s GDP contribution more than doubled from QR30.9bn ($8.5bn) to QR65.9bn ($18.1bn).

In 2015 in real terms construction also saw the largest overall increase in output of any sector, at 17.8%. This figure represented 28.2% of the expansion achieved by non-oil GDP in 2015. Data from Qatar National Bank shows that in 2016 the sector was the biggest contributor to non-hydrocarbons growth, rising by 15.4%, while local media reported in early November 2017 that construction grew by 15.3% year-on-year in the second quarter of 2017.

Sector Credit

Growth in construction has also been reflected in credit growth, with the industry’s rise also affecting a shift in bank lending patterns from the public sector to the private. According to QCB figures, in 2015 credit to contractors went up 23.6%, while the real estate sector saw 27.4% credit growth and the overall share of construction in total domestic credit was 5.7%.

The sector’s activity has attracted many new companies to Qatar. In January 2017 contractors formed the biggest group of newly registered companies in the state, with 498 new registrants out of a total of 2288, followed by building materials manufacturers with 266 new registrants. “This country has all the ingredients for a healthy construction market – strong economy, solid public finances and large infrastructure gaps. We still see many positive opportunities here,” Osama Hadid, CEO of AlJaber Engineering, told OBG.

Challenges

Yet these have not been easy times for the Qatari economy overall. With much lower oil prices – barrel prices averaged $54 in 2015 and $46 in 2016 – the country was obliged to run its first budget deficit in 15 years in 2016. The budget for 2017 has also been trimmed, with a QR28.3bn ($7.7bn) deficit planned, as planned government expenditure of QR198.4bn ($54.5bn) will overtake expected revenue of QR170.1bn ($46.7bn), according to the Ministry of Finance. The deficit has translated into significant cuts in infrastructure projects. Yet the government has been keen to preserve the most central of these works. The Doha Metro, for example, and many school, hospital and highway projects have been effectively ring fenced. Transport and infrastructure still get 21.2% of total outlays, with overall capital spending increasing 3.2% in the 2017 budget. In early 2017 local media reported the Ministry of Finance had signalled an intention to increase future capital spending, announcing that the government would agree to QR46.1bn ($12.7bn) worth of new contracts in 2017, adding to QR374bn ($102.7bn) of non-oil-and-gas sector-related contracts under way.

However, the country’s World Cup plans have not been immune from overall budget cuts, with April 2017 seeing an announcement from the Supreme Committee for Delivery and Legacy (SCDL) that the budget for the tournament had been reduced by around 40%. Hassan Al Thawadi, secretary-general of the SCDL, stressed that this was due to stricter financial responsibility, rather than a fall in oil and gas prices. Most of the $8bn-10bn now earmarked for the World Cup will go to stadiums and training grounds (see analysis).

Meanwhile, a vast range of infrastructure projects is continuing and, in many cases, nearing completion. These include major investments in the airport, roads and port. When they do roll out, these developments are set to transform the current built landscape, and should help to sustain growth in the construction sector and the wider economy, HIGHWAYS & BYWAYS: The first asphalt public roads were laid in the 1950s, when transport infrastructure in Qatar was rudimentary at best. Nowadays, a network of multi-lane highways connects the country’s main urban areas, while Doha has become a mass of ring roads, flyovers and bypasses. Central to much of the country’s more recent transport infrastructure development has been the Public Works Authority (Ashghal). Set up in 2004, it is responsible for planning, design, procurement, construction, delivery and asset management for all infrastructure and public buildings in the state. This responsibility includes not only all roads, but also drainage projects and public works such as hospitals and mosques. Ashghal also has a policy of outsourcing and partnering with contractors.

“Starting in mid-2015, there has been a clear slowdown in the number and size of projects being awarded,” Philippe Tavernier, CEO of construction company Qatari Diar Vinci Construction, told OBG. “However, it is possible that a number of small to medium-sized projects will be released in 2017, particularly from Ashghal in terms of roads, bridges and the like.”

Concerning roads, Ashghal is currently working on its Expressway Programme, an ambitious series of multi-lane highways around the country. Qatari Diar and SBG Construction have been contracted for the QR6.9bn ($1.9bn) Dukhan Highway East project, with an eight-lane mainline. Hyundai Engineering and Construction is handling the QR4.99bn ($1.4bn) Lusail Expressway, a four-lane, 5.5-km project. China Harbour Engineering Company and a joint venture between Joannou & Paraskevaides (Overseas) and Avax are working on the QR458m ($125.8m) East-West Corridor, creating linkages to Hamad International Airport.

Other Projects

Meanwhile, Turkish joint venture Doğuş İnşaat/Onur is laying down the QR4.5bn ($1.2bn) second phase of the Al Rayyan Road Upgrade project, which is set to improve traffic flow around Doha. The first phase, carried out by Six Construct and Boom Construction, was completed in the first quarter of 2017. Elsewhere, Al Jaber Transport and General Contracting is working on the QR233bn ($639.9m) Rawdat Al Khail Street Extension project, adding an eight-lane, 12.5-km stretch to relieve congestion between Doha’s industrial areas and the main city.

This, however, is far from all of the projects in the road pipeline. Ashghal has also issued four contracts for a new orbital highway and truck route around Doha that will link the new Doha Port and Mesaieed Industrial City with Al Khor. The new Hamad Port itself began full operations in December 2016, with an official opening ceremony in March 2017. One of the world’s largest greenfield port developments and costing around $7.4bn, it includes a new naval base, commercial port and economic zone on a 26.5-sq-km site. The QR2.35bn ($645.4m) Al Wakra Bypass is also under way, with KBR Services as the programme management consultant and Larsen & Toubro as the construction company.

Public Projects

Ashghal is also involved in a number of public building projects, including construction of the QR557m ($153m) rehabilitation centre, Naufar; a medical simulation centre at Hamad Medical City; and in the building or rebuilding of a number of mosques around the country. In drainage, the authority is currently working with Keppel Seghers Engineering Singapore and consultancy firms Keo International and Stanley on the QR3.6bn ($988.7m) Doha North Sewage Treatment Works, which will serve a projected population of some 900,000, as well as two temporary package treatment plants at Al Karaana and Umm Birka. Protec is the construction outfit and US-based AECOM the consultant for these 10,000-cu-metre-per-day plants.

Ashghal is also busy with infrastructure development projects at Doha Industrial Area, with AECOM as the construction supervisors and a QTCG-MSF Qatar consortium doing the building work. This QR1.4bn ($384.5m) scheme will rehabilitate and upgrade the area’s roads and drainage systems. Other similar work includes the QR326.4m ($89.6m) Rawdat Egdaim/Bani Hajer infrastructure development project, in which Arcadis is the consultant, and a joint venture between Combined Group Contracting and Sacer acting as the constructor. Package 1 of the QR117m ($32.1m) Muaither Area Sewage scheme was completed in June 2017, with WS Atkins and Partners as the consultant and Petroserv as the construction company.

A QR547m ($150.2m) road and infrastructure scheme at Rawdat Abal Heeran is due to see around 40 km of roads completed, along with infrastructure for 1102 residential plots, schools and retail facilities at this new neighbourhood. The UK’s WS Atkins is the consultant for the project, while Qatari firm QBS International is carrying out the construction.

Water Power

In addition, many of these companies and consortia have won the bidding for giant contracts with another key government agency, the Qatar General Electricity and Water Company, known as Kahramaa. One of its largest undertakings is the QR17bn ($4.7bn) Strategic Mega Reservoirs Project, which will see 24 new water reservoirs constructed by 2026. The reservoirs will each have a 100m-gallon capacity, making them among the world’s largest. Some 650 km of pipelines are also being installed during the project’s first phase, which began roll out at the start of 2016.

A second phase, designed to provide Qatar with reservoir capacity up to the year 2036, includes 40 more such reservoirs with a total capacity of 3.8bn gallons. China Gezhouba Group Company began work on the first package of the first phase in January 2016, laying 11.2 km of pipelines and starting construction of five reservoirs, with a three-year project deadline.

Two government ministries also issue tenders for construction work: the Ministry of the Interior and the Ministry of Municipalities and Environment. The latter has particular responsibility for landscaping, with many of Qatar’s urban developments including the construction of major green areas.

Metro City

For many Doha residents, one of the most eagerly awaited construction projects currently under way is the Doha Metro. This scheme is being put together by Qatar Rail, the state entity charged not only with developing this system, but also with the Lusail Tram (LT) – a network for the new city – and Qatar’s long-distance rail network, which is also due to link eventually to the planned pan-GCC rail system. Currently, however, it is the first of these projects that is the focus. The metro has three lines in its initial phase, Red, Green and Gold, all being constructed simultaneously. The system is not just about transport, but forms a new backbone for the city around which new neighbourhoods and centres are being created.

The long-term development plan, Qatar National Vision 2030, and the Qatar National Development Framework that arises out of it foresee a future city in which metro stations will be at the centre of decentralised complexes of residential, commercial and retail buildings (see Real Estate chapter). The three lines intersect at Msheireb Station, in the heart of the new Msheireb office, residential and commercial development. Running north-south through here will be the Red Line, or Coast Line, which is a 42-km stretch from Lusail City to Al Wakra. The line has 18 stations, with one of them, Legtaifiya, designed to be an interchange with the LT. Nearly 24 km of the Red Line will be underground with tunnel-boring machines cutting 13 metres per day beneath the city’s streets.

The Green Line, meanwhile, runs from Al Riffa, to the east of the city centre, on to Msheireb and then south for one stop at Mansoura. This takes the line through Education City, which lends it the nickname the Education Line. It has a total of 11 stations, with one of them, Al Bidda, also being an interchange with the Red Line. Some 16.6 km of the track will be underground. The Gold Line, which is also known as the Historic Line as it includes stops at Souq Waqif and the Qatar National Museum, includes 11 stations in all, with around 13.3 km being underground. It runs roughly east-west, from Ras Bu Abboud to Al Aziziyah.

Contracts

A vast number of contracts have been awarded for this giant scheme, although at this stage most of those remaining are connected with the fitting out and operation of metro stations, rather than hard construction. One of the latest contracts to be awarded was a QR278m ($76.3m) deal reached in March 2017 with the UAE-based L&T Electrical and Automation for the supply, maintenance and operation of building automation and control systems for 37 stations. The overall work is due for completion in 2018/19, with a period of rigorous testing then taking place before the three lines open to the public in 2020.

Elsewhere, the LT is due for completion in 2018/19. A consortium led by France’s Alstom was awarded the contract for engineering, procurement, construction, testing and commissioning of the four-line project in 2014. Some 38 km of track are to be laid for the LT, serving 30 stations, with 35 Citadis trams each with capacity for 207 passengers circulating round the route.

Building Up

This developing transport infrastructure is also being installed in a fast-moving real estate construction environment. Development of office space has been a particularly vibrant segment over recent years. According to the“Qatar Quarter Four 2016” report published by real estate firm DTZ at the end of December 2016, a number of office-tower projects was due to be completed in West Bay during 2017. The area already hosts 1.64m sq metres of Doha’s more than 4m sq metres of office space. DTZ expected the district around Qatar Petroleum’s offices to be finished during the year, adding another 230,000 sq metres, while in Lusail City 134,000 sq metres was forecast to be added by year-end 2017. According to DTZ, around 2m sq metres of new office accommodation is planned within the next 10 years, mainly in Lusail.

At the same time, the population boom has fuelled demand for residential properties – although the recent economic downturn has stifled growth somewhat, particularly at the higher end of the market. Nonetheless, major new construction projects in residential real estate are under way.

A March 2017 report from DTZ anticipated prime apartment supply swelling to about 25,000 units in 2017, then to just under 30,000 units in 2018, just over 30,000 in 2019 and around 35,000 units in 2020.

In retail there is also a pipeline of projects coming on-stream, with Mall of Qatar and Doha Festival City having opened in late 2016 and early 2017, respectively. Six more large malls were due to open in 2017, as well as two more in Lusail City over the next two years, which would see the total 838,000 sq metres of mall space at the end of 2016 reach 1.8m sq metres by 2020.

Hospitality

Hotels are also going up. More than 20,000 rooms were in some stage of construction as of the first quarter of 2017 and a total of 47,000 rooms are expected to be ready in the city by 2020, according to DTZ (see Tourism chapter). Qatar promised more than 60,000 rooms by the start of the World Cup, indicating that even greater numbers of hotels, particularly in the mid-range, are needed ahead of the tournament.

Labour Pains

This demand, plus the international spotlight on Qatar as a result of its successful World Cup bid, has focused attention in recent years on conditions for labourers working in the country.

The overwhelming majority of manual labourers currently employed in construction come from South and South-east Asia, attracted by wages that are higher than what they would receive at home. A complex system of intermediaries and agencies exists in these workers’ home countries, controlling their hiring and the issuing of travel and work visas for Qatar, as well as other Gulf countries. This system has been open to abuse, although many workers are still willing to travel, often in order to financially support their families.

Addressing Concerns

Qatar has taken steps to address these recent concerns, passing a new labour law in December 2016. The legislation set up a grievance committee, to which workers can appeal if their employers have not given them permission to leave or change jobs. This marks a change from the old kefala system wherein foreign workers had to get the consent of their employers before leaving the country or switching jobs. A previous practice of employers confiscating workers’ passports has also been stopped, with a QR25,000 ($6870) fine now chargeable if an employer continues with this practice. In addition, workers are also seeing systemic improvements reflected in their wages.

Most major companies in the sector provide accommodation and facilities of good standard for workers, who are typically housed in purpose-built camps outside of the city. Indeed, a recent independent report, commissioned by the SCDL, found that most companies complied with regulations on housing, as well as with workplace safety. According to the report, which was authored by London-based trade consultancy Impactt, the major challenges were in the provision of proper rest periods and grievance procedures. A delegation from the UN’s International Labour Organisation also visited Qatar in March 2017 and gave the government until November 2017 to implement its new reforms before making any further judgment. More changes may therefore be in the pipeline.

Outlook

The lead up to the World Cup will see a major amount of construction, though the completion of infrastructure projects such as the Doha Metro and various major road works will see a slowdown in contracts well before kick-off. There is, however, an expectation that after the 2018 FIFA World Cup in Russia finishes, there will be a higher degree of concentration on Doha’s preparedness for 2022, with a flurry of medium and smaller projects likely to result, as gaps in current planning are filled.

Despite the ongoing blockade, the authorities have emphasised that the fall in imports would not affect key government projects and that the blockade could in fact have a positive impact on the domestic industrial sector (see analysis). There may be few major projects ahead then, but still plenty to keep sector players busy, with the prospect of an upturn in state spending also on the cards if oil and gas revenues start to tick up again.