The United Arab Emirates (UAE) has emerged from the pandemic as a leading regional PPP market. As the country looks to recover costs from Covid-19 and hedge against fluctuating oil prices, the government is leveraging private partnerships to bolster its ambitious national infrastructure programme.
In a recent effort to encourage investment into the UAE, Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum announced a new law on PPPs, which is expected to enable cost savings and integrate public and private sector technologies.
The Dubai Department of Finance announced $6.81bn of new PPP projects in October 2021. This includes 29 projects across five strategic sectors, including healthcare, urban development, public transport, waste management and water.
The Abu Dhabi Investment Office also announced plans to procure $2.72bn under PPPs in 2020, including road lighting, education and petrochemicals. In May this year, the UAE’s Abu Dhabi Investment Office signed the emirates’ first schools PPP project.
Driving innovation and quality of life
According to Nicholas Kramer, Dubai-based partner at law firm Norton Rose Fulbright, private sector investment will increase efficiency, drive greater innovation in public project delivery, and improve local quality of life.
Kramer adds that PPPs will provide cost-savings for the UAE government through competitive procurement processes, providing value for money in the delivery of public infrastructure.
“Another benefit of local PPPs is the potential to promote economic growth with job creation, particularly for UAE nationals,” he says.
But while PPPs will remain integral to the growth and diversification of the UAE economy, Kramer warned that investors and stakeholders should be mindful of the potential residual impacts of Covid-19, in addition to the current economic climate.
“Market uncertainty may reflect in a difference in risk allocation in the project documents and lender requirements,” he explains, adding that government priorities in the assessment and award of PPPs may also change, with emphasis placed on security of the bidder over form of the proposal.
Scott Livermore, chief economist at Oxford Economics Middle East and advisor to the Institute of Chartered Accountants in England and Wales (AICAEW), says he expects to see the UAE’s PPP pipeline grow significantly in the coming decade.
“The UAE has an ambitious growth and diversification agenda that should see the economy and population expand considerably. In order to successfully achieve its ambitions, the country will need to continue to invest in a wide range of infrastructure projects and provide a wide range of opportunities for investors,” he says.
Livermore predicts a continued focus on the sectors that will promote a diversified economy, including services to support a population that will surpass 10 million in early 2030, ongoing greening of the domestic energy supply, and improved sustainability across sectors such as water and transport.
“The UAE is an attractive destination for a range of investors, including PPP. Solid economic growth, the government’s sound fiscal position and low forex and political stability risk, are also positive from the perspective of long-run investors,” he adds.
Luke Robottom, Abu Dhabi-based partner at law firm Ashurst, agrees that the UAE PPP project pipeline remains strong, with new utilities projects expected to be issued to the market before the end of the year - including by the Emirates Water and Electricity Company.
He adds that the Abu Dhabi Investment Office is also preparing for more infrastructure PPP projects, with an emphasis on “high quality, bankable deals that can be delivered within reasonable timeframes”.
Renewables projects will remain a key focus for utilities procurers and further growth is expected in solar PV procurements as the emirates work towards achieving their clean energy targets, with the UAE set to host COP28 in 2023.
Robottom says developers were still smarting from experiencing significant macroeconomic challenges when structuring and delivering UAE PPP projects amid the pandemic.
“There were disruptions to contractor supply chains, availability, and price inflation of key materials. We have largely seen these risks remain with the private sector as procurers continue to look to receive fixed price proposals.”
Livermore notes that while the UAE government’s framework for attracting investors compares well at a global level, there are some areas where process standards can be raised.
“More can be done to ensure all projects are tendered to the most competitive bids,” he explains. “And although each emirate rightly has its own investment priorities, international investors would gain from a greater degree of uniformity in accessing and assessing opportunities in different emirates.”