Post-pandemic, Gulf countries in particular are looking to PPPs to help fund national transformation drives, including in healthcare, education and social housing.
More than $121bn of social infrastructure projects are planned and underway across the Gulf Cooperation Council (GCC) countries, with the majority of these located in Saudi Arabia, followed by Kuwait.
According to Phil Hanson, partners law firm Herbert Smith Freehills, “Numerous Gulf countries have an excellent track record in procuring utilities projects via PPP structures, so social infrastructure is both a logical next step but also a key economic imperative for Gulf countries seeking to develop further their economies and to diversify away from dependence on oil and gas revenues.”
Since the cessation of the global pandemic, a slew of regional educational PPP deals has been announced. The Abu Dhabi Department of Education and Knowledge and the Abu Dhabi Investment Office achieved financial close on Zayed City Schools, the first education-related PPP, in July 2022 with a consortium comprising Plenary Group and BESIX.
In the same month, SNC-Lavalin was awarded a facilities management (FM) contract for management of 60 public schools in Madinah by the Wave 2 Schools Project of the Saudi Ministry of Education.
Within healthcare, the Department of Finance of Dubai has announced that it will allocate $143m to develop seven projects. Meanwhile, Saudi Arabia’s Ministry of Health recently announced more than 100 projects in the coming five years with a value of $13bn across the kingdom, in line with its Vision 2030 programme.
Further afield in Oman, the Finance Ministry has issued a request for proposals for upcoming PPP projects in the sultanate covering health, education, and transport. Oman previously announced 10 successful prequalified bidders for 42 schools set to be developed as PPPs.
Angela Croker, Dubai-based partner at law firm Norton Rose Fulbright, says Saudi Arabia is “leading the charge” on social PPP investment, followed by Kuwait, Qatar and the UAE.
“The Gulf countries all have ambitious social infrastructure PPP pipelines, with a lot of emphasis being placed on social and sustainable growth. In a sense, the region is playing catch-up, traditionally spending a very small percentage of its GDP on public projects, with investment being focused primarily on the oil and gas sectors,” Croker comments.
"Governments have recognised that far greater investment is needed in the social and sustainable infrastructure development, in order to achieve their ambitious socio-economic growth targets.”
Salmaan Khawaja, partner and head of M&A and transactions advisory at Grant Thornton, says the Gulf’s appetite for social infrastructure PPPs is driven by several factors, including population growth and economic diversification.
“The need to provide essential services to its citizens has created a demand for social infrastructure projects. Governments are increasingly turning to PPPs as a way to fund these projects and provide these services more efficiently,” he says, adding that plunging oil prices have put pressure on governments to find alternative sources of funding.
“The region's governments are also seeking to diversify their economies and create new sources of revenue. Social infrastructure PPPs provide an opportunity for private sector companies to invest in the region and contribute to its economic growth,” Khawaja adds.
According to Croker, an increase in the upwardly mobile youth population in the region, together with the expectations that come with that demographic, is also contributing to the region’s appetite for social infrastructure PPPs.
“Governments in the region have made huge commitments to prioritise quality of life for their growing populations and this requires significant investment in social infrastructure assets,” she explains.
In these circumstances, private sector participation through PPPs can help reduce the burden on public finances while ensuring international standards of delivery are implemented, says Hanson.
But the launch of numerous PPPs across various sectors and in various jurisdictions can lead to questions around liquidity sufficiency, he warns.
“However, we have been in similar situations before and the project finance market has previously been able to rise to the challenge of meeting demand. Host governments will also need to be mindful of contingent liabilities where PPPs are backed by government credit support,” he concludes.
Such bold pipelines could also cause a lack of contractors to do the work, leading to an overheated market where only the most profitable deals get done. One only has to consider Project Neom, where a new city is being planned to rise out of the desert, to realise that a huge number of construction workers, investors and advisors are going to be needed on a vast scale to deliver such a scheme - never mind working in existing towns and cities across the region.
However, companies across the world are currently viewing the Middle East as a potential future hotbed of opportunity (as evidenced by Plenary's recent expansion in the region). If the GCC countries can take advantage of that interest, the future for social infrastructure could be strong.