Gulf PPPs ‘not shaken by Gaza conflict’

The PPP market has shown resilience to recent events in Israel and Gaza, but there remain areas of concern over the longer term impacts

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Senior investors and economists have said that the current state of the Israel-Gaza conflict is unlikely to seriously spook and derail surrounding regional PPP projects.

In this decade alone, billions of dollars have been invested in Middle East-based PPP deals across traditional sectors like energy and water, and more recently, social infrastructure.

Saudi Arabia and the UAE are leading the charge in terms of PPP volumes, while Palestine-border countries like Egypt and Jordan are also heavily invested in PPP as a route to upgrade both their societies and economies.

However, industry experts remain confident that the conflict taking place in Gaza will not have significant impacts on the wider PPP market.

Matein Khalid, chief investment officer in the private office of Abdulla Saeed Al Naboodah based in the UAE, explains: “While the current scale of the conflict in Gaza has been far more horrific and protracted [than before], Israeli forces have invaded the enclave four times previously since 2006 with no spill over or impact on the Gulf economies.”

Khalid notes that, despite a brief spike in crude oil's geopolitical risk premium just after the Hamas attacks on Israeli territory on October 7th, oil prices have fallen 20% in the subsequent two months.

According to Oliver Cornock, editor-in-chief at research firm Oxford Business Group, while Gulf markets have been historically reactive to market issues in the wider Middle East region, the Gaza conflict has proven to be less of a weigh on investor sentiment than it would have been a decade ago.

“This is a reflection of the GCC markets becoming even more integrated into the global economy,” says Cornock.

However, one area that could see weakened investor sentiment is tourism PPPs; primarily development projects on the Red Sea coast in Saudi Arabia.

Khalid notes that tourist traffic to Egypt, for example, fell almost 30% in the month after the Gaza conflict began, and this sector could be vulnerable if the war escalates or does not end in early 2024.

Graham Robinson, global infrastructure and construction lead at Oxford Economics, comments that “significant broadening” of the Gaza conflict could have a damaging effect on foreign investment into PPPs and cause energy prices to spike.

“The spillover would affect countries such as Egypt and Jordan and, ultimately, the powerhouse economies of Saudi Arabia and the UAE will suffer,” he says.

Robinson adds that should the conflict widen, additional assurances would need to be put in place in contracts, such as extra sovereign guarantees to protect investors, as well as de-risked demand guarantees.

“Social infrastructure is a relatively new area of investment for the region and it is an area where there might need to be additional state level guarantees,” he explains. “Any significant spill over would require war risk insurance to be put into place (similar to Ukraine) and a range of other protections for investors and contractors undertaking construction work.”

Ultimately, however, PPPs are “intrinsic” to the economic development blueprint in all six Gulf states, Khalid argues. “I expect the role of PPPs in the kingdom to increase as the pipeline of viable projects is just too huge and diverse."