BMI View: The GCC stands out as the region in MENA with lowest risk for infrastructure players across the lifecycle of a project. Financing projects across MENA will become more challenging as liquidity tightens, but the increasing use of the PPP model will allow investors to tap into significant infrastructure demand streams across the region. Project development in the Middle East and North Africa offers a lower risk profile than the global average, with BMI s Project Risk Index recording an average score of -- out of --- for the region, versus --.- globally. Within MENA there is a significant divergence between the Gulf Cooperation Council (GCC) markets and Israel which top the regional table, North African markets, and those currently facing significant security risks like in Iraq and Libya which languish at the bottom. Oil exporters and oil importers have fared differently in the lower oil price environment, but across the MENA region liquidity has tightened and project financing decisions have become more vulnerable to delay. ...Assets in operation face significant security risk, although demand remains robust and as such operation is the lowest risk phase of infrastructure development in the region. Although private operation of assets is relatively rare across MENA, the growing use of the public- private partnership model (PPP) will mean that there are increasing opportunities to tap into this infrastructure role.
...Israel and the GCC markets are the best performing within our PRI with regards to project financing - a result of significantly more sophisticated and deep banking sectors than elsewhere in MENA, able to provide construction firms with the capital needed to undertake projects. Israel has by far the most sophisticated banking sector for project financing, scoring an impressive -- in the Finance pillar of the PRI, which is able to issue long-term debt at low interest rate levels - ideal for private project developers. ...Israel has by far the most sophisticated banking sector for project financing, scoring an impressive -- in the Finance pillar of the PRI, which is able to issue long-term debt at low interest rate levels - ideal for private project developers. All six of the GCC markets follow Israel, benefitting from large sovereign wealth funds and access to state owned banks, which coupled with historically low interest rates thanks to currency pegs to the US dollar, makes the cost of capital extremely cheap. In comparison to Israel the availability of credit is lower in the GCC on average and we expect this to be exacerbated over the coming months and years. ...These deposits, which tend to be cheaper for banks than tapping wholesale funding markets, have kept the banks highly liquid. Their reduction is of particular concern in Oman and Bahrain, the two economies with the lowest fiscal and external buffers, where government deposits are already being tapped, resulting in tightening liquidity in the banking system.
...Source: BMI MENA on the whole scores well for construction timeliness on a global level. ...Of the -- markets BMI covers in the MENA region, nine of them score below the global average with regards to construction contracts. On the one hand this can be attributed to the lack of strong public-private partnership (PPP) legislation in the region after years of relying heavily on state financing - although we are noting this is changing in response to the lower oil price environment. On the other, it highlights concerns we have on contract enforceability in a number of markets, with infrastructure companies exposed to government intervention in judicial processes and serious risk of contract violations with regard to payments. ...
