The great Middle Eastern transport infrastructure binge continues to be funded from within. But there are still plenty of opportunities for canny financiers, reports Finbarr Bermingham.


Even the most stoic observer would struggle not to bat an eyelid at the amount of transport infrastructure investment going on in the Middle East. Before hosting the 2020 World Cup, Qatar will spend US$120bn on its wider infrastructure, with US$40bn alone being spent on railways. Saudi Arabia expects to spend US$71.6bn on infrastructure in 2013, with a large portion of it funding the construction of new airports, seaports, railways and roads, as well as the revamping of existing facilities.

Iran announced in February that it was to sell US$570mn in sovereign bonds to fund the expansion of its roads and rail networks, this in addition to the 54 projects that were completed in the country in 2012, at a cost of around US$2.4bn. And the UAE has seen project volumes return to pre-2008 levels, with a veritable conveyer belt of initiatives being announced across the transportation spectrum.

Given the current price of oil and the amount of liquidity governments, particularly those of GCC countries, are awash with, it’s not surprising that many of the projects are being funded centrally. But there are some notable exceptions.

Early in 2012, the Dubai government inked a US$675mn financing package for the first phase of the Al Sufouh tram project. The two-tranche facility was arranged by Citi, HSBC and Deutsche Bank. The first tranche had a tenor of 13 years and was guaranteed by Coface and ONDD of Belgium. Tranche two had a tenor of six years.

In February of this year, Etihad Rail announced that it had signed a five-year loan facility worth US$1.28bn with National Bank of Abu Dhabi (NBAD), Bank of Tokyo-Mitsubishi (BTMU), Abu Dhabi Commercial Bank and HSBC.

The finance will be used to implement the first phase of a national railway network that will eventually connect the UAE’s trade hubs with those of neighbouring countries.

Sheikh a leg

Large-scale financing of transport infrastructure in Saudi Arabia is less common, but by no means unheard of. Last year, a syndicate of the National Commercial Bank, Arab National Bank and Saudi Arabian British Bank (SABB) loaned US$1.1bn for the construction and development of Medina Airport in Saudi Arabia (incidentally the first public-private partnership project to take place in the Kingdom).

The Haramain high speed rail line, linking Mecca and Medina via Rabigh, Jeddah and King Abdulaziz international airport, is being completed by a Saudi-Spanish construction consortium. Appropriately, the project raised US$811mn in debt last year from a syndicate composed mainly of Spanish banks, including BBVA, Banco de Sabadell, Crédit Agricole España, Caixa Bank and Arónima Española.

According to Arup Roy, head of global transaction banking at SABB, whole projects are less likely to be funded by debt in Saudi Arabia. Often, though, project sponsors will borrow on a short-term basis to finance working capital requirements. “Liquidity is not a major concern in Saudi Arabia,” he tells GTR. “For some of these projects, funds are typically released based on completion of agreed milestones and therefore the requirement for financing comes up to bridge the gap between money being spent and the release of funds.”

Those looking to do business in the country, then, would do well to keep abreast of its sizeable roster of transport infrastructure projects. Many tie in with the ambitious plan to establish six economic cities (Tabouk, Hail, Medina, Rabigh, Eastern Province and Jazan). The Saudi Arabian General Investment Authority (Sagia) hopes to increase the Kingdom’s sea cargo from its current daily level of 1 million tonnes to 2.5 million tonnes by 2020. The cities alone will contribute up to 129 million tonnes of additional cargo each year.

Alongside Medina, plans are afoot to construct airports in areas nearby each of the other five cities. “Passenger growth has been significant,” says SABB’s Roy. “Saudi Arabia is opening its domestic airline sector to foreign airlines; the existing airlines are unable to cater to the requirements. They’ve recently given licences to a couple of foreign airlines.” Two of the airlines are believed to be Gulf Air of Bahrain and Oman Air.

Saudi Arabia accounted for 33% of all rail projects in the Middle East last year and is currently considering bids for light rail and metro projects in numerous cities – a trend that’s emerging across the Middle East, where the mantra ‘a metro for every city’ has grown in popularity. Again, the projects are likely to be funded centrally, but sponsors are expected to go the debt markets in order to satisfy short-term needs.

The Spanish contingent constructing and financing the Haramain project were able to compete on quality: Spain has an international reputation for completing rail projects. But generally speaking, foreign banks may struggle to compete with local banks, due to the competitive pricing those on the ground are able to offer. SABB’s Roy says: “Given the current liquidity and interest rate environment in Saudi Arabia, companies have the ability to raise finance locally at competitive rates.”

Rise of the machines

With governments elsewhere struggling to stimulate their economies through infrastructure builds, the volume of Middle Eastern projects (and the ability to fund many of them centrally) must surely be a source of envy elsewhere. Energy aside, though, the region isn’t industrially rich. In order to complete large-scale transportation projects, huge amounts of imports are required and statistics show that across the Mena region, demand for such imports is rising.

Of the top 30 imports across the region in 2012, 11 were related to the transportation sector. Reflecting the rise in consumer demand, the top import in 2012 – by some distance – was motor vehicles. But while countries are uniformly investing in new road networks, it is hoped that the huge investments being made in public transport will take the strain from congested urban highways.

The sentiment is borne out in the kinds of imports countries, including Morocco, Jordan and Saudi Arabia, are increasingly making. Over the next five years, imports of signalling equipment to the Middle East will grow by 39%. The biggest growth will unsurprisingly occur in the UAE and Saudi Arabia, but with Algeria, Morocco and Egypt following, it shows that financing opportunities are not limited to the GCC. Egypt, Tunisia and Lebanon will be the fastest-growing importers of road-making machines between now and 2016, while Oman, Yemen and Lebanon lead the way when it comes to the import of rolling stock for railways and tramways.

Owais Diyan is the head of operations in the UAE offices of the Islamic Corporation for the Insurance of Investments and Export Credit (ICIEC), Until 2011, ICIEC only had a mandate to cover exports from Muslim countries. Now, however, it has the ability to cover imports.

“Most of our member countries are importers of capital equipment and machinery,” he tells GTR. “Many are seeking credit loans from Europe, North America or Asia, so we’ve been allowed to broaden our mandate to cover exporters of capital equipment into our member countries.”

ICIEC is now working with Spanish, US and French exporters of capital equipment used in transport infrastructure and Diyan thinks that for foreign banks, this represents an excellent opportunity to get involved in the financing of projects which may otherwise be funded locally or centrally.

Making trade happen

As the pace of investment in transport infrastructure accelerates, it’s essential that trade facilitation systems are kept up to date at the same pace. The single-window system is one of the key components of this. It allows cross-border traders to submit regulatory documents such as customs declarations, export or import permit and trading invoices, at a single location. It helps increase the efficiency of trade – alternatively, traders may find themselves dealing with multiple agencies in order to obtain the necessary permits.


Mahmood Al Bastaki, CEO of trade facilitation specialist Dubai Trade, talks to GTR about developments in this area.

GTR: To what extent has the single-window concept been implemented in Dubai and further afield across the Middle East?

Al Bastaki: Dubai has been at the forefront of implementing single-window systems in the Middle East. In a report published by the UN in November 2011, Dubai and the UAE were ranked first among 14 members of the UN’s economic and social development commission in Western Asia for implementation of single-window systems. Barring a few other Middle Eastern nations, most countries are still in the nascent stages of the single-window implementation.

GTR: With so much investment in transport infrastructure, such as ports, how is investment in trade facilitation systems keeping up?

Al Bastaki: There are tremendous investments within the UAE specifically in the areas of trade and transportation infrastructure. We believe that this should be complemented by enhancements of the soft infrastructure which includes not just trade facilitation but also the associated rules, regulations and trade policies. If these are not in sync then we will never achieve the potential of the physical assets. With this in mind, we have been upgrading our technological infrastructure so that our systems can handle the increased transactional volumes with minimal system delays or breakdowns for the coming five years at least.

GTR: Dubai is very advanced in terms of the trade facilitation services it offers foreign companies. How far behind, to your knowledge, are other parts of the UAE and the wider Middle East?

Al Bastaki: The other areas are doing their bit to maintain their competitiveness and improve their service offerings to foreign investors. We may be ahead today, but I feel we should keep pushing further so that the lead and regional dominance the UAE enjoys is maintained for decades to come. We continue to host delegations from neighbouring countries and it is our endeavour to make Dubai the reference model for single windows around the world.

GTR: Is there a lot of commercial investment in trade facilitation? Of this, how much is raised on the debt markets?

Al Bastaki: Trade facilitation continues to be seen as a mechanism to streamline processes, which thereby improves process efficiencies, reduces time and cost for the participating players. Most of Dubai Trade’s investment into this field comes from our primary stakeholders such as DP World, Jafza, Dubai Customs and DMCC. A recent study conducted by the Emirates Competitiveness Council (ECC) as part of their Policy in Action report puts the total savings achieved by the single window concept at over US$40bn. If the investments are further streamlined by dipping into the debt markets, we can accelerate the pace of growth for trade facilitation systems in meaningful and sustainable way.