Industry News - Shifting Political Landscape Drives PPP Fund Launch

18 Apr 2011 • by Natalie Aster

In a venture to regain investor confidence in the nascent public private partnership (PPP) market which has been shaken by the political upheaval sweeping through the Middle East and North Africa, the Islamic Development Bank (IDB) and the World Bank will set up a new infrastructure fund to spur financing for economic infrastructure in the region.

The target is to raise US$1bn, which will be leveraged to finance transport and electricity network projects. The multilateral institutions aim to use their influence and financial muscle to attract and anchor investors to projects and catalyze further investment. The Arab Financing Facility for Infrastructure (AFFI), as the fund will be called, will focus on projects procured under PPP schemes. There will also be a Sharia element to it, thus opening access to projects financed under Islamic financing rules. The International Bank for Reconstruction and Development and the International Finance Corporation will set it up on behalf of the World Bank. Other than the fund target size and a general mandate to target projects with a regional dimension, few details are available on the AFFI. We believe that markets like Egypt, Kuwait, Oman and Jordan will be primary targets.

Political risk dynamics have altered dramatically in the region and risk profiles of many markets are still taking shape. According to BMI's revised political risk ratings, Qatar and the UAE are the two markets that currently have the strongest short-term political risk profile. Kuwait and Bahrain are the two most vulnerable to short-term political risk amongst the Gulf Cooperation Council (GCC), while Egypt's score of 53% mirrors the uncertainty still prevalent in the market.

Changing Political Risks Landscape
Short Term Political Risk Rating (%), Scores out of 100, with 100 being best.

Sourec: BMI

We anticipate that Egypt will be a major recipient of funds from the facility, as the country had one of the largest PPP pipelines in the Middle East. However with the political situation in a state of flux, investors and financiers could delay funding until the dust settles on a new political structure. Though the PPPs were planned under the previous government, in what was an attractive market for sponsors (judging from the bids and international interest recorded), and while at present it may be too soon to resume the programme, we anticipate that following free and fair elections, international sponsors will return.

Public private partnerships for transport projects are still limited in the Middle East in number, but some large scale concessions such as the Dubai Metro, or the Haramain railway concession have established the Middle East as a promising market for PPPs. Kuwait has recently re-doubled efforts to get projects (mulled under a PPP model) into the feasibility and tendering stages with the Kuwait metro project being just one example.

Private procurement has been more frequent and more successful with independent water and power projects (IWPPs) and independent power projects (IPPs) drawing large amounts of capital into the GCC's electricity sector. The Az Azzour IWPP, also in Kuwait is the latest project added to the pipeline.

BMI’s infrastructure reports feature a market assessment and independent 5-year forecasts covering public procurement and spending on all major infrastructure and construction projects, including transportation and logistics by land, sea and air; power plants and utilities, and commercial construction and property development. The impact of regulatory changes, GDP growth and the background macroeconomic outlook are examined, and competitive intelligence is provided comparing multinational and national contractors and suppliers by products, sales, market share, investments, projects, partners and expansion strategies.

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