GCC countries must get the institutional setup right for solid project development says Strategy& report
Gulf Cooperation Council (GCC) countries have planned almost $1 trillion of investment in megaprojects, as they look to transform economically and socially, according to a new report by Strategy& (Middle East), part of the PwC network. There are close to 30 real estate megaprojects in the GCC as of early 2020, the report added.
Titled ‘Managing the $1 trillion wave of GCC real estate megaprojects’, the report said that as these projects become operational over the next decade, they will help revitalise GCC economies, creating significantly improved tourist attractions, entertainment venues, financial and health centres, and residential areas. The goal of these megaprojects is to find new sources of growth, become more innovative and environmentally sustainable, and provide showcases for culture, heritage, and history.
Additionally, megaprojects in GCC take two fundamentally different forms, Strategy& noted. Some are greenfield projects set on large swaths of vacant land with the goal of creating completely new communities or providing new offerings. Examples include Al Harir City in Kuwait, Lusail City in Qatar, the Red Sea project and NEOM in Saudi Arabia, and the Riyadh City project in Abu Dhabi in the UAE. Others are regeneration projects focused on reviving and restoring existing assets and communities, such as Muharraq in Bahrain, and in Saudi Arabia the downtowns of Jeddah and the capital, Riyadh.
Although these projects vary widely in their scope and vision, they are alike in their soaring ambition and daunting levels of complexity, the report stated. It added that projects running into the tens of billions of dollars always involve risk and the GCC’s real estate megaprojects are no exception and adopting a wrong institutional setup is one of the key risks.
Ramy Sfeir, partner with Strategy&, said: “The starting point for any megaproject is a solid institutional setup that will guide project development. Frequently, the project sponsors make the cardinal errors of either delaying decisions about the institutional setup until a later stage, or they choose models that are incompatible with the overall purpose of the development. Instead, they should think of the institutional setup close to the beginning of the megaproject, along with the fundamental concept behind the development”.
Meanwhile, Karim Abdallah, partner with Strategy&, added: “Once the institutional setup is created, the mandate and roles of the project sponsor can be clearly defined and delineated from those of the other stakeholders in the ecosystem. It is important to note that the structure one begins with is not necessarily permanent. As the mandate grows, and the number of entities increases, the optimal structure often changes.”
“Deciding on the institutional setup and structure of the delivery entity is critical in real estate megaprojects. Moreover, the design of the institutional setup and delivery entity structure are tightly connected to the project master plan, development approach, and funding approach,” concluded Charly Nakhoul, principal at Strategy&.