Infrastructure report
Industry Forecast Construction And Infrastructure Forecast Scenario
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- Bu səhifədəki naviqasiya:
- Latest Updates
- Structural Trends
- External Factors Underpinning Construction Growth
- Infrastructure Growth To Be Broad-Based
- Long-Term View: Unpredictable Variables Means Growth Not Assured
- Kurdistans Shine To Dull
Industry ForecastConstruction And Infrastructure Forecast ScenarioBMI View: Despite significant ongoing political and security risks, our outlook for the Iraqi government to be nearing a fiscal strength to prioritise reconstruction efforts remains unchanged, if significantly impacted by downside risks. Latest Updates
Table: Construction And Infrastructure Industry Data (Iraq 2016-2026)
e/f = BMI estimate/forecast. Source: National sources, BMI Structural Trends2017-2021: Better But Not GoodWe are cautiously optimistic that Iraq's construction market will emerge from a period of volatility following years of conflict and return to broad-based, diversified growth. We project that construction sector value will expand by an annualised average of 5.9% out to 2021, as Iraq's improving fiscal position allows the state to invest in reconstruction projects spanning the country's infrastructure spectrum. Having said that, we caution that our outlook is predicated upon the maintenance of relative stability in Iraq, and though we do not anticipate a return to large-scale sectarian conflict in the near future, the volatile nature of Iraq's political and security situation ensures that risks are established firmly to the downside. Not least of which is growing tension between Baghdad and Erbil, the capital of the Kurdistan Region, a key component of Iraq's overall oil production. In late September, people in northern Iraq (Kurds and non- Kurds) voted in favour of independence for the Kurdistan Region in a referendum, which was not recognised by Baghdad. Following failed negotiations between the Iraqi central government and the Kurdistan Regional Government (KRG), the Iraqi Security Forces (ISF) launched a military operation in Kirkuk (not part of the Kurdistan Region, but governed from Erbil after Kurdish Peshmerga forces ousted the ISF) to retake oil facilities and federal installations on Sunday October 15. A few hours after the start of the operation, various reports announced that the ISF had retaken the headquarters of the North Oil Company and the K1 military base in the surroundings of Kirkuk, and that some Iraqi troops had entered the city. While we believe that the operation will not necessarily translate into a full-scale conflict between the two entities, we do note that the risks of such a scenario playing out have dramatically risen (see Rising Risks Of Prolonged Conflict In Iraqi Kurdistan, October 16). Meanwhile, an ongoing but gradually dissipating risk will come from Islamic militants, who continue to pose a security threat, but we believe that it will be limited to sporadic terror attacks. As a result of the central government taking back control of this territory, the displaced population (3mn Iraqis out of 33 million) will return home. This will create an environment more conducive to private consumption - it will be easier for public servants to receive their salaries for example - and we therefore expect to see household spending increase over the coming quarters. Clearer upside risks to investment driven growth stem from global oil prices recovering durably in 2017 to average USD53.5bbl (compared to USD45bbl in 2016), Iraq and the IMF signing a USD5.3bn stand-by agreement in July 2016, the country increasing gas capturing for power and exports, and seeking to expand oil production through smaller fields to reduce reliance on large fields and their operators. Steady Growth Ahead Following Years Of Volatility Construction Industry Value, IQDbn & Real Growth, % y-o-y 75 30,000 50 20,000 25 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e 2016e -25 10,000
2017f 2018f 2019f 2020f 2021f 0 Construction industry value, IQDbn Construction Industry Value, Real Growth, % y-o-y
Iraq's growing ability to finance a variety of infrastructure projects will rest upon a gradually improving fiscal position, though the pace of improvement will be hindered by lower-for-longer oil prices. While conversely, spending cuts will prove politically difficult to implement, with the need to rebuild infrastructure after years of conflict a significant pressure on the country's deficit. In this context, we have revised our forecasts for Iraq's budget deficit to 8.1% in 2017 and 8.2% in 2018, from 7.8% and 6.5% previously.(see chart below). Nevertheless, a steadily reducing deficit will be positive for infrastructure investment and driven by:
Rising Oil Price Lifts Fiscal Outlook Iraq - Budget Balance, % Of GDP & Brent Prices, USD 125 10 5 100
75 -5
-10 2010 2011 2012 2013 2014 2015e 2016e 2017f 2018f 2019f 2020f 2021f 25 -15 Budget balance, % of GDP (RHS) Brent, USD/bbl (LHS) e/f = BMI estimate/forecast. Source: IMF, BMI
- given the country's perceived importance to the stability of the broader region, we expect donor aid from a variety of stakeholders to continue to flow for the foreseeable future. We have previously highlighted a bilateral USD10bn loan extended by the British government expressly for the purpose of investing in infrastructure, with the stipulation that contracts be awarded to British firms (see, 'British Firms Major Beneficiaries Of Bilateral Infrastructure Loan,' March 7 2017). On a multi-lateral level, we note that the International Monetary Fund (IMF) approved a USD5.3bn loan in July 2016, which will be disbursed over the following three years. External Assistance To Fill Part Of The Gap Iraq - International Financial Contribution Pledges, USDbn 5,000 4,000
3,000 2,000
1,000 0 2017 2018 2019
Source: IMF, BMI Infrastructure Growth To Be Broad-BasedIraq's improving fiscal situation will afford the central government - the main financier in the country's infrastructure space - the necessary breathing room to accelerate the reconstruction of the country's infrastructure, which has suffered significantly in terms of disruption and underinvestment following the 2003 invasion of Iraq. Although the scale of Iraq's investment needs across infrastructure segments will ensure that various sectors stand to benefit, we expect that short-term growth will be concentrated in:
Urbanising Population Fueling Structural Infrastructure Demand Population, mn & Urban Population, % Of Total 100 80 77.5
75 75 50 72.5 25 70
0 2005 2010 2015e 2020f 2025f 2030f 2035f 2040f 2045f 2050f  Population, mn (LHS) Urban population, % of total (RHS)
67.5 e/f = BMI estimate/forecast. Source: National Sources, BMI
Long-Term View: Unpredictable Variables Means Growth Not AssuredOur seemingly healthy forecast is in the context of growth recovering from a negative base and the extent of reconstruction and upgrading required throughout the country, which, if growth were to be maximised, would exceed this figure easily for a decade. But our cautious and flat growth view is underpinned by the uncertainty surrounding the future trajectory of the country. Long-term investment commitments will be required, but will be difficult to secure in such a volatile environment. Should the security situation improve in earnest, physical, financial and governmental infrastructure will remain inadequate for some time. After three years of economic recession, we expect Iraq's real GDP growth to turn positive in 2017. Yet the country still suffers from major structural issues that will prevent a boom in economic expansion. Indeed, we have decreased our forecast for real GDP growth in 2017 from 2.3% to 1.4%, and in 2018 from 4.4% to 3.1%, due largely to risks relating to rising tensions between Baghdad and the Kurdistan Region since the independence referendum in September that saw 93% of voters seeking Kurdish secession and the subsequent military action by the ISF in Kirkuk. Furthermore, the status of Iraq as a single entity is by no means assured, which will deter investors from striking deals with institutions which may not be valid in a few years. BMI's core scenario, following a protracted period of conflict, is for the emergence of a fragile Iraq that will be federalised along sectarian lines, with a majority Sunni entity in the north, a majority Shi'a entity in the south, and a Kurdish region in the north east. Although the formal unity of the country will be maintained, levels of violence will remain elevated for several years and the governance of the north will remain a major problem. A significant risk remains, however, that the country will disintegrate entirely, resulting in the emergence of three new states.
After more than a decade of boom, we believe that Iraqi Kurdistan has entered a protracted period of slower economic growth. Low oil prices, substantial political tensions within the KRG and between the KRG and Baghdad, widespread corruption, and elevated insecurity will drag on economic activity and prevent the implementation of necessary reforms to diversify the Kurdish economy away from oil and the public sector. For some time, owing to the relative peace and prosperity comparative to the rest of Iraq, the Kurdish north east has been a safe haven. Kurdistan, seen as a stable, investor-friendly region without many of the risks affecting the rest of Iraq, has subsequently witnessed a boom in the residential and non-residential construction sector - particularly for hotels and commercial real estate. Tourism has also been a key driver of this growth, attracting many visitors from Iran and Turkey, as well as Europeans and Americans. However, the Iraqi Kurdistan's economy has been substantially impacted by the slump in oil prices since the summer of 2014. Growth in Iraqi Kurdistan is fuelled by spending from the regional government - the public sector employs more than 50% of the region's labour force, and public spending accounted for more than 50% of nominal GDP in 2015 - which is funded by revenues from oil sales. The lower oil price environment will prevent KRG revenues from making a significant recovery and the regional government will be compelled to push ahead with austerity measures in order to reduce large fiscal shortfalls. These will be limited, given that Erbil's previous measures have significantly increased discontent in the region. Since 2015, Erbil has postponed investment projects, let payments to contractors and public servants fall in arrears, and cut public servant salaries by up to 75%. These measures have severely impacted household and corporate earnings (including international oil companies), and triggered widespread protests in the region, without significantly improving the KRG's fiscal situation. Between February and October 2016, the Kurdish government netted on average USD370mn per month from oil sales, while its monthly spending requirements averaged USD1bn. The impact of the worsening business environment on foreign investment is clearest in the hydrocarbon sector, with international oil companies increasingly relinquishing exploration blocks in the region. Since early 2015, ExxonMobil, DNO, Petroceltic, Hess, Chevron, Genel and Gulf Keystone have all pulled out of investments in Iraqi Kurdistan. Additionally, political instability, within the KRG and in its relationship with Iraqi central government, will worsen the economic outlook and the investment environment. Indeed, the independence referendum and military action by Baghdad in September-October only serves to deepen the negative outlook. Furthermore, despite the 2017 budget stating, favourably for Kurdistan, that the KRG would send 550,000 barrels of oil a day to Iraq's State Organization for the Marketing of Oil (SOMO), in return for federal funds to pay for 650,000 Kurdish civil servant salaries, it will not last even if implemented, as the KRG and Baghdad enter a period of increasing tensions. The oil-rich city and region of Kirkuk, which Iraqi Kurds have controlled since early 2014, is at the centre of tensions, with ISF gaining ground from Peshmerga held oil and military instillations in the region in October. Additionally, relations between the Iraqi central government and the KRG will worsen as the KRG looks to international capital markets to issue debt. As Erbil pushes for financial independence from Baghdad, we expect the constitutional deal between the central government and the Kurds - under which the KRG is required to export 550,000 barrels-a-day in exchange for 17% of the nationwide budget - to come close to collapsing. In addition, The Kurdish government will become more and more assertive in its territorial disputes with Baghdad, and this will increase sectarian tensions in Iraq. Following a much-debated law in the Kurdish Parliament passed in early June 2015 - without approval from Baghdad - the KRG will seek to raise up to USD5bn from international capital markets under the condition that the money be used to fund infrastructure projects. We expect the Kurdish borrowing rate to be significantly higher than Iraq's, as several factors increase the risk premium. In particular, the limited economic data available for the region, which does not have a credit rating, and the reliance of the KRG on Baghdad for its budget -the Kurds would only meet 50% of their budget needs if they exported at their pipeline's full capacity - will deter foreign investors. With uncertainty over the future status of Kurdistan at an all-time high, we expect investment to be slow, with foreign direct investment (FDI) inflows to remain restrained over the coming quarters, despite the country implementing a new investment law aimed at encouraging FDI flows. Over the longer term, the security situation will remain uncertain, hindering interest from foreign companies. However, the Kurdish region will continue to outperform the rest of Iraq and, despite the KRG's move towards greater financial independence, our core scenario is not for the country to be partitioned in future. The Kurdish strength stems from regional and international support, and its sponsors oppose an independent Kurdistan. In particular, the US - the KRG's main military ally - and Turkey, through which Kurdish oil is sold, both consider the unity of Iraq as an uninfringeable political necessity. There is little support from any regional power to redraw borders, particularly given the presence of significant Kurdish minorities in Iraq's neighbouring countries. Yüklə 406,76 Kb. Dostları ilə paylaş:
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