Market Monitor

How will MENA handle mass urbanisation?

Perhaps more than anywhere else in the world, rapid urbanisation in the MENA region will create significant investment opportunities for a variety of domestic and foreign firms. North Africa will see high-volume, low-tech developments, while capital-intensive projects such as rail and smart cities will be concentrated in higher-income nations in the Gulf. Elsewhere, a widening urban infrastructure deficit will stoke social instability.

 

Global hotspot for urbanisation

MENA will be a global urbanisation hotspot over the next decade, with the region’s urban population expected to increase by one-quarter between 2020 and 2030. In fact, only sub-Saharan Africa will experience a faster pace of urban growth. Iraq and Egypt will see the largest increases, with almost 10m additional urban residents in both countries over the period.[1]

 

Rapid urbanisation will create opportunities for a variety of domestic and foreign firms. The nature of these opportunities will vary in each country, influenced by the pace of city growth and respective income level in each economy.

 

North Africa: high-volume, low-tech development

Countries with rapidly expanding urban populations but low incomes will see opportunities concentrated in mass residential and commercial construction. The most promising markets of this type are clustered in North Africa, particularly Algeria, Egypt and Morocco. Per-capita income in all three of these countries is below the MENA average of around $8,000, while the urban population of each will increase by more than 4m over 2020–30. Examples of the high-volume projects in the pipeline include Egypt’s enormous New Administrative Capital, Morocco’s Zenata ecological city and Algeria’s $6bn New City of Hassi Messaoud project.

To some extent, there will also be opportunities to participate in the development of mass rapid transport solutions. For instance, the Egyptian government aims to extend the Cairo metro, while Morocco is pursuing a smaller-scale expansion of the Rabat Salé tram. However, the high cost of rail development means that such capital-intensive projects will be rare in North Africa.

 

The Gulf: capital-intensive urbanisation

The GCC will experience a less dramatic increase in urban residents than North Africa. However, significantly higher per-capita incomes in the GCC mean that investment will be focused on more capital-intensive projects. For instance, all GCC states except Oman have major rail projects in the pipeline, including Kuwait’s 160-km Metro Rail, the UAE’s $11bn Etihad Rail Project and Qatar’s ongoing Doha Metro construction.

GCC governments also plan to develop so-called smart cities, both by upgrading infrastructure in existing urban agglomerations and by constructing brand new sites. The opportunity that such technology-intensive urban development creates to develop domestic technology industries aligns well with the economic diversification strategies of governments in the region. Examples of these projects include Kuwait’s planned $4bn South Saad Al Abdullah New City, intended to house 400,000 people, and the UAE’s Smart Dubai 2021 programme, which includes plans to embed 3D printing into its urban development via the Dubai 3D Printing Strategy.

 

 

Saudi Arabia in a sweet spot

Saudi Arabia will be a particularly diverse source of urbanisation-related opportunities over the coming decade. The kingdom has an above-average per capita income for MENA ($23,339 in 2018) and its urban population is expected to increase by almost 5m by 2030. Moreover, according to the UN, Saudi Arabia has the largest construction industry in the region, valued at $40.3bn in 2018.

 

 

The country’s Saudi Vision 2030 plans the construction of high-volume residential and commercial developments, such as the $5bn mixed-use Al Wedyan project in Riyadh. Meanwhile, another objective of the strategy is to transform 10 cities across the kingdom into smart cities, starting with Mecca, Riyadh, Jeddah, Al Madinah, Al Ahsa and the futuristic new city NEOM. In terms of rail projects, the government is continuing to develop Mecca and Riyadh’s metro systems.

As with the rest of the GCC, constrained public finances will likely result in the government implementing pro-business reforms to attract greater private and foreign investment into urban developments. Already, the Saudi Arabian General Investment Authority aims to attract 200 international SMEs and 50 venture capital companies into the country by 2030, with construction set to benefit.

 

Larger cities to cause supply-chain strain

Larger urban populations will increase MENA’s reliance on imported food, as there is limited potential for agricultural sectors across the region to boost production. With rare exceptions such as Morocco, deteriorating access to water resources in most MENA countries will cap improvements in farming productivity, and cement a reliance on imported food and the water imports these embody. This trend is already apparent in Egypt, one of the region’s most rapidly urbanising countries, where the government passed a bill in 2017 penalising the farming of water-intensive crops, such as rice, outside designated areas.

 

 

Global exporters of grain, meat and dairy producers, which currently account for half of MENA’s food imports, will benefit from this trend. Key suppliers are in Latin America (Brazil, Argentina), Europe (France, Russia), the US and India.

 

 

Infrastructure deficit to widen in Iran, Iraq, Syria and Yemen 

In Iran, Iraq, Syria and Yemen, factors including political instability, weak government finances, limited state capacity and low private sector incomes will constrain development of urban infrastructure to meet rapidly rising demand. Of the 10 MENA cities forecast to see the largest population increases over the next decade, seven are in Iraq, Iran, Syria or Yemen.

The resulting proliferation of sub-standard housing and inadequate public services in these cities will undermine social stability, increasing the frequency of unrest in already unstable countries.

 

John Davies is an economist with a special interest in emerging markets, global trade and heavy industry. He is the co-founder of research and analysis firm, North Shore Analysis. 


Sources:

[1] UN World Urbanisation Prospects 2018

Featured Image © Shutterstock.com 

 

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