Through his role as Deloitte’s Global Head of Airports, Dorian Reece has seen first-hand the impact the COVID-19 pandemic has taken on infrastructure development.
However, Reece explains that while advisory spend ground to a halt (specifically related to airports), the pandemic has not resulted in the doomsday scenario for airports that many commentators anticipated early on. Government-backed airports received necessary support to keep operations afloat. Notably, many infrastructure funds with airport holdings were highly diversified which has helped them manage risk. “Infrastructure as a whole has held up relatively well this last year,” says Reece. “So those funds holding a diversified portfolio of infrastructure assets have been able to smooth out the decline and get through the crisis.”
The aviation sector in the Middle East further benefits in this respect due to in some countries common ownership across components of the industry cluster. Reece comments, “You see a much more coordinated approach in addressing industry challenges in the Middle East. It is in the governments’ interests to support the sector as a whole to find solutions and work together through these types of challenges.”
As a Partner in Deloitte’s Government and Infrastructure team in Dubai, Reece and the team support governments across the infrastructure life cycle from strategy, options analysis, feasibility and ultimately bringing infrastructure transactions to market as well as supporting the private sector bidder side.
Reece sees the infrastructure market in the Middle East maturing rapidly. He acknowledges that governments in the region view infrastructure as a key requirement not only to enable post-COVID recoveries, but also to diversify their economies away from hydrocarbon revenues to more productive sectors.
According to Reece, the biggest market in the region, Saudi Arabia, is at the forefront of infrastructure spend with established national programmes targeting FDI and increased private sector participation. The Kingdom’s advancing infrastructure privatisation programme has recently adopted a new PPP law and has established the National Centre of Privatisation which is supporting government entities to engage with the private sector. This will help bring transactions to market, ensuring they align with the Kingdom’s strategic objectives and are appealing to the private sector. Particularly, there are large scale requirements across power, transport and social infrastructure.
Reece believes that a core element of the inward investment that Saudi Arabia is seeking to attract through privatisation is not just for the sale or funding of assets – he notes that the Kingdom has a low cost of financing. It’s more about bringing in capabilities and efficiencies to deliver best-in class services. “What they are really looking to do,” Reece says, “is bring inbound skills so that service standards increase and the overall cost to service these assets is reduced.”
One way in which this skill transfer can be accomplished is through the development of joint ventures, of which Reece sees a growing interest in the region. While joint ventures often require more effort in understanding risk allocation across respective parties compared to the more common PPP models, Reece believes that part of the appeal lies in the closer working relationships between entities. “The ability to locally create and own for the future is part of what the region has learned from the missteps of historic PPP programs. If parties are able to establish a model that enables knowledge transfer and local content and innovative solutions development, this will result in a longer lasting positive impact to these countries.”