Craig Plumb, Head of Research, MENA at JLL identifies the public infrastructure sectors crying out for private investment.
What are the investment opportunities for the private sector in public infrastructure?
With public revenues declining on the back of lower oil prices, governments across the region are seeking to attract further private sector investment, so they can focus public spending on other priority areas. The two largest areas of opportunity are the healthcare and education sectors.
These sectors share a number of common features that make them attractive to private sector investors. These include: strong demand for additional facilities; current undersupply in many markets; strong government policy support; defensive nature of investment/less dependent upon underlying economic growth; portfolio diversification benefits; and more stable returns than from other traditional investment classes.
What sort of demand growth are we seeing in these sectors?
Our analysis shows that more than 1,100 additional schools will be required in five major cities (Dubai, Abu Dhabi, Jeddah, Riyadh and Cairo) by 2020. Some 350 of these will need to be private sector schools, providing a significant area of new opportunity for real estate stakeholders.
In the healthcare sector, to simply maintain the current provision rate of hospital beds per person would require the creation of 10,500 additional hospital beds in the five major cities across the region over the next five years. Assuming a typical ratio of 150 beds leads to a requirement for around 70 additional hospitals.
What are the challenges facing these sectors in the MENA region?
The shortage of healthcare staff remains one of the major constraints on the expansion of the healthcare sector in the MENA region. Given the shortage of trained local staff, turnover and salary costs remain high, which could threaten the viability of some operators. Governments across the region have recognised the need to relax current regulatory constraints to free up the operation of labour markets and attract more qualified staff into the healthcare sector.
Future government funding of the healthcare sector is unlikely to be able to keep pace with the growth in demand and there is a general recognition that more funding will be required from the private sector.
In order to capitalise on opportunities in the private education sector, certain key challenges need to be addressed. Attracting internationally qualified teachers can be considered a costly investment. School operators are faced with the challenge of offering teachers lucrative benefits and tempting salaries that are competitive on a global front.
Availability of land is another challenge as most of the freehold and free zone areas in Dubai are dominated by commercial enterprises. Raising Capital is another issue. For an education facility applying for a loan, the process could prove to be challenging especially if the developer does not own the land.
Who will benefit the most by attending your Talk?
Investors seeking opportunities to diversify into these new growth sectors; developers seeking to diversify into alternative investments; contractors/builders specialising in alternative investments.
Summit: Business Talks
Topic: Opportunities for the Private Sector to Invest in Public Infrastructure
14:10 - 15:10, 27 November
Location: Za’abeel Hall 1