For this year at least, the global recession is staunching the flow of money and equipment for vital water and wastewater treatment facilities in the Middle East’s Gulf Cooperation Council countries, says a Frost & Sullivan report.
That market was experiencing rapid growth as recently as last year, sparked by huge in the infrastructure, real estate, petrochemicals, oil and gas sectors. The research firm says the slowdown in Mid-East water and wastewater treatment projects is likely a pause in the action.
It turns out that the sub-prime mortgage crisis that has rocked western economies is producing wide global effect beyond financial and real estate markets, affecting the cost of commodities and the financing of new infrastructure projects. Roiling markets even further was the drop in oil prices from an historic high last year of $145 a barrel to about $50 a barrel.
Frost & Sullivan’s “Analysis of the Middle East (GCC) Water and Wastewater Treatment Equipment Market,” reports that market earned revenues of more than $1.26 billion during 2008. It estimates it will reach $1.87 billion in 2013.
Senior Research Analyst Vivek Gautam estimated that some of the “downstream and upstream investments, which were planned considering crude oil price of more than $85 per barrel, are likely to be shelved.
“This sudden change in the business landscape has stalled market progression, but with strong economic fundamentals and increased governmental expenditure, the GCC market is expected to be back on the rails by 2010.”
Governments in the six Persian Gulf countries that comprise the GCC have exhibited strong political will to continue investing in important infrastructure projects, Frost reports.
Environmental and health hazards related to the disposal of untreated effluent, marine pollution, and deteriorating ground water quality are some of the issues that are keeping market prospects alive. Though these forces have been overshadowed by short-term concerns, they are expected to positively impact market dynamics from
2009 to 2013, Frost says.
“The market is fraught with challenges in spite of its immense opportunities,” said Gautam. In addition, “the complex business environment, slow decision making process, and customer preference for low cost solutions regardless of the performance makes it difficult to penetrate the market,” he continued.
The extent to which markets across GCC member nations will be affected by the current economic slump largely depends on factors that include government dependence on oil revenues, dependence of economic growth on external debt, and ability to absorb the shock based on the inherent economic resilience, Frost says.
“The core municipal sector is expected to cushion the impact of this slowdown. Governments in GCC countries have identified municipal wastewater treatment as the priority area for multiple reasons including the achievement of the Millennium Development Goals.”
Some large private real estate developers of lifestyle townships, luxury villas, and shoreline apartments are utilizing advanced wastewater treatment technologies to assist in maintaining a hygienic and odor-free environment.
Wastewater treatment and reuse is likely to see widespread adoption across GCC countries, representing an expanding market for advanced wastewater treatment technologies. On the other hand, desalination has been the prime driver for the water segment.
This mass market is highly price sensitive, triggering intense competition in lower technology products, and profit margins for such products are under pressure.
Cost considerations dictate buyers’ decisions. Component suppliers, in particular, are facing hyper-competition due to the availability of low-cost products from supplier nations such as India and China.
There is a big opportunity in this thirsty market once financial markets ease up: Technology providers will then be able “roll out cost-effective products to successfully navigate tough market conditions.”