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The UAEs infrastructure sector is, to a great extent, buttressing the growth we are forecasting for the Emirates. However, the scale of future projects will be moderated, to match moderate demand expectations. This has already been demonstrated with the redesign of the new terminal in Jebel Ali port and the delays on work at Al Maktoom International. As deleveraging seems to be the dominant theme for 2012 amongst UAEs corporates, we do not expect them to take on major new projects during the year, therefore the pipeline of projects will remain lean.

The construction and infrastructure market in the UAE remains stagnant, with public investments driving activity, and picking up some of the slack left behind from the real estate slowdown.

- Progress is being made on flagship multibillion dollar projects, such as the Dubai and Abu Dhabi international airports expansion, and the Jebel Ali and Etihad Rail. These projects sustain industry activity, though they are also seeing delays and downsizings, such as those seen at the Al Maktoom International Airport (Dubai) and Terminal 3 in Jebel Ali (Dubai).

- The nuclear power project in Abu Dhabi is already being plagued by project cost inflation, even though it is still in the preliminary construction phase. The cost estimate has risen by US$10bn, taking the total to US$30bn, according to recent press reports citing unnamed sources close to the project. Financing will be overwhelmingly sovereign-backed and generated, with a small commercial loan aspect, according to preliminary reports.

- However, while large-scale projects are ongoing, the pipeline for new mega-projects is very thin, with Etihad Rail the last of the big ticket projects on the agenda. We see this as being symptomatic of two things: 1) construction was going to always peak around 2013-2014, as many of the projects had a deadline to 2015; 2) with the demand outlook much more tamed over coming years, the new capacity coming online in transport and utilities may be enough to meet demand without major new expansions.

- Data and estimates on the value of projects cancelled continue to surface. Citigroup estimates that since the beginning of 2009 to August 2011, a total of US$170bn of projects have been delayed or cancelled in the UAE, the majority of which have been in the real estate sector.

The UAEs Risk/Reward score in BMIs Middle East Business Environment Ratings remains favourable, despite a fall in the score for Industry Rewards, following the downgrade in forecasts. On a structural level, the development of the emirates infrastructure has left a highly positive legacy, having promoted sophisticated local players and a voraciously competitive base ripe for development, a factor that is quantified by extremely strong scores for the Industry Risks category.