Dubai construction is not isolated from global economy

21 August 2016

It has been tempting to conclude the market is driven by its own gravity-defying market dynamics

The decision by port operator DP World to slow down, but not stop, the pace of construction work on Terminal 4 and delay an expansion to Terminal 3 is a timely reminder that Dubai’s projects market may be performing robustly, but it is not completely isolated from the global economy.

DP World group chairman and CEO Sultan Bin Sulayem says the Jebel Ali port’s expansion strategy has to match the business environment, and suggested that the slowdown in construction work on new projects reflects a drop in volumes handled by the port, which are a function of global trade.

There has been a temptation this year to conclude that Dubai’s projects market is driven by its own unique blend of gravity-defying market dynamics.

There are valid reasons to think so. As the regional construction market has slowed down, the emirate has launched a raft of new projects, and more importantly, signed billions of dollars of new contract awards. The awards have made the emirate the region’s most active construction market with 44 per cent of construction and transport contract awards in the GCC during the first half of this year.

Historically, there are also strong reasons to question Dubai’s ability to buck global economic trends.

Confidence in Dubai was strong in early 2008. As the global economy began to shudder under the weight of the global financial crisis Dubai was perceived by many as a safe haven for contractors that would continue to build no matter what. By late 2008 Dubai’s debt crisis had begun, construction contracts were terminated and the projects market lay in tatters.

There are concerns that the Dubai market is ripe for another crash this year as oil prices stay lower for longer and more ambitious projects are launched.

While it is important to remember what has happened before, the market is not as overheated as it was in 2008. And while new projects are lauched with wanton ease, there is still restraint when it comes to spending money and proceeding with construction - just as DP World’s decision at Jebel Ali Port shows.

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