The GCC construction market has historically been the largest sector in the regions projects market. Cities such as Dubai, Riyadh and Doha have been transformed by billions of dollars of investment in their physical infrastructure, and international firms have flocked to the region to capitalise on the huge demand for consultants, contractors and suppliers.
The credit crisis of late 2008 caused a sharp correction in the industry as liquidity dried up and investors vanished, which lasted for several years. But increasingly the signs are the region is entering a new construction boom.
Not all of the construction efforts of the previous boom were speculative. A genuine demand for infrastructure, hospitals, schools, better roads and improved connectivity between cities and states drove the industry. The political upheaval of the Arab uprisings that beset the Middle East and North Africa in 2011 also served to reinforce the need to improve the quality of life for GCC residents and ensure nationals had nothing to protest over.
Oil prices have stayed high, meaning governments have the resources to invest in new infrastructure. Faced with rapid population growth and a pressing need to diversify economically and create jobs, capital spending levels are rising. This is good news for the construction industry and the impact is already being felt.
Saudi Arabia is expected to maintain its position as the largest market, followed by the UAE and then Qatar
The regional construction sector has returned to growth, with a total of $71bn of awards expected to be made by the end of 2013, a level not seen since 2008. Excluding schemes that are on hold or cancelled, the current value of live construction projects in the region is $1.3 trillion, with $935bn in execution, $83bn out to tender, $162bn in design phases and $110bn under study.
There has, however, been a shift in the sector this year, with the UAE no longer the chief source of activity due to multibillion-dollar awards on metro schemes in Saudi Arabia and Qatar. Saudi Arabia was the largest market by awards in the first half of 2013, with $14.3bn of deals signed, overtaking the UAE, which awarded $8.7bn during the same period. Qatar also overtook the UAE in terms of awards made in the first half, with $12.2bn of deals. Since then, $22.5bn of contracts have been signed to build the Riyadh Metro.
Saudi Arabia is the regions largest construction market by value of work under way, with $75bn of contracts under construction. The UAE has $70bn-worth and Qatar $44bn.
The nature of construction projects has also been shifting, with infrastructure awards climbing steadily across the region since 2010 and 2013 is expected to be similar to the 2008 peak, when it hit $17.9bn. Healthcare spending has also been rising significantly since 2009, when just $880m of awards was made. In the first half of 2013, $4bn of deals was awarded in the sector. This trend is expected to continue.
The outlook for the regions construction sector is very positive. The main drivers for continued growth have been economic expansion, high oil prices and strong population growth. None of these drivers is expected to change dramatically in the medium term. The region has been a lucrative source of business for local and international firms, with $575bn of construction deals signed since 2005. The forecast for 2014 is for $68bn of awards.
Saudi Arabia is expected to maintain its position as the largest construction market, followed by the UAE and then Qatar. The kingdoms sector is driven by sharp population growth and Riyadhs desire to improve social infrastructure capacity.
The rapid resurgence of Dubais property sector, buoyed by rising house prices and rentals, could see the UAE regain some lost ground, however. On 27 November, Dubai will find out if it has been selected to host the World Expo 2020. A win would have a positive impact on the projects market and, while unlikely to reach the peaks seen in 2008, the emirate would once again become a major construction market.
Qatars sector will be driven by spending for the 2022 Fifa World Cup. There have been doubts expressed about the event, but Doha will push ahead with its project plans regardless, given that most schemes and capital expenditure programmes were planned long before it won the rights to host the event
Kuwait, Oman and Bahrain will remain small construction markets in comparison to their GCC neighbours. However, both Kuwait and Oman have the potential to increase the value of construction awards by harnessing their private sectors. There are indicators that the two countries could become major markets if they adopt the right policies and strategies.
A total of $71bn of building awards is expected to be made in the region by the end of 2013, a level not seen since 2008
This is an excerpt from MEED Insights GCC Construction Market Report 2014. The report provides a comprehensive overview, analysis and forecast of the GCCs civil construction projects market.
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