As the fall in crude prices, which started in the final quarter of 2014 and has continued into 2015, hits a six-year low at below $50 a barrel, budgets in the region have tried to encompass reduced oil revenues in the next 12 months. Although analysts had feared this could result in limited spending, so far those fears have been unfounded and it seems government outgoings are to carry on as normal.

The dynamics of construction spending, which had enjoyed growth over the past two years with several megaprojects announced across the region, is sure to change. But the shift in the type of projects will vary from country to country as governments review their priorities.

Guaranteed spend

For Qatar, the 2022 Fifa football World Cup means planned transport and infrastructure spend will remain, if not grow. The same can be said for Saudi Arabia, which has already committed to several transport developments aimed at managing a growing population. In the UAE, services projects share 41 per cent of government spend with social development and social benefits.

Oman and Bahrain face a more difficult situation as their economies’ dependence on oil revenues proves pivotal in their 2015 fiscal strategy.

Bahrain’s 2015 budget is expected to be announced by the end of the first quarter, and it is understood that government spending will be dominated by wages, social initiatives and the diversification of the financial services sector, with construction possibly being sidelined as a result.

Oman is in a similar situation, yet there is strong demand for sovereign debt, which will allow the sultanate to continue attempts to diversify the economy away from oil and gas by pressing ahead with important infrastructure projects such as the national railway and various road and water schemes.

Saudi transport

It is unlikely any new transport megaprojects will be announced in Saudi Arabia in 2015, but many existing schemes such as the Mecca and Riyadh metros will proceed. Adil Guissi, regional director for the Middle East at French contractor Egis, says he expects no slowdown in existing projects in the kingdom.

“It cannot be avoided; they need to continue with the transport infrastructure work,” he says. “We at Egis are working on several projects in Saudi Arabia and are not expecting any delays or slowdowns.”

Further to this, the Finance Ministry has confirmed Riyadh’s commitment to infrastructure and transportation, which has been allocated $16.8bn out of the 2015 budget.

The rhetoric from Oman has been similar, and as the national railway scheme continues, albeit facing technical issues, the government seems keen to press on with transportation spending. The Muscat Metro, which is still at the design stage, is another example of the sultanate’s focus on transport in the coming years.

Social investment

Another important area of spending is social development. Education and housing are expected to receive heavy support from state budgets in 2015.

Saudi Arabia’s 2015 budget proved that the kingdom will not be curbing government spending in spite of revenues being down $190.7bn from last year. The budget also confirmed that it will be yet another year where education is prioritised, with $57.9bn allocated for the refurbishment, building and development of new schools and universities. A further $3.3bn is being spent on the rehabilitation of existing universities as well as the opening of three new ones.

Bahrain housing

For Bahrain, the 2015 budget, which is delayed due to the political situation, is also likely to focus on social spending. Redha Faraj, a Bahraini MP and member of the Shura council, expects that government spending will be dominated by wages, social initiatives and the diversification of the financial services sector.

This could mean a significant slowdown in construction of all sorts across the island nation as dependency on oil revenues takes a toll on the economy.

Yet it is understood that with key ministries keeping the same personnel, high social spending is likely to continue. This was illustrated by the housing minister, Bassem
al-Hamer, who told the Shura council on 11 January that the government is pushing ahead with plans to build five new towns across the country.

Housing is a big talking point in Bahrain, with government statistics revealing there are currently 47,000 families on waiting lists to receive social housing. There is an expectation that public real estate projects are going to dominate federal construction spend in 2015.

General infrastructure

General infrastructure dominates the Dubai budget, as the UAE as a whole records a balanced budget for 2015. The federal budget represents about 14 per cent of the overall fiscal spending of the country, while the remainder is made up of individual emirates’ budgets.

Oil revenues only make up about 4 per cent of Dubai’s government income and the dip in oil prices has had a limited impact on the city, which has succeeded in the heavy diversification of its non-oil sectors. The government has confirmed its intentions to continue with infrastructure spend, and has pledged $1.5bn to be spent on such projects in 2015. But the 13 per cent allocated for infrastructure work is not sufficient to allow major projects - such as the expansion of Al-Maktoum International airport, extension of the Dubai Metro and work on Sheikh Zayed Road - to proceed.

Yet the two biggest economies in the UAE - Dubai and Abu Dhabi - have been clear in their rhetoric: spending remains as continued growth is projected.

Kuwait is also expecting to continue spending on infrastructure, with contractors expecting the government to carry on driving much-needed road and transport projects.

Tarek Shuaib, managing partner of Kuwaiti engineering consultancy Pace, tells MEED that while it is understandable for Kuwait to limit public spending, it is understood the government will continue with infrastructure spending.

Key projects

“Some of the key projects will definitely go on,” says Shuaib. “The ones that are already under construction will not be affected because they are all vital to the country’s development. Some of the megaprojects related to oil and gas, which are already signed, are still going on.

“In the past three to five years, Kuwait has been trying to improve its infrastructure spending. The key infrastructure projects will still need to proceed, since [after the 1990 invasion by Iraq] there is a lot of pressure on infrastructure projects and the continual development of the core assets Kuwait has.”

Current infrastructure projects in Kuwait include the Bubiyan port, the Kuwait Metro (for which expressions of interest have been invited for design and supervision) and the Sabah al-Ahmad Future City project, which are all expected to proceed in 2015.

Development essential

Shuaib refers back to the late 1990s, when the government drastically cut spending because of plummeting oil prices, and says this was a mistake and will not be repeated. “Kuwait needs to keep developing while it still has the money,” he says. “They have a lot of surplus collected over the past few years and they have to commit to the development plan of 2015-20.”

Although Kuwait’s finances are robust, several senior officials have spoken out ahead of its 2015 budget announcement, warning that subsidy cuts need to be implemented. It remains to be seen whether these reforms will materialise, although they are looking more likely as officials contemplate the best ways to reduce government spending in order to alleviate the impact of volatile oil prices without affecting major projects and foreign investment.

Oil rebound

Moving into 2015, the region’s analysts, oil companies and governments have predicted prices will reach an average of $65-$75 a barrel by the end of the year, with Saudi Arabia’s Jadwa Investment predicting a rebound as early as June.

While contractors should not expect the region’s projects boom to continue in terms of major contract awards in 2015, existing plans are likely to continue without derailment. Many fims are confident the dip in oil prices will not affect their work for the next year and any impact will only be felt from 2016 onwards.