The region’s construction industry is undergoing a shift that will transform how it operates over the coming years.
For decades, the region has relied on large family-owned construction companies to deliver its infrastructure projects. Over the past decade, many of these firms have struggled with financial difficulties.
Although the void that this created has been a concern for several years, it has developed into a major problem as the region gears up for another period of intense project activity.
For the energy sector, state producers are responding by increasing output, which requires new infrastructure. Saudi Aramco plans to spend $40-50bn on capital expenditure projects in 2022, and Abu Dhabi National Oil Company (Adnoc) has said it will spend $127bn on projects over the next five years.
The contractor void is most apparent in Saudi Arabia, where construction work is starting on a raft of gigaprojects that are intended to transform the kingdom’s economy. Although still in the early stages of construction, the executives running these schemes are already warning that securing the services of sufficient well-qualified contractors has become a challenge.
While the prospect of state-controlled contractors at first appears to rail against the drive for privatisation, the problem could be solved by listing those firms on local bourses
The answer will be multi-faceted. One solution that has already been turned to is project owners entering into framework agreements with contractors to lock in the resources they require at an early stage of the project.
Another solution is for government actors to create national champions. While the prospect of state-controlled contractors would at first appear to rail against the region’s drive for privatisation, it is a problem that could be solved if those firms are listed on the local bourses.
While these new corporates will be different in nature to the family-controlled businesses that dominated the construction sector in previous decades, they will have to overcome the same fundamental challenge: delivering major programmes of work.
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