British Armenian businessman Calouste Gulbenkian, the man who helped open up the Middle East region’s vast oil reserves to the West, was famously known as “Mr Five Percent” because he retained a 5 per cent stake in the companies he helped develop.

Gulbekian, who died in 1955, was able to carve out his cut in the region’s nascent oil business thanks to his entrepreneurial skills, but also the fact that although the risks were high, so too were the margins.

Times are lean in 2016 and there would be no room for Gulbekian as margins can no longer accommodate his 5 per cent cut. The underlying reason for weak margins is the low oil price, which on 16 March sits just below $40 for a barrel of Brent crude.

Capital expenditure has been cut meaning the value of new contracts awarded has dropped, and for the broader economy GDP growth has slowed. Less work means more competition and as a result contractors have been forced to cut their margins. As one contractor that recently secured a big order in Dubai said in a rather defeatist tone: “The margins are low, but at least we keep our people working.”

For contractors that are already feeling the strain, the problem is compounded further by government decisions. To mitigate the impact of low oil prices on government revenues, Riyadh has ordered ministries to cut spending on contracts by 5 per cent.

Contractors in the UAE face a different problem. Firms bidding for new work in the UAE risk winning loss-making contracts as they struggle to accurately prepare prices due to uncertainty over the 5 per cent value-added tax (VAT) that is due to be implemented on 1 January 2018.

As construction contracts typically have a two to three year duration, this means work let today will be completed after the new taxation regime is introduced. With plans to introduce VAT across the GCC this uncertainty could continue for several years.

With oil prices widely expected to be lower for longer it will be a while before there will be margins with enough fat to support a Mr Five Per Cent again.

Colin Foreman