On the surface it appears that all is well in Abu Dhabi. Major construction contracts continue to be awarded, and contractors are busy tendering for new work.
On closer analysis the market is not as healthy as it first seems. Since mid-2009 the private sector has effectively stopped awarding contracts. In the first half of 2009 it awarded $5.1bn worth of deals. For the first six months of this year it awarded just $759m.
To its credit the government has stepped in and kept development in the emirate moving. During the first half of this year it awarded $5.1bn worth of new contracts. This means that for every $1 private sector developers now spend on construction contracts in the capital, the government is spending $9. With its vast energy reserves Abu Dhabi can afford to invest in new projects.
Government contracts are great for construction in the short to medium term. The problem is that without an active private sector building master developments like the $40bn Yas Island scheme the emirate will struggle to attract the population Abu Dhabi needs to meet its population target of 3.1 million people by 2030.
With less people Abu Dhabi’s infrastructure requirements are finite and once the current round of government schemes are completed the emirate’s infrastructure needs will be met.
Abu Dhabi needs to look no further than Dubai to see how quickly the infrastructure equation can be balanced when private sector development slows. In 2007, Dubai’s roads were gridlocked as the Roads & Transport Authority (RTA) tried to keep up with real estate developers that were racing ahead with projects.
Three years later the RTA has opened its metro and completed a major road upgrade programme and traffic is freely flowing again.
For contractors seeking fresh work this is bad news. The RTA can now afford to shelve future projects as it waits for the private sector to catch up. The danger for Abu Dhabi is it may have to wait for its private sector to catch up too.