The combined construction industry in the Gulf Cooperation Council (GCC) states is valued at US$3.1 trillion with 6,722 active projects being planned or underway in the six-nation bloc, says a new report.
The report published by MEED, the Middle East’s leading business information service, shows that in light of planned mega projects and major infrastructure development plans, as part of the region’s economic visions, the outlook for the construction sector remains promising for the future.
Mega construction contracts in the region have slackened since the heydays before the precipitous collapse of oil prices in mid-2014. This fall in project investment has served to remind regional governments of the pressing need to reform their development models, continue their economic diversification, and focus on transforming their economies to become less dependent on hydrocarbon revenues.
Today, the construction market is reportedly a third smaller in terms of new contract activity relative to its peak in the years leading up to 2013 and its rollover well into 2015. More recently, 2018 was a challenging year for the GCC construction industry. Although the oil price averaged more than US$70 a barrel in 2018 compared with just US$52 a barrel in 2017 and US$41 a barrel in 2016, spending on projects continued to fall; just US$97 billion worth of contracts were awarded that year compared with US$124 billion and US$116 billion in 2017 and 2016 respectively, according to MEED Projects. That made 2018 the worst year in terms of contract awards since 2004.
All six GCC states saw a decline in the value of new deals in 2018. Saudi Arabia, traditionally the largest and most diverse of the region’s projects markets, declined by a little under US$3 billion to US$26.4 billion. Qatar slipped by US$2.7 billion to just over US$10 billion, while Kuwait and Omanboth experienced a more than 50 percent fall in deals let to just US$5.6 billion and US$5.1 billion respectively. Meanwhile, though the UAE remained the largest individual projects market, with US$44.5 billion of new contracts in 2018, it too registered a fall of US$5 billion from a year earlier.
Regardless of the reasons for the slack in construction pace in the previous year, 2019 got off to a propitious start with $22.4 billion worth of construction and transport project contracts being awarded in the first half of the year. Riyadh announced a record US$295 billion 2019 budget in late December on the back of higher project oil earnings; the UAE’s federal budget is also the highest ever set – growing 17 percent to more than US$16 billion; and Oman’s expenditures are set to increase by more than 3 percent to US$33.5 billion.
Of course, higher budgetary expenditure does not necessarily equate to greater project spending; after all, 2018 budgets were also up on the previous year. But it is indicative of a general trend that will offer encouragement to the beleaguered projects market supply chain.
As GCC states grapple with economic challenges, regional initiatives — such as the Saudi Vision 2030, which includes Neom and Qiddiya City projects in Saudi Arabia, Abu Dhabi Economic Vision 2030 that calls for a major petrochemicals diversification program in Abu Dhabi a Dubai Plan 2021, Qatar National Vision 2030 and the New Kuwait 2035 in Kuwait, which is anchored by the mega Silk City project — are maintaining buoyancy of the construction industry.
In addition, global events in the region, such as World Expo 2020 in Dubai that begins in August of this year and the 2022 World Cup Football tournament slated in two years in Qatar, as well as the ongoing Clean Fuel and the greenfield New Refinery Projects in Kuwait and the Duqm Refinery project in Oman, are expected to keep the industry vibrant in the near- to mid-term.
Equally encouraging is the robust projects pipeline. There are currently more than US$2.5 trillion worth of planned or unawarded projects in the GCC.
The biggest market by a large margin is Saudi Arabia, with more than $1.2 trillion worth of future work, followed by the UAE at $716 billion worth of planned projects. The other markets range from $60 billion for Bahrain up to $215 billion in the case of Kuwait. As countries in the region host large, world-scale events, and the projects leading up to these events near completion, the GCC can expect an increase in government spending on infrastructure to meet the region’s diverse economic visions that will drive the market forward.
“The GCC has long been associated with the delivery of world-class, world-scale megaprojects,“ says MEED editorial director Richard Thompson. “But over the past two or three years, we have seen the emergence of not just mega projects, but of giga projects as governments lay down the foundations of long-term strategic visions aimed at transforming the region. These projects are destined to build happier, healthier communities in the GCC, create new opportunities for the region’s young people, and ensure that the GCC is competing on the global stage.”