Economic reports expect that the downward trend in the construction sector in Kuwait to continue despite major and planned projects in the future, in conjunction with declining optimism about the market, which is pushing local contractors to search for projects in other GCC markets.
A recent report by project monitor MEED indicated that $11.3 billion in construction and transportation contracts were awarded in 2016. This number was the highest in the past decade, driven largely by the signing of the contract for the new building of Kuwait International Airport, reports a local Arabic daily.
A regional contractor told the magazine, “We are optimistic about the future prospects in the GCC, whether in Saudi Arabia, Qatar and the UAE. As for the markets of Oman and Kuwait, which are usually good markets for us, they are currently quiet unfortunately.”
The report stated that the negative sentiment is reflected in the data, as the construction market in Kuwait peaked in 2016, and since then, project opportunities for companies looking for new work have declined. The market has been rising steadily since 2012, when contracts worth $4.5 billion were awarded, followed by about $7 billion annually in 2013 and 2014.
On the other side of the peak, since 2016, the annual total of contracts awarded has steadily declined, and since 2019, between $1.5 billion and $2.5 billion have been awarded annually. By the end of July this year, there were $750 million in contract awards alone, indicating that 2022 could be the lowest in total in recent years.
The MEED report explained that with the slowdown in awarding of contracts, this has put pressure on the industry to downsize. “There hasn’t been a lot of new business going forward recently,” says an international contractor working in Kuwait. Bidding activity is quiet, so that is unlikely to change in the near future.”
While the contractor wants more work, he understands why Kuwait would like to adopt a more cautious approach to spending, as previous schemes produced few obvious economic benefits. This is in addition to the Sheikh Jaber Causeway Islands development project, other major projects have been planned, including a metro network for Kuwait City.
A contractor told MEED: “We have been waiting for some big projects for a long time such as Kuwait Metro, for example. With Bahrain Metro progressing as a public-private partnership, there could have been an opportunity for Kuwait to do the same, but that hasn’t happened yet. While contractors await news about the metro, there has been some uncertainty about the sections of the GCC railway linking Kuwait.
In March of this year, Riyadh and Kuwait City signed an agreement to develop the offshore Durra gas field, located in the common neutral zone between the two countries. The region’s plans include a link to the railway project for the Gulf Cooperation Council countries, which will link Saudi Arabia and Kuwait.
While these projects offer promise for the future, they will not provide the construction industry with the jobs it needs today. To fill the gap, contractors are looking for work in other GCC markets, where opportunities are immediately available.
“Kuwaiti local players are now looking to work in other markets,” says an international contractor. With Saudi Arabia ramping up, contractors are now bidding to work there, as they look to keep their resources occupied. And if they win work abroad, there could be a huge brain drain effect.”
MEED reported that Kuwait’s ability to move quickly to address project slowdown and brain drain to neighboring countries largely depends on the political background. Major projects have been identified and planned for the future, and higher oil prices will enhance the ability to finance those plans. The challenge is to promote a strong and stable government that is able to focus on long-term infrastructure plans rather than short-term fixes.
The report indicated that there is still hope regarding the development of Sheikh Jaber Bridge in the future to be a catalyst for future development, especially that the governments of Kuwait and China signed in November 2018 a memorandum of understanding to participate in investing in a scheme worth 86 billion dollars, which will become the new economic and commercial center of Kuwait.