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Gulf construction sector sees double-digit growth

The construction to the region's overall GDP has edged up over the past five years

Published: Updated:

The construction industry in GCC countries will continue double-digit (11.3 percent) growth until the end of 2016, when it will be worth $126.2 billion, a new study by Dubai-based Alpen Capital revealed.

It noted that although sustained low oil prices may force governments to restrict or delay capital spending, there are several growth drivers underpinning the sector, including a long-standing requirement to invest in projects to diversify revenues.

A growing population – at 2.8 percent per year to an expected 56.9 million by 2018 – will also place demands on infrastructure, health care, schools and housing. The construction industry’s contribution to the region’s overall GDP has edged up over the past five years, from 5.5 percent in 2010 to 5.7 percent at the end of last year.

Saudi Arabia had a 33.3 percent share, Kuwait 10.1 percent and Qatar 9.3 percent, Meed said in its latest data. The UAE had a 42.9 percent share of an overall project value of $1.24 trillion in 2014, the data added.

Property, including Saudi Arabia’s four new economic cities, and transport projects made up about 74 percent of the pipeline in terms of project value, with new affordable.

Yet despite the opportunities, there also remain some significant challenges.

Ahmed Al Bassam, the chief executive of Al Rajhi Building Solutions Group, said firms in the industry face tight completion deadlines and pressure on available resources, which means there is potential for cost inflation.

He also argued that construction standards could be improved through a stronger regulatory framework, particularly when it comes to safety.

“Governments have to establish and enforce construction standards to create a level playing field for safety-conscious contractors,” Al Bassam added.

The UAE and Saudi Arabia are by far the largest projects markets in the GCC. The UAE vied with Saudi Arabia for the position of the largest market until the Dubai real estate crash.

In subsequent years, the UAE market fell dramatically as the full effect of the crash was felt. However, with confidence returning, the market saw a substantial increase in activity on 2013. The other four markets are relatively small in comparison.

The largest sector in all but one of the past seven years has been construction – primarily comprised of commercial, residential and mixed-use buildings – with almost $4500bn-worth of construction awards.

Despite the Dubai real estate crash, falls in UAE activity were offset by growth in the sector elsewhere, particularly in Saudi Arabia. It is also the sector with the largest private sector participation which helps drive investment.

The UAE and Saudi Arabia are by far the largest projects markets in the GCC. The suffered greatly from the real estate crash but is now showing strong signs of recovery.

The Qatar market is also recovering on the back of increased spending in the run-up to it hosting the FIFA 2022 World Cup.

The ramp-up in spending took longer than first expected, but it is now clear that the market is on an upward trend Oman is the most stable market in the region, each year awarding $6bn- $8bn worth of contracts.

With major projects planned over the next five years, the value of spending is expected to increase Kuwait has historically underperformed mainly due to political issues and an inability to push ahead with its projects program.

However, the award of several key projects in 2014 points to a sharp increase in project activity over the next five years.

This article was first published in the Saudi Gazette on June 28, 2015.