CIC - Construction Intelligence Center

The CIC further revises downwards the outlook for growth in construction in the GCC

29 Nov 2016

Timetric’s Construction Intelligence Center (CIC) has further revised downwards its outlook for growth in construction activity in the countries of the Gulf Cooperation Council (GCC): Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates (UAE). The ongoing weakness in oil prices has continued to undermine investment growth, and with government revenues in decline, public sector spending plans have been scaled down, thus impacting directly on large-scale infrastructure developments.

 

Although construction output in the region as a whole will expand over the forecast period (2016–2020), the pace of growth has been cut to an annual average of just 3.2% in real terms. This is down from the annual average growth rate of 6.2% recorded over the previous five-year period. As a result of this weaker growth outlook, the GCC’s construction industry as a whole will record an output value in 2020 of US$332 billion in nominal terms, which is around 20% lower than the CIC’s previous projection.

 

The deterioration in the construction outlook is most striking in Saudi Arabia, where construction output contracted by 3.1% year on year in the second quarter of 2016. However, across the region, contractors have reported delays in payments from the public sector, resulting in project delays. Indeed, many smaller companies have reportedly pulled out of the markets, as they are unable to operate without more regular payments. Moreover, a number of projects have been postponed or cancelled by the government in order to temper the strain on burgeoning budget deficits.

 

In view of the expectation that oil prices will pick up over the forecast period, rising from an annual average low in 2016 of US$45/barrel (Brent crude) to over US$60/barrel by 2018, the pace of growth in construction output will pick up again. There will also be other key areas of strength. Notably, the CIC expects there to be ongoing investment in power generation, in residential property to support young urban populations, and in leisure and hospitality buildings due to increases in tourism flows. There will also be support coming from mega-projects linked to events such as Dubai’s Expo 2020 and the 2022 FIFA World Cup in Qatar.

 

On a positive note, Timetric maintains that GCC governments are increasingly seeking to better integrate the private sector in construction projects. Several governments have recently introduced PPP laws or directives to facilitate such arrangements, and a number of PPPs are currently being implemented across the region, although this is relatively limited at this stage. Nathan Hayes, Economist at Timetric’s CIC, comments: “Integrating the private sector can bring a number of benefits, including mitigating the financing burden placed on the government; increasing productivity and improving the quality of public services; and facilitating knowledge transfer and sharing of best-practice experience and expertise from the private to public sector. Accordingly, there is likely to be a greater number of such financing arrangements for construction projects across the GCC over the coming years.”

 

However, it is important to note that the private sector in much of the region is relatively nascent, and many firms lack the capacity or resources to properly implement large construction projects. This may limit their participation, but this challenge is slowly being overcome, and governments across the region are taking active steps to improve the capabilities of domestic firms.

 

Construction output in the GCC (annual % change)

 

 

About the Construction Intelligence Center

 

The Construction Intelligence Center (CIC) is the most comprehensive source of data and analysis on the global construction industry. The Construction Intelligence Center is a product of Timetric, which provides information solutions and technologies that enable organizations to drive business value and manage business risk. For more information and updates, please visit www.construction-ic.com.

 

About Timetric

 

Timetric is a leading provider of online data, analysis and advisory services on key financial and industry sectors. It provides integrated information services covering risk assessments, forecasts, industry analysis, market intelligence, news and commentary.

 

For more information and updates, please visit www.timetric.com.

 

For media enquiries

 

Please contact Frixos Melas at the Timetric press office at press@timetric.com or call +44 (0)20 3096 5769.



Source: Company Press Release