December 16, 2017

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Construction industry bouncing back

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Expert Insight

Dubai and KSA are leading the way to better days ahead for the Middle East construction industry, says David Clifton, Faithful + Gould.

The construction industry took a hard hit in 2015 and 2016. We’ve seen over 0.33 million workers in the construction industry laid off in KSA alone, with further employment cuts across the GCC and the wider oil producing states.

The market dive now looks like it’s coming to an end regionally, with international markets even showing signs of skills shortages. In the Middle East, the cyclical nature of construction is now better understood and governments must make addressing the boom and bust in the industry an agenda item to address to maintain population, drive current and potential future market revenues and ensure a sustainable environment.

2017 marks the uptick of recovery and the GCC’s re-entry to a growth environment for the industry. The worst is over. That’s not to say the next two years will be easy— far from it — but we are at last seeing some growth.

Dubai and KSA stand out for growth potential, in 2018/2019. KSA can expect the effects of NTP and Vision 2030 to gain momentum – which has the Deputy Crown Prince’s commitment to government awards later this year, and the implementation of PMOs and the alterations in ownership structures will also bring huge change and progress through to 2018.

Alternative financing is now starting to establish itself, primarily in the power and water industries (IWPP and IWP). We are seeing the implementation of alternative financing now, with GACA moving forward with Yanbu, Ta’if and Ha’il airports.

In the UAE, progress is being made and 2017 contracting awards are now picking up, after a slow January and February. Dubai Expo 2020 appears to be on (or over) critical path and time really is of the essence to complete projects in time for the event.

Combine this with slightly earlier than expected freeing of liquidity in the global system, and capital is looking for a home and a return. This can only be viewed as positive for a market that craves investment.

There are some caveats in that, whilst we are bouncing along the bottom of a UAE property price slump and a lack of GCC awards, over-ambitious towers may not see the light of day and instead be replaced by more feasible projects – or cancelled if they don’t make economic sense.

In KSA we are seeing not only alternative financing gaining traction, but also a commitment from the Deputy Crown Prince that schemes will hit the market late this year. Combine that with the PMO roll-out – which has now seen the National PMO awarded and mobilised (with others to follow) – and the market has started to gain its lustre again.

It’s a short window to mid/late 2017, but hold on — we won’t be back to where we were, but we are moving in the right direction, and, in typical Middle East style, now with pace.

 

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