Gulf contractors see profit margins growing into double figures

The report details how the boom in major infrastructure projects in the Gulf is attracting some of the world's biggest construction companies to the region. The Gulf's booming economy coupled with a slowdown in construction activity in the more established markets of Europe and North America, is making the Middle East a prime target for an increasing number of international contractors.

The construction boom is set to continue, with an estimated $884bn worth of projects in the Gulf currently in the planning or tendering stage. However, the speed of the boom has not come without its challenges. There is a chronic shortage of resources. Clients are facing a shortage of contracting capacity while contactors are having difficulty sourcing labour and materials. The result is soaring materials costs and wages, which in turn have seen project costs soar.

Further key insights from the report reveal:

• With contract awards in 2007 topping $193bn, contractors with a strong regional position were able to make the biggest gains.
•The result is soaring material costs and wages.
•In 2007, the price of steel rose 70%. Cement prices rose 50%. In the year ahead, wages are expected to increase by 20%.
• The cost pressures facing contractors are triggering a change in construction procurement practices in the region, with clients and contractors increasingly seeking to work collaboratively in order to reduce project durations and costs.
• Gulf contractors are seeing profits margins growing into double figures.

Richard Thompson, Editor, MEED, says:

"According to MEED Projects, $193bn worth of construction is under way across the Gulf, and as the MEED contractor survey shows, those with a strong regional presence are reap­ing the rewards, with the majority of contrac­tors surveyed this year taking on more work in 2007 than in the previous 12 months. Whichever new markets companies expand into, one fact is certain: in 2008, MEED's con­tractors survey will have a lot more interna­tional companies on the list."

The future of the construction industry will be explored in more detail at MEED's upcoming Arabian World Construction Summit (AWCS) which will be held on 11 and 12 February 2008 at Abu Dhabi's Emirates Palace. The event will focus on the risks and opportunities of the global construction market and their impact on the industry here in the Gulf, and in particular on whether the region's current levels of growth are sustainable.

Research on MEED's first survey on the Gulf contractor market was carried out in the first three weeks of January. Close to 50 of the Gulf's leading contractors partici­pated, providing information on new orders won in both 2005 and 2006.