Middle East construction industry poised to rebound

Like the rest of the world, the construction industry in the Middle East suffered when the financial crisis hit the region. The market that took the biggest hit was Dubai, where construction schemes worth $356bn have been put on hold since 2008 and another $27bn of projects have been cancelled, according to research by MEED projects.

The slowdown in Dubai was so severe that US contractor Turner International cut its workforce in the emirate to 50 employees, down from 500 at the height of the market, said the company's Middle East general manager Husein Odeh.

While acknowledging that the downturn was a major factor in the collapse of the construction market, he blamed much of slowdown on the influx of developers who entered the sector without the requisite knowledge or expertise to plan or manage projects.

'Anyone with money or a parcel of land thought he could be a developer, but they didn't have the track record and didn't know what it takes to be a developer,' he said. 'Market demands were not addressed and long term goals were not clear.'

Fall in construction costs

The recovery is now underway but at a 'very slow pace', he said, noting that prices for materials had dropped below 2007 levels.

"The cost of construction is back to where it should be, this is a good indicator for the recovery of the industry,' he said. 'You have to go back to fundamentals; you have to have a solid business plan, which many developers did not have during the boom period.'

The strong economy in the GCC, boosted by rising oil prices, is also helping to fuel a building surge in the region, especially in countries such as Saudi Arabia and Qatar, he noted.

Stephen Oehme, consultant and regional director of Hyder Consulting, was more upbeat as he commented that the Middle East is a 'phenomenal market' that is 'very attractive' to the global construction industry as the region moves out of the recession.

Resumption of GCC project growth

His view was supported by several studies that were released this week at the conference, including the GCC Building Construction Industry Report 2010, which projects that $72bn in construction contracts will have been awarded by the end of this year in the GCC.

A separate report by Deloitte Middle East finds that Saudi Arabia, Abu Dhabi and Qatar offer the greatest potential for the construction industry in the region.

Saudi Arabia, which currently has a 38% share of the total construction projects in the region, is expected to launch contracts worth $86bn in 2011, the professional services firm said in its 'GCC Powers of Construction 2010' report. Currently the kingdom has $624bn worth of projects planned or underway.

The UAE has 36% of total construction projects, worth $958bn, and is expected to see its construction industry grow by a compound annual growth rate (CAGR) of 9.6% between 2010 and 2014, the report noted. Qatar, with a smaller 15% of total construction projects, is estimated to see its construction industry grow by a CAGR of 12% over the same period, it added.

"In this year's 'GCC Powers of Construction' report we can see a continuation of many of the trends that were born out of the global financial crisis," said Omar Fahoum, Deloitte Middle East chairman and chief executive.

'Prime among these has been the role of government in injecting funds in a bid to stimulate their economies. These funds are being used to target infrastructure and sustainable development, thereby directly benefiting the construction sector,' he added.