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The construction industry in the UAE is expected to grow by 3.8% in 2021, COVID-19 impact short-lived

International construction consultancy, Linesight, has released its latest Middle East construction industry findings, underlining the impact of COVID-19 on the sector in the UAE, Saudi Arabia, Bahrain, and Kuwait.

Linesight findings reveal the impact of COVID-19 on the UAE’s real estate industry to be relatively short lived, with modest growth expected in 2021 Projected contraction in the UAE to be "relatively mild" Saudi Arabia’s construction industry expected to be buoyed by significant funds invested in the tourism industry as part of Saudi Vision 2030

International construction consultancy, Linesight, has released its latest Middle East construction industry findings, underlining the impact of COVID-19 on the sector in the UAE, Saudi Arabia, Bahrain, and Kuwait.

The findings highlighted ongoing economic volatility. However, the construction industry across the region is expected to be buoyed by a range of government stimulus packages. As a result, modest growth within the industry is expected to be realized in 2021, with recovery already being witnessed in some countries.

UAE
Ciaran McCormack, Regional Director for Linesight Middle East, said: “According to GlobalData, the UAE construction sector recorded growth of 3.3% in 2019. Pre-COVID, this figure was expected to increase to 4.3% in 2020, predominantly driven by a range of government initiatives. With the onset of the virus and the subsequent drop in oil prices, output is expected to contract to 1.9% this year, before recovering to 3.8% in 2021.

“This is predominantly a result of construction remaining on-site in the UAE during the pandemic, albeit with reduced productivity and site capacity inline with social distancing guidelines. Therefore, the projected contraction is relatively mild, with a return to growth in output expected next year.”

According to a study by business intelligence tool MEED titled ‘UAE Construction after COVID-19’, the UAE’s construction sector has been lagging for the past 5 years, due to a lack of new projects and weakening cashflow.

“From project delays and cost overruns to unfair slow technology adoption, the consequences of these challenges were damaging the sustainability and reputation of this critical industry,” the report said. 

Chart: MEED 

“Before the real impact of Covid-19 was felt, we already found ourselves in a construction industry that was under tremendous pressure due to a lack of cash in the system,” Sean McQue, director of construction at UAE contractor Alec, told MEED. “Businesses were unable to perform and deliver as they were carrying extensive legacy issues caused by non-payment for works they had already executed. The effects of Covid-19 have exacerbated this problem.”

Saudi Arabia
In Saudi Arabia, spending on infrastructure alone in the next 20 years is expected to top $1.1 trillion. Several multi-billion-dollar infrastructure projects relating to Saudi Vision 2030 and the country’s drive to become a tourism hub, have lifted the construction industry. 

These projects include the $500 billion NEOM project, $20 billion Diriyah Gate Development, 10 billion Red Sea Development, and the $5 billion Qiddiya Entertainment project. 

“As a result of the IPO of Saudi Aramco and the Public Investment Fund (PIF), we expect to see sustained investment in the construction industry, a result of a significant number of projects alongside the ongoing megaprojects, which will keep the industry buoyant,” added McCormack.

According to an analysis by MEED, “It is unclear how quickly the market will recover in 2021 and beyond. Much will depend on the oil price which still lies $20 a barrel lower than it did at the start of the year. If it stays at its current levels, it is difficult to see how the government can maintain spending at historical levels.

“Data from the first six months of [2020] shows that Saudi Arabia has weathered the storm fairly well. At $13.2bn, the value of contracts awarded between January and June was just 15% down on the same period in 2019 and actually higher than the same period in 2017 and 2018.”

Bahrain
Elsewhere in the GCC, the construction industry is expected to witness a sharp contraction. 

GlobalData expects the construction industry in Bahrain to contract by 1.2% in 2020, with the likelihood of further downward revisions if activity in the short-term is more severely disrupted than currently anticipated.

According to Linesight, the annual GDP from construction in Bahrain fell slightly from $631 million in Q4 2019 to $624 million in Q1 2020. This is likely to be exasperated by increased preliminary costs as a result of setting up sites to meet COVID-19 restrictions, placing further burden on the Bahraini construction industry. 

The Government of Bahrain has however introduced a range of measures, including a $11.4 billion stimulus package, will help offset some of the detrimental impacts of the virus.

Kuwait

In Kuwait, a survey by Bensirri public relations revealed that 45% of business owners suspended their activities, with another 26% potentially declaring bankruptcy as a result of COVID-19 and low oil prices. 

Because Kuwait’s economy is much less diversified than that of the UAE or Saudi Arabia, the overall drop in oil prices and demand due to COVID-19 has severely impacted the country, as KPMG notes. 

The construction industry in the country is expected to witness an uptick, in line with the country’s Vision 2035.  A range of transport and healthcare related infrastructure, commercial buildings, industry facilities, water distillation facilities and renewable energy projects should bolster the construction industry.

COVID-19 constraints drive tech innovation

“As an industry that plays a significant role in the economic development of the region, the full impact of the pandemic for construction remains to be realized, but already, it is evident that the effects of the lockdowns are being felt and will impact underlying fundamentals, said McCormack.

“On a positive note, pandemic-related restrictions have served as a catalyst for further advancements in the technology sector. The data centre market in the GCC, in particular, has remained relatively resilient as the shift towards virtual working platforms and online shopping is compounded by longer-term trends, such as investments in 5G technology, this is creating demand in the technology market segment,” he concluded.