Report by ProTenders
This ProTenders report covers an overview of the GCC Construction market based on market data available as of October 1, 2019. Large scale project developments can have a significant influence on the numbers and values presented in this report and for real time data, it is best to reference ProTenders’ construction intelligence platform at www.protenders.com.
The GCC economies witnessed a period of economic growth following the global financial crises of 2008 up until 2014. In 2014, the world and the GCC states faced a new economic reality of low oil prices. However, countries like Saudi Arabia and the UAE had greater resilience on the short terms due to greater economic diversification, fiscal policies and financial reserves that cushioned the impact on the short term. However, as the oil prices continued to fluctuate at the US$40 to US$ 60 price range and with the break-even point, oil prices for several GCC states will be higher than this price range. Most GCC states were faced with slow and even negative real Gross Domestic Product (GDP) growth in 2017. Although, all GCC states recorded a positive real GDP growth in 2018, albeit it was lower than 2%.
In this report, we will examine what has happened and what the future looks like for the construction sector in the GCC.
Despite a slow real GDP growth from 2016 to 2018, contract awards witnessed a double-digit growth over the same period. In 2017, Dubai’s real estate and construction market accounted for 6.8%, according to Dubai Economic Department. The challenging construction market driven by a continued financial pressure due to prolonged payment by the private and public sector did not have a negative impact in terms of developer awarding projects in the UAE. Contractors had to adjust to the new financial cycle and the government policies to ensure subcontractors payments were not delayed after receiving payment from the private sector which is supported by the government.
According to our data in 2017, every quarter witnessed growth. In 2018 and 2019 only Q3 and Q1 witnessed a decline QoQ. On average, an estimated $19Bn worth of projects are awarded every quarter. We forecast that if the same quarterly trend applies in Q4 of 2019, the totalvalue of projects to be awarded in 2019 will reach $80Bn.
The UAE’s leadership and vision has resulted in significant drive towards economic diversification and innovation. UAE strategy 2021 focuses on a knowledge economy, world class healthcare and first-rate education system. As such the UAE will continue to invest through public and private investment in healthcare and education as well as a sustainable infrastructure over the near future.
According to current available data, there are $385.8Bn worth of projects forecasted in the UAE. Although $252.9Bn of these projects are announced to be awarded in 2020, we highly believe that the contractors’ capacity, funding and real estate cyclical planning will result in only a maximum of $89Bn of these projects to be awarded in 2020 with the balance moving forward.
We forecast on average $34Bn of infrastructure projects to be awarded between 2020 and 2022. Over the same period, we forecast $45Bn of urban sector projects. The decision of ADNOC Group in 2017 to open up to foreign investors will continue to result in more oil & gas projects being awarded over the forecast period, as on average $16Bn will be invested every year.
The Dubai Government has approved a budget for 2019 foreseeing expenditure of $15Bn, a marginal increase on last year, with infrastructure investment for the upcoming Expo 2020 again a focus for the emirate.
Driven by the Crown Prince Mohammad bin Salman bin Abdulaziz Al Saud, Saudi Arabia’s economy is going through a massive shift from being highly dependent on oil revenues to a more increased diversification and investments in non-oil sectors. This strategy is further detailed out in Vision 2030, which was announced in April 2016 where economic diversification and SMEs are considered core objectives of the vision. The government first focused on economic policies that positions the economy to drive this vision. Saudi Arabia will continue to seek private sector investment in public projects through Public Partnership Projects (PPP).
Due to economic slowdown in 2017, the Saudi construction market witnessed a period of decline year on year from 2016. This is further reflected with a declining QoQ in 2017. However, since 2018, the Saudi construction sector witnessed a period of high growth where major projects such as Riyadh Metro Operations & Maintenance – Lines 3, 4, 5 & 6 ($2.9Bn), National Guard Housing & Infrastructure Development – Phase 1 ($1.35Bn) and Al Asfar Residential Complex – Phase 1 ($2.7Bn) awarded in 2018 while SoftBank Sudair Solar Photovoltaic Plants ($3Bn), Jubail 2 Export Refinery Petrochemical Complex ($9Bn), Medinat Alwurud City ($2Bn), The Avenues Riyadh – Phase 1 ($2Bn) projects awarded in 2019. The construction sector in Q1 of 2019 saw 22 projects awarded as this quarter recorded the highest value of projects awards since Q1 of 2016 at $36.83Bn.
A key variable when building a forecast for Saudi Arabia’s construction sector is contractors’ capacity and availability of manpower. This can be clearly noticed when considering the total value of projects announced when compared to actual contracts awarded historically.
Over the past three years, the total value of contract awards was on average $44.5Bn, however, the government’s aggressive economic diversification and development will result in historical value of contract awards over the next three years.
This will drive further growth in capacity, new contractors entering the market and existing contractor growing capacity to meet the growing demand. This will further be supported with greater automation and adoption of technologies to manage cost and increase efficiencies.
With more than $1.06Tn worth of major projects planned or underway, Saudi Arabia is the biggest projects market in the region, accounting for almost half of the entire GCC projects market. With KSA’s estimated budget for 2019 and robust economic growth, the government is recommitting to investments in the future with the help from the private sector. The kingdom’s construction market is expected to show significant growth and offer lucrative potential due to its Vision 2030, NTP 2020, and ongoing reforms to diversify away from oil.