Dubai set to drive the UAE's projects market for 2016
Cynthia Corby, partner, Middle East Infrastructure and Capital Projects Leader at Deloitte
The value of contracts awarded in the GCC in the first quarter of this year, has experts painting a grim picture for the regional projects market; however, experts have also noted that there will be a few bright instances, with many countries set to perform beyond the current predictions.
"If we go along with the value of projects awarded in the first quarter of this year in the GCC, and use that as a basis to predict what the projects market is going to be valued at by the end of the year, we can see that we are currently looking at the worst year for the projects market since before 2005," said Ed James, director of content and analysis at MEED Projects.
Speaking at the MEED Construction Leadership Summit in Dubai on Wednesday, James was however quick to note that the gloomy prediction did not paint the complete picture, as the situation was very different on a country by country basis.
"The UAE, driven primarily by Dubai, was recorded as having $10 billion worth of projects in Q1, 2016. We forecast $36 billion worth of projects being awarded in the country for the entirety of 2016, so based on the Q1 data we currently have, it looks like the UAE is actually going to outperform our expectations," James said. "On the other hand, we have Qatar, which awarded just $1.6 billion worth of contracts in the first quarter of the year; that is less than Bahrain."
According to James, the GCC market is now split into two streams; with Dubai, Kuwait, and Oman falling into the good performers category, and Qatar, Abu Dhabi, and Saudi Arabia falling under the poor performers category.
Dubai, he noted, appears to be decisively tacking the oil price issue by announcing a number of new projects and pushing ahead with its vision. On the other hand, Qatar and KSA, in particular, are struggling as the government is unable to find or release funds to pay for projects. At the current rate, the projects market is set to hit about $120 billion worth of contract awards, well down on the $165 billion hit last year. It also remains to be seen whether contractors can maintain the cashflow levels needed to stay in business, and/or pay their workers, unless the governments act to alleviate the crisis.
Experts forecast huge project investment will still be made between now and the end of this decade. Growing economies across the Gulf region will require improved infrastructure for cities to function and expand as planned, but innovative financing models need to be explored as funding gaps arise because of government budget deficits.
In order to maintain the momentum in the project pipeline and in the face of austerity concerns, Cynthia Corby, partner, Middle East Infrastructure and Capital Projects Leader at Deloitte says: "It will be necessary to innovate, perhaps with a drive towards privately financed solutions."
Saudi Arabia still leads the region in terms of the value of projects in the pre-execution stage, with 38.91 per cent of the total value, followed by the UAE with 34.84 per cent. Qatar is next with an 8.57 per cent share, then Kuwait with 8.22 per cent. Oman follows with 6.48 per cent, with Bahrain having a 2.97 per cent share of the market.
Besides the oil price slump, the future growth of the projects sector will depend on several factors, including the speed of enacting legislation, restructuring, prioritisation of project plans, and the ability to obtain funding, noted James. "But more importantly, governments' commitment to maintain spending in the face of falling revenues to keep the economy moving will be a key factor in driving the industry forward through the challenging times," he said.