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GCC construction sector set to gain ground in Q4

Waheed Abbas/Dubai
Filed on June 22, 2020

(AFP)

The GCC construction sector has bottomed out, and the market will gain momentum in fourth quarter when new big contract awards will be awarded following a recovery in oil prices and increased optimism about economic growth amidst falling Covid-19 cases, say industry executives and analysts.

"Ongoing construction activity has already resumed its recovery. While market sentiment leans towards a recovery in first quarter of 2020, subject to extraordinary events notwithstanding, we are optimistic that new awards will be announced in fourth quarter of 2020 to get the market revving next year," said Avin Gidwani, CEO of Industry Networks.

Rizwan Sajan, chairman of Danube Group, said that the recovery of the GCC construction sector is linked to oil price.

"As long as oil price remains above $50, the sector will benefit from it as the governments will continue to build infrastructure and expand housing facilities for its people. So, it's just a matter of time for the sector to come back," Sajan said.

He said that oil is already trading above $40, while half of the world is still under partial lockdown. "Oil price will rebound to above $50 in a few months, when the construction sector will see new projects coming up," he said.

Most of the energy analysts estimate that crude prices will average between $40 to $60 a barrel and maximum of $70 to $80 in the near to medium term.

Catastrophic quarter

Industry data showed that the second-quarter was catastrophic for GCC construction sector as new contract awards and project completions dried up in May.s

According to BNC Projects Journal, contracts were $192 million (Dh705 million) were awarded in May 2020, the lowest level of awards since 2010.

In addition to Covid-19, Eid Al Fitr, which was marked in the last week of May, also contributed to the decline in new contract awards.

The sizable contracts awarded in April took the total value of contract awards in the first two months of second quarter to $11.2 billion in the region, which is still less than half of the total value of contracts awarded in Q1 2020.

New construction projects worth $3.1 billion were announced across the GCC in May with UAE contributing 55 per cent of the value of total new announcements followed by Saudi Arabia with 29 per cent.

Projects worth $1.4 billion were completed in May, the lowest monthly recording since the last couple of years, bringing Q2 to date to a total value of $9.7 billion worth of completions, which is just 20 per cent of the value of GCC completions in Q1 2020.

Josef Kleindienst, chairman of Kleindienst Group, said that the construction sector will remain active as oil-exporting Gulf countries continue to build infrastructure and develop housing projects for their citizens.

The market will show some fluctuations here and there, but will not go down drastically.

"Despite the current situation, marked by Covid-19 pandemic, construction of the ongoing projects are going on. "The market performance should not be judged by the current pandemic situation - which is very rare. The construction activities in Saudi Arabia and UAE will continue as before. So, question of bottoming out doesn't arise. Having said that, the developers and contractors might face a slowdown of activities for a year and a half," said Kleindienst.

$902 billion projects on hold

BNC Projects Journal data showed that out of $2,435 billion worth of projects, around 37 per cent of $902.1 billion worth of projects are on hold in the GCC region. Of those $902.1 billion, around 66 per cent or $600.1 billion worth of those projects are utilities projects at the end of May 2020.

In the UAE, oil and gas sector led the projects worth $1.7 billion announced while projects worth $1.2 billion were completed in May. No significant contracts were awarded and the overall UAE's construction sector was unmoved in May.

- waheedabbas@khaleejtimes.com


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