GCC construction sector bullish

Investments in infrastructure and diversification of economies prop up industry.

Dubai — The construction industry in the Gulf Cooperation Council (GCC) is in a phase of growth, driven by increased government investments as member nations target economic diversification, Alpen Capital said in its study on Tuesday.

The GCC construction industry foresees growth from 2015 to 2018, encouraged by factors such as favourable macroeconomics, higher government allocation, positive demographics and rising tourism activities.

Higher budget allocation towards the construction sector, as part of the strategic vision of the member nations, lends an added push to the industry.

The UAE accounted for the maximum value of projects at $525.6 billion, followed by Saudi Arabia at $407.8 billion. Kuwait at $123.6 billion and Qatar at $113.8 billion, followed by Oman at $29.6 billion.

The GCC construction industry witnessed increased activity in the infrastructure sector in 2013 and 2014 due to upbeat economic sentiment. However, the industry’s contribution to the region’s GDP witnessed a modest increase from 5.5 per cent in 2010 to 5.7 per cent in 2014.

The Gulf region is aiming to attract higher investments into its construction sector by hosting global events and showcasing itself as a preferred tourist and investor destination. This will result in the overall construction industry growing at a CAGR of 11.3 per cent from $91.5 billion in 2013 to reach $126.2 billion in 2016.

“The GCC construction industry foresees growth from 2015 to 2018, encouraged by factors such as favourable macroeconomics, positive demographics and rising tourism activities. Higher budget allocation towards the construction sector, as part of the strategic vision of the member nations, lends an added push to the industry,” says Sameena Ahmad, managing director, Alpen Capital (ME) Limited.

Sanjay Bhatia, managing director, Alpen Capital Investment Bank (Qatar), said: “The GCC governments’ challenge to diversify their economies from oil and gas and their consistent focus on infrastructure development across sectors has kept the construction industry in focus.”

Optimistic forecasts for the UAE’s construction sector for the next few years is based on an economic recovery, its safe haven status, a liberal investment climate, relatively advanced real estate regulatory framework as well as a buoyant infrastructure project pipeline as part of the country’s strategic Vision 2021.

In Saudi Arabia, efforts to boost religious tourism have translated into higher budget allocations towards the hospitality, retail and infrastructure sectors.

The outlook for Qatar’s residential, hospitality and infrastructure construction markets appears optimistic due to healthy population growth, mega events and the economy picking up pace.

The construction industry in Oman is expected to remain robust driven by a significant increase in infrastructure projects planned by the government, tourism projects, an undersupplied residential market as well as the construction of commercial space.

In Kuwait, the construction industry is set to thrive driven by the infrastructure sector, new projects from the private sector to address the need for affordable housing and an increase in demand for commercial space. 

Developing its infrastructure and reducing its affordable housing shortage remains the principal focus of the government of Bahrain in the coming years.

Though the GCC construction industry is growing, it is not devoid of challenges. The dip in oil prices may push GCC nations to restrict state spending, hampering the growth of the construction industry, which is materially dependent on government funding.

The opportunities available in the construction industry could be affected due to lower investments from the private sector and plunging disposable income levels. Further, lower tourist inflow from oil-dependent nations may hamper the growth of the construction industry.

Simultaneous rapid expansion of the GCC construction markets could result in a shortage of raw materials used in the sector, particularly cement. In addition, tough regulations on imports coupled with logistical challenges have led to the increase of raw material prices in the GCC.

Despite various challenges and a change in trends, the momentum is strong for the GCC construction sector. A favourable macroeconomic environment, a growing tourism sector and government support will ensure that the construction sector will continue to play a critical role in transforming the GCC’s landscape.

— abdulbasit@khaleejtimes.com