Value of GCC contract awards to drop by $30 billion in 2016

Value of GCC contract awards to drop by $30 billion in 2016

The data shows that this is happening, most notably in Kuwait, which awarded over $35 billion in contracts in 2015, its highest ever.

By Issac John

Published: Wed 9 Mar 2016, 11:00 PM

Last updated: Thu 10 Mar 2016, 8:38 AM

Dubai: The value of contract awards for projects across the GCC will fall by $30 billion in 2016, compared to 2015, but the impact of the oil price drop will be limited.
The total value of contract awards across the GCC was about $197 billion in 2015, according to research released by Ventures Onsite, a construction projects information platform tracking construction projects in the Middle East and North Africa (Mena) region from early planning and design stage to completion. In 2016, the value of awards will be around $167 billion, a clear drop, but nothing as pronounced as the delayed drops in 2010 and 2011, which followed the global economic crisis, the report said.
The reason, according to Julian Herbert, who presented the data on behalf of Ventures Onsite, is that there is no clear relationship over time between oil price levels and the value of project awards.
"Despite anxiety in the media and elsewhere about the low oil price, history shows that the value of contract awards is not necessarily at its highest or lowest, when the oil price peaks or troughs," said Herbert.
"Three years ago, bodies like the International Energy Agency were predicting a marked softening of the oil price as a response to the impact of US tight oil production and sustained Saudi oil output. This warning gave GCC governments a two to three-year window in which to stockpile surpluses to spend strategically on long-term projects and on social and transport infrastructure."
The data shows that this is happening, most notably in Kuwait, which awarded over $35 billion in contracts in 2015, its highest ever; and Qatar, which awarded $34 billion in 2015, for the second year in a row. Oman too recorded contracts worth over $18 billion, with water, power generation and industrial diversification projects featuring prominently.
History also shows that major events over a five-year timespan, starting with the global economic meltdown in 2008-09 leading up to the award of Expo 2020 to Dubai in December 2013, have compelled companies involved in the construction sector and governments to adapt making them better able to take advantage of opportunities when they arrive. For this reason, whilst Saudi Arabia and to some extent Abu Dhabi is treading a cautious path with projects, the rest of the GCC - Dubai, Kuwait and Qatar in particular - will be alive with activity for the next two years.
Mibu John, head of syndicated research from Ventures Onsite, said he expects to see contracts worth $167 billion being awarded to contractors in 2016, which is nearly 15 per cent less than the total value of contracts awarded in 2015. "We have seen some major contractor awards already in January and February such as The Royal Atlantis Resort, Bahrain International Airport Expansion, Borouge BOG Compressor, Sohar-Ibri IPP to name a few. The top projects to look out for in the coming months include the Route 2020, MMRT contracts, Alba Sixth Potline Expansion, Qatar Power Transmission - Phase 13 among others.
According to a report by MEED Projects, the value of project contracts awarded in the GCC countries is set to drop by 15 per cent in 2016 as low oil prices hit government spending plans. The forecast is based on more than 2,100 planned and un-awarded projects in the region. It predicts that the total value of contracts will fall to $140 billion this year, compared with $165 billion for 2015.

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