Opportunities for contractors continue to build in Gulf markets

The construction industry’s contribution to the region’s overall GDP has edged up to 5.7 per cent at the end of last year from from 5.5 per cent in 2010.

The UAE had a 42.9 per cent share of an overall construction project value of $1.24 trillion in 2014, according to figures by Meed. Antonie Robertson / The National

The construction industry in GCC countries will continue double-digit growth until the end of next year, with a rise of 11.3 per cent lifting its worth to US$126.2 billion, according to a new study by Dubai-based Alpen Capital.

It states that although sustained low oil prices may force governments to restrict or delay capital spending, there are several growth drivers underpinning the sector, including a long-standing requirement to invest in projects to diversify revenue. A growing population – at 2.8 per cent per year to an expected 56.9 million by 2018 – will also place demands on infrastructure, health care, schools and housing.

The construction industry’s contribution to the region’s overall GDP has edged up over the past five years, to 5.7 per cent at the end of last year from 5.5 per cent in 2010.

The UAE had a 42.9 per cent share of the region’s $1.2 trillion overall project value last year, according to Meed figures. Saudi Arabia had a 33.3 per cent share, Kuwait 10.1 per cent and Qatar 9.3 per cent.

Property, including Saudi Arabia’s four new economic cities, and transport projects made up about 74 per cent of the pipeline in terms of project value, with new affordable housing programmes also identified as a major potential source of work.

“Higher budget allocation towards construction, as part of the strategic vision of the member nations, lends an added push to the industry,” said Alpen Capital’s managing director, Sameena Ahmad.

Yet despite the opportunities, there also remain some significant challenges.

Rachid Mikati, the executive director of Arabian Construction, pointed to the growth of international companies looking to move into the market – particularly in recession-hit markets.

This “will put pressure on margins and increase risk appetite of contractors who wish to maintain growth of backlog, he said.

“Current contract conditions and payment cycles are also challenging for contractors,” he added. “These will result in delayed project delivery and contention between clients and contractors.”

Ahmed Al Bassam, the chief executive of Al Rajhi Building Solutions Group, said firms in the industry also face tight completion deadlines and pressure on available resources, which means there is potential for cost inflation.

He also argued that construction standards could be improved through a stronger regulatory framework, particularly when it comes to safety.

“Governments have to establish and enforce construction standards to create a level playing field for safety-conscious contractors,” said Mr Al Bassam.

Follow The National's Business section on Twitter