Opportunities in Saudi Arabia starting to align with
improving sentiment around ease of doing business
Increasing confidence in the Omani market
Transport remains strongest sector for construction opportunities
Concerns as to the risk balance and administration
of construction contracts in the region
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A snapshot of opinion from the GCC’s
construction sector – the majority of which are involved in larger projects
with a value of over AED 100 million – has indicated that optimism amongst the construction
sector has been tempered over the last year.
Pinsent Masons’ Annual GCC
Construction Survey, which was presented to representatives from the industry at
the international law firm’s recent Annual Construction and Engineering Law Conference,
held in Dubai, suggests that the industry remains overwhelmingly optimistic about
2015 – with 77% of respondents stating they were optimistic. However, their
optimism has fallen by 13% from last year.
The drop in positivity may partly
be explained by ongoing geopolitical concerns, the fall in oil prices, a highly
competitive market with a softening in the level of increased order books, and the
cost of accessible capital. This year’s survey indicated that 33% of
respondents were expecting an upswing in their order books of 10% or more,
which compares to over 40% last year expecting that level of growth.
The tempering in optimism may also
be related to the industry’s more measured view about the positive impact Expo
2020 will have on the sector. Less than 10% of respondents thought that the UAE’s
Expo project between 2014 and 2016 would provide a dramatic upswing for
construction companies. This compares to last year, when 26% of firms believed
Expo would provide a major boost between 2016 and 2020.
Saudi Arabia (40%) followed by the
UAE (33%) and Qatar (14%) are expected to be the strongest performing construction
markets in the MENA region next year, according to those surveyed. The expectations
for Saudi Arabia are particularly encouraging as they are now starting to align
with the industry’s perception around the ease of doing business in the country.
23% of the responses stated that Saudi Arabia was the easiest regional market
to do business with, which compares to just 10% of respondents last year.
The survey indicated that Oman is perceived
as the second easiest market to do business with, but the UAE, at 96%, is by far
the industry’s easiest market work with. Oman also showed a significant
increase in expected market opportunities – more than in any other previous
survey.
Transport (69%) followed by real
estate (48%) and power (46%) were considered to be the strongest sectors in
terms of opportunities for the year ahead.
It is clear from the results that
stakeholders believe the regional sector needs to do much more to rebalance
contracts to a sensible risk profile. Aligned to this, the results raised a
very real concern as to the efficient and effective administration of contracts
in the sector as compared to other regions of the world.
Commenting on the results, Sachin Kerur, Managing Partner, Gulf
Region at Pinsent Masons, said:
“These results offer an insight
into how the GCC construction market is shaping up for the year ahead. Optimism
clearly remains high, but there is a marked cooling compared to last year when
Expo fever was at its height.
“Construction firms have long
perceived the opportunity in Saudi Arabia as being the most promising in the
region. But, in the past, the challenge of doing business there has meant
opportunities haven’t always come to fruition. This situation now seems to be
changing, with the ease of doing business starting to improve. This suggests we
may see more opportunities converting within The Kingdom in the years ahead,
which chimes with the more open sentiment emerging from the Saudi authorities.
“61% of responding construction
companies said that they had been involved in fewer disputes in 2014. That’s
encouraging for businesses. However, we are not surprised to see a real concern
around the administration of contracts. The regional sector would do well to
acquire a more sensible attitude in promoting risk equilibrium in construction
contracts and to take a more collegiate approach in the delivery of major
capital assets. This is an issue that has rumbled on for many years and needs
an enlightened approach to solve.
“Following last year’s survey
results we expected to hear more about public-private partnerships (PPPs)
becoming an increasing part of the financing mix. However, PPPs have yet to
take off across the board as a primary method to fund major projects in the
region. We expect this to change.”
Pinsent Masons’ 2014 survey also
asked construction firms which peer firms they most admired. The results
suggested CCC, Emaar and ALEC were the pick of the bunch.
