Written by 果冻传媒
Last updated October 19, 2023
The Middle East construction market is under a very encouraging paradigm shift. According to the (MEED), the sector can anticipate a slow but steady recovery soon.
This, of course, doesn鈥檛 mean that construction companies have left the tough days behind once and for all. Nevertheless, a very positive change is observed as a natural continuation of the following factors:
- Higher market demands due to demographics.
- Stronger support by the State.
- A moderate increase in oil prices.
As suggests, the combination of these parameters has played a decisive role in boosting investments in both infrastructure and capital projects. More importantly, the GCC () countries have included in their long-term strategy the development of projects that focus on social infrastructure, transportation, and tourism. This will eventually lead to more opportunities for the Middle East construction market.
Saudi Arabia to increase its presence in construction
Saudi Arabia appears to be the most active player in the Middle East construction market. The total value of the Saudi Arabian capital projects is estimated to approximately (pre-execution stage). At the same time, the U.A.E. comes second with capital projects of $713bn, while Egypt and Kuwait are the following two with $578bn and $215bn respectively.
Going back to the case of Saudi Arabia, the Public Investment Fund of the country seems to lead the Saudi Vision 2030. In that direction, extensive infrastructure projects are on the pipeline and will have a vital effect on the upcoming awards of construction projects.
What is also noteworthy, at this point, has to do with the fact that these massive projects aren鈥檛 linked to the oil industry which is normally the case.
If we attempt to dive into more detail concerning the value of the contracts that have been awarded in the course of 2018, we will come across an interesting statistic. So far, the U.A.E. has awarded contracts of higher value ($20.7bn) than Saudi Arabia during 2018.
As reported by , this is expected to change soon given Saudi Arabia鈥檚 active endeavor to upgrade its transport infrastructure (eg. rail, port, airport), and develop better leisure and healthcare facilities.
Game-changing projects such as The Red Sea Project, Neom, the Maritime City, and the Qiddiya Entertainment City are anticipated to turn Saudi Arabia in the most proactive construction market in the Middle East within a year from now. This concerns both the value and the bulk of work that has to be done.
There are six contractors that own almost 70% of all planned projects in the Kingdom:
- Saudi Aramco
- the Saudi Railways Organization
- PIF
- Saudi Electricity Company
- Makkah & Medina Development Corporation
More and more contractors will try to enter the market in the near future as a result of the rapid development of the sector in Saudi Arabia.
The promising case of the U.A.E.
The construction market in the U.A.E. has managed to remain stable and present a positive trend in the course of the last years. The total value of U.A.E.s鈥� awards in 2018 (to date) has been , while in 2017 it was $28.6bn.
Dubai attracts a lot of positive attention at the moment thanks to the numerous ongoing infrastructure projects in order to accommodate the needs of big upcoming events such as Expo 2020.
This is deemed as a substantial boost for the region鈥檚 tourism. In that direction, the U.A.E. has kicked off large-scale leisure projects such as new hotels, Dubai South and Dubailand.
Despite the fact that these projects generate a lot of construction activity, the need for a detailed assessment of the ROI on such projects should not be ignored. In that way, the risk for project owners will be minimised, while additional funding could be secured for each of these projects.
What gives the U.A.E. a significant head start is the low construction cost compared to the other markets of the region. , the heavy public investment in infrastructure can eventually stimulate also the private sector and create a great momentum for the entire market. This could be seen as a decisive step toward the ultimate goal of breaking the total dependency of the Middle East construction market from oil.
Egyptian construction is moving forward
Egypt is also one of the markets that are characterised by stability and steady progress. Middle East construction expert, , underlines that the demographic boom in the area has accelerated the demand and by extension the growth of the utilities and residential sectors.
Another element of critical importance is the openness of the Egyptian government in terms of foreign investors who could support the design, development, and completion of major projects which could entirely change the image and status of the country.
Nonetheless, some significant steps have already been made. Egypt鈥檚 project pipeline amounts to approximately $490bn when it comes to construction and power sectors. These numbers are expected to grow even more in the future due to the numerous residential projects that are on the way.
A good sign from Kuwait
Kuwait has also shown recently a strong incentive to focus on its infrastructure and invest in expanding its activities in the sector. If we take a look at some of its latest projects, it becomes clear that Kuwait is changing.
The new residential cities which are being developed are only the beginning. A railway system (total worth of ) and a $12bn airport in the northern part of the country send an emphatic message that the market is ready to embrace innovation. More importantly, Kuwait wants to attract the interest of the private sector in the development of these projects.
That鈥檚 a convincing sign by Kuwait that wants new innovative players to support their effort and help them expand their construction activities. During the first six months of 2018, contracts with a total value of $3.7bn have already been awarded and more are about to follow. The main focus is on PPP (Public-Private-Partnership) projects in an effort to minimise risk and boost commercial returns.
Last but not least
Oman and Bahrain are two very interesting cases, as well. They both have project pipelines of similar size and have lately put a lot of effort in developing their infrastructure and diversifying their economies.
Starting from Oman, the goal of finding more solid pillars for their economy appears to be the number one incentive behind their project activity. Oil, gas, and construction projects cover more than half of the entire pipeline. And we are talking about a pipeline with a total worth of $118bn. The Sohar and Duqm special economic zones are forecasted to drive a lot of sector activity in the near future.
Bahrain鈥檚 focus is on housing regions and transport infrastructure. More analytically, the expansion of the airport and the new rail system (both owned by the Ministry of Transportation) are the two most notable upcoming projects. The total value of these two projects is estimated to $18bn and they will eventually be awarded by the end of 2019.
Final word
Wrapping it all up, it is clear that the Middle East construction market is full of substantial opportunities both for investors and contractors. At the moment, the total value of the various infrastructure, transport, and building projects amount to approximately .
Read also: McKinsey & Company – Pushing the construction technology ecosystem to new limits
As the plans of the GCC countries for financial diversification and private market investment proceed the potential in sectors such as education, transportation, healthcare, energy, and tourism is expected to grow even more. It goes without saying that the new players in the market should be extra careful in calculating the risk of each project and the estimated return of investment.
In any case, though, the demographic and financial growth of the region are critical drivers for the development of the Middle East construction market. The advent of optimised PPP (Public-Private-Partnership) models will also play a vital role in that direction and allow for stronger connections between the State and the private sector.
