Around the globe
Middle East
General economic overview
The Middle Eastern economies rebounded during 2021 and into 2022, led by a surge in energy prices in Saudi Arabia as global demand for oil and natural gas increased strongly and widespread air travel returned. The rising cost of oil per barrel has helped create more liquidity for the sovereign wealth funds which are driving nation building programmes across the region.
The Saudi Arabian economy grew by 6.7 percent in the year to December 2021, with the United Arab Emirates growing 3.8 percent over the same period. Oman is still catching up, with growth remaining negative during 2021. In Qatar, economic growth increased strongly in 2021 and is likely to recover to pre-pandemic levels over the course of 2022.
Across the Gulf, costs of transport have increased and imported goods prices are rising due to global supply chain challenges. Inflation rates, however, have not experienced the large increases seen in other parts of the world. In May 2022, the inflation rate in Qatar had fallen to 4.7 percent year-on-year, whilst in the UAE it was 2.5 percent and in Saudi Arabia only 2.3 percent.
The 2020 Expo in Dubai finally kicked off in October 2021 as the pandemic eased. The event generated significant tourism, and business and consumer confidence are running higher in Dubai as a result. In Saudi Arabia, high oil revenues and a large programme of mega construction projects is also boosting confidence.
Construction sector performance
There is significant market activity across the Middle East, with most regions experiencing a new wave of significant projects in 2022. Saudi Arabia had seen rapid growth in the construction sector and the market is running hot, with construction costs escalating.
The cost of imported materials is rising strongly and project delivery delays are widespread. There are shortages of labour and with the majority of tenders comprised of local entities, projects are competing for the same resource, driving up costs further. A major policy of the Kingdom’s diversification strategy is to bolster local capability and supply chains. As inflationary pressures bite, contractors are starting to feel the impact in terms of claims, cashflow and supply chain solvency issues. These problems are set to impact the market for the foreseeable future.
In the UAE, construction was still subdued at the end of 2021, but there is a lot of planning being undertaken in preparation for an increase in 2022. In Abu Dhabi construction has increased more strongly after the downturn in 2020 and the real estate sector is performing well. Up until now construction costs have been reasonably benign but are expected to increase during 2022.
Construction activity in Qatar has experienced a significant rebound in activity together with increased costs driven by volume of work and supply chain issues. Oman has a considerable programme of construction investments set for delivery in 2022 that will grow the economy.
Top-performing sectors
Across the region, there are numerous megaprojects under development. Major mixed-use schemes, residential, hospitality and infrastructure are the standout sectors in Saudi Arabia. King Salman Park, the Red Sea Resort, Diriyah Gate, Amaala and the SEVEN entertainment districts are all under way and set to support the Kingdom’s 2030 goals in their promotion of wellbeing and sustainable tourism. The Riyadh Metro is also close to opening with 6 lines, 176 km of track and 85 stations.
In Abu Dhabi, the major developers have continued to launch new large-scale developments in real estate, cultural developments and infrastructure. SeaWorld Abu Dhabi is set to be completed in 2023 and the Guggenheim Abu Dhabi is under construction and heading towards a 2025 opening.
In Dubai, the residential sector remains the top performer, but sports, hospitality and leisure are staging a strong comeback as tourism strengthens.
In Qatar, major projects associated with the FIFA World Cup are nearing completion, including stadia and hospitality developments. There is continuing government investment in Lusail City, Qatar Rail, Free Zones and infrastructure projects around the Qatar 2030 Vision. Oman has a number of new major projects including the Duqm refinery extension, Khazzan gas field, Madinat Il Irfan mixed-use development, port developments and a 500MW solar plant at Ibri.
Progress of the environmental agenda
Given its climate and geography, the Middle East is an ideal location for renewable energy generation and there are several large-scale projects under way, which will no doubt be accelerated by the hosting of COP28 in the UAE in 2023.
In Dubai, the Mohammed bin Rashid Al Maktoum Solar Park is a large-scale solar and thermal storage facility being implemented in five phases and planned to produce 5GW of solar energy by 2030. Two other projects, the Al Dhafra (2GW) in Abu Dhabi is now close to completion and the Abu Dhabi PV3 (1.5GW) was recently tendered for construction.
In Saudi Arabia, work is set to begin on a US$5bn green hydrogen plant at Neom. By using 4GW of green energy produced from a massive solar, wind and storage facility, it will produce 650 tonnes of hydrogen per day. All in, Saudi Arabia has plans for additional solar and wind renewables projects designed to add 60GW of solar power to its grid by 2030.
Qatar has an 800 MW solar generation facility being completed on a 10km2 site at Al Kharsaah west of Doha comprising 2 million bifocal solar panels.
Future outlook
The immediate future looks positive with a growing list of large-scale construction projects and lower inflation than elsewhere.
Nevertheless, there is a growing risk of rising construction costs in overheated construction markets. Port and transport bottlenecks in the global shipping sector will be an ongoing issue and it may take into 2023 to fully ease the flow of goods, cutting shipping times and lead times. Global commodity prices such as steel and copper should eventually lower as more production comes onstream.
Current disruptions to global energy supplies caused by the Russia-Ukraine war create an opportunity in many ways for the energy-producing nations in the Middle East, which should in turn further their realisation of major construction and engineering projects.
Current tendering condition
Future market outlook
“Across the Gulf, costs of transport have increased and imported goods prices are rising due to global supply chain challenges. Inflation rates, however, have not experienced the large increases seen in other parts of the world.”
Hudson Fountain, Director
Construction market
metrics
Top three regional
construction challenges
of respondents said that excessive lead times had a significant or high impact on the delivery of construction projects
of respondents said skilled labour shortages had a significant or high impact on the delivery of construction projects
of respondents said that rising costs of construction had a significant or high impact on the delivery of construction projects
Regional construction
cost performance
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