Challenges facing the Sultanate’s construction sector

Although the construction sector in the Sultanate ranks high as an employer of national and expatriate labour in the private sector, it still faces many challenges and difficulties stemming from its inability to sustain and grow due to delays in receiving payments for jobs already executed.

This was noted by Eng Shahswar al Balushi, Chief Executive Officer of Oman Society of Contractors (OSC), about the status quo of the sector, based on statistics, explaining the challenges facing the sector and what’s in store for these companies if the grim financial situation remains unchanged. Eng Shahswar believes that the contracting sector began to face these challenges in the wake of the collapse of global oil prices in 2014, adversely impacting the sector with ripple effects across the supply chain.

Data provided by OSC indicates that the number of registered companies in the contracting sector declined over the past four years from 60,210 in 2016 to 58,639 in July 2019, by 1,571 companies at a rate of 2.6 per cent.

Data also showed that the number of large registered companies was 429 in 2016, which dropped to 381 in July 2019, down by 11.2 per cent. It is worth mentioning that these large companies employ sizeable numbers of Omanis.

Despite these negative developments witnessed by contractors, employment of national labour showed promise. The number of Omani employees in these companies rose from 55,596 in 2016 to 57,599 in July 2019, an increase of 2003 employees or 3.6 per cent. This is attributed to the interest of large contractors towards national employment by providing jobs for 1,666 Omanis over the past years, compared to 337 by their small counterparts.

In other words, most national labour is employed by large contractors even though these are less in numbers compared to the huge number of small and micro companies operating in the sector.

Today, there is a decline in the ratio of expatriate labour in construction, according to official data, due to the conditions experienced by the sector. A total of 716,132 expat workers were registered in 2016, falling to 581,317 in July 2019, a decrease of 134,815 or 18.8 per cent. The decline was recorded mainly by large contractors.

There are many challenges facing the construction sector, including the paucity of contracts, and cash flow problems owing to payment delays. Companies also suffer from a lack of access to banking facilities to run their business, shortfalls in meeting Omanisation targets, and inflexibility in making the relevant appropriate decisions.

OSC is providing a host of solutions to help contractors mitigate the effects of these challenges on their business. These include innovative investment models to finance development projects, working with stakeholders in finding speedy ways for settling back dues, and finding sustainable solutions for the design, award and management of government projects.

This also requires working with banks and the Central Bank of Oman to enable companies to obtain banking facilities, and implementing Omanisation policies, the classification of contractors in different categories, and standardisation of professions and work titles. This effort is being overseen by a team of decisionmakers and representatives of the sector.

The issue of national employment in the construction sector may witness further negative impacts as contractors, hit by the downturn and other challenges discussed above, cut down on their manpower. This is apart from those employees who quit on their own due to delays in receiving their paychecks.

The situation requires the government to hold meetings with the owners of construction companies to resolve the current crisis, which is different from the previous ones.

The future of this sector is at stake in light of the difficulties and challenges it faces, with implications for engineering offices, the building materials industry, and other stakeholders.

MOST NATIONAL LABOUR IS EMPLOYED BY LARGE CONTRACTORS EVEN THOUGH THESE ARE LESS IN NUMBERS COMPARED TO THE HUGE NUMBER OF SMALL AND MICRO COMPANIES OPERATING IN THE SECTOR