Beating the heat of in ation
In mid-2021, when the world was getting accustomed to the ‘new normal’ in a post-pandemic era, there was a momentary optimism that supply chain hurdles and spiking in ation were transient. Now, in the second half of 2022, in ation has become a top-of-mind issue for operators and consumers across industries.
For construction companies globally, the striking effect of in ation has only triggered further worries as prices have escalated two-fold for everything from materials to logistics and labour. While the Middle East is no exception, contractors are now adjusting their nancial, contractual, and delivery mechanisms to mitigate the impact of in ation on construction projects.
Because large price increases have a considerable impact on contractors and developers, they sometimes have no choice but to incur the additional costs, cutting into already thin margins and impacting liquidity. Currently, however, a lack of transparency regarding future costs, as well as the uncertainty around their volatility, is complicating the bidding process and affecting every member of the project delivery chain.
According to a recent report by JLL, the Middle East continues to see greater rates of urbanisation resulting in unprecedented levels of demand for affordable housing, social, transportation, and utility infrastructure, which in turn has stimulated construction activity across a range of sectors.
From increased commodity prices since 2020 to reduced expatriate labour force availability and dependence on imported building materials, particularly from China and Europe, these factors have further fanned the re surrounding the liquidity crisis caused by in ation.
Localisation of the supply chain has resulted in risk mitigation due to in ation, but let’s all agree that it is a time-consuming process. As a result, the construction industry will likely continue to rely on imported materials, at least in the short term.
However, for time being, construction stakeholders – developers, contractors, and suppliers alike – must brace themselves to beat the heat of in ation. Signing off!