Construction Continues To Face Obstacles

The Middle East has long been a hub for construction thanks to ever-growing populations and business ecosystems. However, the sector has been facing low margins and high competition, among other challenges.

The current pandemic, coupled with an oil price crash last year, added a new layer of obstacles for the Middle East’s construction sector. Jobs have been lost and projects delayed, but most importantly, the widening budget deficits of governments, especially in the GCC, have made it harder for the sector to depend on government spending. The region has now dedicated its efforts to diversifying away from oil and focusing on adopting technology and sustainability in its projects.

Last year, data and analytics company, GlobalData, forecast a 4.5% contraction of construction output growth for MENA, with the sector expected to recover with a growth of 1.9% in 2021 and 4.1% in 2022. The GCC is the worsthit region in the Middle East, specifically Kuwait and Oman.

Large projects in the oil, gas, power, and water sectors are expected to grow the most, with industry forecasts indicating that around $83 billion worth of contracts could have been awarded in 2020, down from the previous forecast $127 billion, according to a report by consulting company, Deloitte.

As a result of governments’ limited ability to fund infrastructure and construction projects due to their widening budget deficits, these projects will now have to turn to the private sector for funding. New issuances of both conventional bonds and Sukuk almost reached $200 billion in 2020, revealed credit rating agency, Fitch, earlier this year.