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GCC construction sector sees drop in confidence

While the GCC construction industry remains positive about 2015 with 77 per cent of respondents to a survey stating they were optimistic, their confidence levels have fallen by 13 per cent from last year, a report said.

The drop in positivity may partly be explained by ongoing geopolitical concerns, the fall in oil prices, a highly competitive market with a softening in the level of increased order books, and the cost of accessible capital, added the Pinsent Masons’ annual GCC Construction Survey, which was presented to representatives from the industry at the international law firm’s recent Annual Construction and Engineering Law Conference, held recently in Dubai, UAE.

This year’s survey indicated that 33 per cent of respondents were expecting an upswing in their order books of 10 per cent or more, which compares to over 40 per cent last year expecting that level of growth.

The tempering in optimism may also be related to the industry’s more measured view about the positive impact Expo 2020, which Dubai will host, will have on the sector. Less than 10 per cent of respondents thought that the World Expo projects between 2014 and 2016 would provide a dramatic upswing for construction companies. This compares to last year, when 26 per cent of firms believed the Expo would provide a major boost between 2016 and 2020.

Saudi Arabia (40 per cent) followed by the UAE (33 per cent) and Qatar (14 per cent) are expected to be the strongest performing construction markets in the Middle East and North Africa (Mena) region next year, according to those surveyed.

The expectations for Saudi Arabia with regard to ease of doing business are particularly encouraging. The country appears to have relaxed the process of doing business as 23 per cent of the respondents stated that Saudi Arabia was an easy regional market to do business with, compared to just 10 per cent of respondents last year.

The UAE, however, is by far the industry’s easiest market work with, according to the survey which indicated that Oman is perceived as the second easiest market to do business with. Oman also showed a significant increase in expected market opportunities – more than in any other previous survey.

Transport (69 per cent) followed by real estate (48 per cent) and power (46 per cent) were considered to be the strongest sectors in terms of opportunities for the year ahead.

Sachin Kerur, managing partner, Gulf Region at Pinsent Masons, said: “These results offer an insight into how the GCC construction market is shaping up for the year ahead. Optimism clearly remains high, but there is a marked cooling compared to last year when the Expo fever was at its height.”

“Construction firms have long perceived the opportunity in Saudi Arabia as being the most promising in the region. But, in the past, the challenge of doing business there has meant opportunities haven’t always come to fruition. This situation now seems to be changing, with the ease of doing business starting to improve. This suggests we may see more opportunities converting within the kingdom in the years ahead, which chimes with the more open sentiment emerging from the Saudi authorities.

“Sixty-one per cent of the responding construction companies said that they had been involved in fewer disputes in 2014. That’s encouraging for businesses. However, we are not surprised to see a real concern around the administration of contracts. The regional sector would do well to acquire a more sensible attitude in promoting risk equilibrium in construction contracts and to take a more collegiate approach in the delivery of major capital assets. This is an issue that has rumbled on for many years and needs an enlightened approach to solve,” he added.

“Following last year’s survey results, we expected to hear more about public-private partnerships (PPPs) becoming an increasing part of the financing mix. However, PPPs have yet to take off across the board as a primary method to fund major projects in the region. We expect this to change,” Kerur concluded.

Pinsent Masons’ 2014 survey also asked construction firms which peer firms they most admired. The results suggested Consolidated Contractors Company (CCC), Emaar and ALEC were the pick of the bunch.

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