Research suggests “a perfect storm of cost pressures” could have an unpredictable impact
Mace believes its latest tender cost update for the Middle East and North African region proves it is “likely to be the globe’s best performing” construction economy over the next decade. However, the international construction and consultancy firm warns that there is a still a great deal of unpredictability in the market.
“The latest research from Mace – published today – indicates that a number of factors are likely to drive significant construction growth across the entire region. These include significant project related activity in Dubai and Qatar, renewed funding of projects in Saudi Arabia; as well as diversification efforts, oil driven economic recovery and growing structural demand for ‘basic needs’ infrastructure,” said the firm.
Mace estimates that the region’s construction added value will grow by 6.2% annually to 2027, “a strong pace of growth which belies mixed fortunes within, based on relative success at diversification. Despite the region’s numerous star markets, such as Egypt and in – the near future Saudi Arabia – there are many laggards dragging down the positive outlook through a myriad of security risks (such as in Libya and Yemen).”
The company warns that growth does not necessarily mean a predictable and sustainable margin for construction and consultancy companies working in the region: “The rapid growth across construction markets in the region is also swelling prices of building materials and labour as an increasingly large pool of projects chases a finite amount of suppliers and skills.”
It adds that political tensions in the region, recent appreciations in MENA currencies, and the ongoing reliance on skilled and unskilled migrant labour and, “there is a perfect storm of cost pressures that could have an unpredictable impact.”
“Tier 1 multinational contractors are exiting this challenging market due to cash flow issues at the same time as oil price growth loosens fiscal conditions in some countries,” commented Mark Taylor, MENA regional director, Mace. “This is allowing project activity to ramp back up in previously depressed markets such as Saudi Arabia. With lower levels of capacity available in the market, and strong demand from diverse drivers, it is a supplier’s market which could ultimately drive up tender prices.”