According to a GlobalData report, the construction output growth forecast for the Middle East and North Africa region is set to contract by 4.5 percent in 2020, before recovering with a growth of 1.9 percent in 2021 and 4.1 percent in 2022.
The data and analytics company’s report explains that the 2020 contraction is a reflection of the severe impact of the COVID-19 lockdowns, as well as the other restrictions on construction activity.
“The construction sector will face headwinds in 2021 with a slow recovery, but the pace of recovery will be uneven across countries in the region. Throughout 2020, and running to 2021, spending on real estate megaprojects, especially in the GCC, is likely to take a backseat as a result of budget revisions,” Yasmine Ghozzi, economist at GlobalData, comments.
“The construction sector will face headwinds in 2021 with a slow recovery, but the pace of recovery will be uneven across countries in the region. Throughout 2020, and running to 2021, spending on real estate megaprojects, especially in the GCC, is likely to take a backseat as a result of budget revisions,” she adds.
For Saudi Arabia, GlobalData has slightly revised up its forecast for the Kingdom’s construction output to -1.9 percent from -2.8 percent, adding that it expects a recovery for the sector of 3.3 percent in 2021. This revision reflects an improvement in economic performance, the report adds – pointing out that the Public Investment Fund (PIF)’s investment of $40 billion (5 percent of GDP) per annum in the economy in 2021-2022 has underlined this recovery.
Although Globaldata maintains its forecast for construction output growth in the UAE of -4.8 percent, a rebound of 3.1 percent in 2021 is a promising medium-term outlook, Ghozzi says.
“The recent approval of a new Dubai Building Code is a positive development for the UAE. The new code outlines a revised set of construction rules and standards and seeks to reduce construction costs by streamlining building rules,” she explains.
The UAE is also proceeding with plans to expand its production capacity with Abu Dhabi National Oil Company (ADNOC) announcing its five-year investment plan worth US$122 billion, a move that is set to boost the construction sector further, particularly in the oil and gas sector.
The GlobalData report adds that the company has not changed its estimated growth rates for Qatar and Kuwait in 2020, at -4.5 percent and -9.5 percent, respectively. However, it has further cut the growth forecast for Oman to -10.3 percent from an earlier estimate of -8.1 percent, as the construction industry struggles with the challenges presented by the outbreak of COVID-19, low oil prices and the impact of sovereign credit rating downgrades.
“The new fiscal plan launched by the Omani Government to wean itself off its dependence on crude revenues through a series of projects and tax reforms is a good step which will aid the construction sector recovery in the medium term,” Ghozzi explains.
Clearly, as we move into 2021, there is a sense that the construction industry is beginning to find its feet again. Therefore, in order to get an on-the-ground insight into how the sector is shaping up, Big Project ME surveyed some of the leading construction companies in the region, asking them what they felt were some of the biggest challenges are in the year ahead, and how prepared the industry is for what lies ahead.
Mr Yu Tao, president and CEO, China State Construction Engineering Corporation Middle East
“In 2020, the outbreak of COVID-19 had a huge impact on UAE economy and especially the real estate and construction industries. The construction industry in the region has been undergoing multiple difficulties, such as the decrease of contract awards, the slowdown of industry growth and insufficient liquidity in the system. These challenges have made companies realise the importance of cash flow management.
This year, in 2021, although we are seeing some developments and projects which are active and in tendering stage, contractors are all eagerly aiming to win projects in 2021 to survive and maintain operational stableness. Hence, the competition intensity of 2021 could be as high as that of 2020, with both local and international contenders optimising their bids.
Players in the market are looking forward to, and having expectations for the year 2021, and what follows is the effort they put in, searching for any opportunity in the industry. The competitive environment will stimulate the recovery of the project market, but it will also exert a lot of pressure on contractors, subcontractors, and suppliers.
Given the fact that the price of construction materials and the shipping cost have soared from December last year, the cost and cashflow management will be crucial for all the contractors this year. At CSCEC ME, we will definitely be focusing on the quality and efficiency of the project delivery since we have more than 40 on-going projects in the Middle East region. Under the directives of the local government, we will also be closely following up government-led opportunities, and other large-scale strategic projects.
The market has experienced a sharp downturn due to the pandemic, low oil prices and the other adverse factors. However, we believe that because the world is together against the pandemic, our lives will get back to normal, with the bounce back of the economy and the construction market. We are currently remaining positive about the industry’s long-term recovery prospects and are trying to expand our regional operations in the Middle East. In recent years, driven by the National Transformation Program and the country’s Vision 2030, Saudi Arabia’s business environment has greatly improved, and more opportunities has emerged in that market.
The KSA market has evolved in an attractive and open way for both local international businesses. There are several launched and planned megaprojects that require contractors to be professional, efficient and at a high-standard. Developments such as NOEM, Diriyah Gate Development, Qiddiya, The Red Sea Development and others are all shaping the future of the country.
Cris Dedigama, CEO, Middle East & Africa at Atkins, a member of the SNC-Lavalin Group.
“2020 has been a challenging year for countries and businesses around the world due to the COVID-19 global pandemic. However, at Atkins, a member of the SNC-Lavalin Group, we took this challenge as an opportunity to restructure our service delivery model and become more country-focused to meet our clients’ evolving needs. This flexible and dynamic structure is already generating positive outcomes that will drive more opportunities for business growth in 2021.
The UAE and KSA are two key markets where we will continue to cement and grow our presence in the business advisory, engineering and design, and program management services in cities and development, energy, transport, and infrastructure.
Leading industry change by playing an active role as a market integrator that leverages collaborative contracting models to enhance project delivery will be a key focus area for our business moving forward. Our digital expertise combined with technical skills and engineering capabilities is another key differentiator that will help us bring more value to our clients and deliver their projects more efficiently.
As the COVID-19 global pandemic continues to impact our communities and businesses, the engineering and construction industries need to be more flexible and agile in order to adapt to changing market dynamics. As such, we are transforming the way we work to deliver projects more efficiently and maintain the health and safety of our employees while we stay connected as a Group with our global and regional expertise.
Harnessing digital technologies and data to enable efficient project delivery and better decision making is a major trend that will continue to drive industry transformation in 2021. As an organisation, we’re investing in our digital capabilities and talents and working together across the globe to integrate digitalization in our design and program management services through the use of data ecosystem, digital twins, and other cutting-edge solutions.
With mega-projects currently being developed in the Kingdom of Saudi Arabia, supporting nationalisation programmes, and nurturing local capabilities will be key to building a strong collaboration between the public and private sectors and push Saudi’s economic diversification agenda. Therefore, we have launched a dedicated academy in our Riyadh office that provides Saudi talents with theoretical and practical expertise to build their engineering, design, and programme management skills.”
Sameh Fam, managing director, ASGC
“The general view is that we will not see as many new residential developments in Dubai in the coming years. In my opinion, this will probably be fine for the real estate industry in the long term. The construction industry will be forced to diversify during this period, and this is something that we are already focused on through our infrastructure and oil and gas business streams and our presence in other jurisdictions.
More generally, my view is that Q3 and Q4 of 2021 will be a positive time for Dubai, assuming that the pandemic is brought under control and global economies can begin to recover. Dubai should be a huge beneficiary of this as a hub focused on innovation and with Expo 2020 drawing visitors who will be eager to travel again and return to normality.
In addition, several new projects were delayed due to the epidemic in 2020, and we expect a slow recovery in the construction sector in H1 2021, with more focus on medium sized projects.
However, we anticipate in H2 of 2021 – and following the EXPO – that there will be a surge in the number of new projects.
COVID-19 accelerated the impact of the issues in construction industry that we had to find solutions for by adopting more efficient ways of thinking, different ways of procuring or the sourcing of more environmentally friendly materials. The underlying issues challenging the industry have not changed – but the pandemic has simply expedited the need to find solutions to pre-existing challenge.
Clearly, 2021 is likely to be another difficult year for the construction industry. In 2020, many businesses were able to rely on strong 2018/2019 financials to support continuity but that will not be the case for many in 2021. Cost cutting measures brought in during the pandemic may not be feasible for such a sustained period and it is likely that we will see more companies go under in the coming months.”
Asif Shafi, senior vice president, Strategy and Growth, Middle East & Africa, AECOM
“As the world eagerly looks forward to a post-pandemic scenario, there is reason to be optimistic about growth opportunities in 2021. The ongoing vaccination drive in the UAE demonstrates the resolve of the leadership to address the challenge posed by the pandemic.
We have seen decisive actions by governments across the GCC region throughout 2020 and we expect to see the positive impacts of those actions in 2021. The industry adapted extremely well to the constraints imposed by the pandemic and used technology quite effectively to ensure that productivity levels were maintained and even improved. We have all been forced to Fast Forward to the Future and this has transformed how people work, perhaps forever.
The construction industry has been dealing with a reduction in the number of new contracts and this has led to intensified competition in recent months. This is likely to change for the better in 2021 given several positive developments in the region.
The UAE looks forward to hosting Expo 2020 in October this year which will coincide with the 50th anniversary celebrations for the country. The resumption of diplomatic and economic ties between Qatar and the rest of the GCC countries will lead to further opportunities. The announcement that Doha will host the 2030 Asian Games and Riyadh the 2034 Asian Games should lead to more investment within the region in the coming decade.
AECOM is well placed to participate in the continued development of the region by leveraging our global digital transformation initiatives to improve the delivery of projects within the region. For example, we have launched a Virtual Public Consultation digital tool that allows clients to engage and consult stakeholders from their computer or mobile devices.
We have also rolled out MobiliticsTM for Pandemic Response, an updated version of our ground-breaking transportation scenario planning tool that helps transport agencies across the US assess the impact of the pandemic on travel patterns. The implementation of KSA’s Vision 2030 programs, particularly the development of the Giga cities will provide significant opportunities for the construction industry.
While air travel volumes will take a while to return to pre-pandemic levels, investment in the tourism industry is likely to continue across the region. We aim to continue partnering with our clients to deliver environmentally conscious projects that are based on the principles of carbon neutrality and create world class communities that celebrate the human spirit.”
David Clifton, vice-president – Business Development, UAE and Northern Gulf, Hill International
“Given the vaccine roll out, but still with current global lockdowns and the economic turmoil that creates (again), the story for the global economy is more aligned to second half recovery (bounce back). Regionally, the effects of the virus have been managed quite tightly and a much more ‘normal’ business environment is starting to emerge, suggesting these economies are likely in a recovery phase when compared to Western Europe, for example.
The industry, as with much of the economy, faces some significant challenges and headwinds in the short term as we await the bounce back to kick in and a level of normality to return to markets. The industry was experiencing a slowing in the region, except for KSA, prior to the start of the pandemic, with challenges in funding and a dial back in certain government level infrastructure spending due to declining oil prices and thus revenue suppression. It is expected governments across the region will utilise a reasonable percentage of their announced stimulus packages to develop countrywide infrastructure developments as one lever to stimulate their economies (a globally common policy in recessions, although some question this in the modern age). Furthermore, on top of stimulus, reduced, although not insignificant, spending has been announced in regional government budgets.
But 2021 will still be difficult in terms of work getting onto the ground and work that does having significant margin pressure before award.
In an industry historically relatively inflexible to how it delivers work, 2020 has been somewhat of a wakeup call. For all the talk of technology, little has really progressed at the same rate as other industry benchmarks, which in turn has kept productivity low. At least a partial embrace of technology had to be found in 2020 to even operate as a business or an industry. I’ve spoken to many architects and engineers about remote working and coordination and that by and large worked successfully. The need for in-person coordination is still there, but people are learning to do more remotely, more efficiently, This does of course pose a risk for developed or high-cost economies as it means that non-client facing roles or those not required to be on site show even greater chance of being off shored to cheaper locations. This has been happening for many years now, but the fact that most of the world had to get used to remote working and coordination suggests it will continue with renewed vigour. Which in turn means that the Gulf may see a diminishing demand for personnel due to the relatively high cost base for staff.
The continued ‘right sizing’ of the business moving forward and general uncertainty around where the bottom of the market is and thus any recovery. The loss of a level of predictability has made the industry issues around workload planning ever more challenging (like many other industries). With stimulus packages not being felt as yet in the sector, there is concern that by the time schemes arrive to market, it might be a little late for some businesses.
Other challenges are now to utilise more technology to build on the experience of 2020. The industry needs to continue to speed up the evolution in the region, which historically has talked promisingly about implementation but only partially adopted new tools and techniques. How to educate and inform team members within the project when rolling out newer technology though will need to be progressive: too much too quickly will largely fail. But massive advances in mindset are now there within the workforce to capitalise on the opportunity to grow efficiency both as individuals and through enhancing technological deployment.
I think in the short term, there is a level of ‘wait and see’ as the situation normalises. Moving on from there, the obvious discussions are maybe around reigniting the Qatar links to the GCC rail network and of course two-way cross border investment between the other GCC nations and Qatar. In practice, this can only be positive in the medium term, although questions will remain around oil prices and government revenues, with the associated ability and / or willingness to invest at home. In the short term, there is also the USA stance towards the region which has yet to be established and will no doubt be a year or more away from being obvious. As opposed to 2016 when the first overseas trip was to Saudi Arabia.”
Kez Taylor, CEO of ALEC
“While the pandemic has clearly caused many industries around the world to change tack, the prevailing construction trends are ultimately ones that were long overdue prior to the challenges of 2020. Today, we stand in a unique position to transform our industry into a healthy ecosystem, where all stakeholders are able to succeed by utilising the latest technology and a collaborative approach.
At ALEC, the use of the latest design software has meant that potential issues are flagged in the early stages of a project, resulting in a significant saving of time, cost and resources in later stages.
From a high-level approach, ALEC believes that consolidating ideas and resources is a far more effective approach to R&D, not only helping to spread initial investment risk, but to ensure the input of as many industry specialists as possible. In partnering with like-minded organizations, leading consultancies, tech companies, start-ups, universities and supply chains, great leaps can be made that help to change entire processes on site.
A great example of this being the collaboration between ALEC and Hilti, which yielded the region’s first autonomous drilling robot. Since its implementation, site teams have reported significant improvements in productivity thanks to the robot’s ability to follow digital plans, while alleviating site teams from the strenuous work of overhead drilling, allowing them to upskill and operate the robot itself.
In addition to collaborating on innovative new ideas and products, a fundamental increase in communication between stakeholders will greatly improve project processes and delivery. In overhauling the existing model of fragmentation from planning to delivery, ALEC is in the process of creating a new platform that involves all key stakeholders from the very beginning of a project. Not only does this allow for any potential issues to be flagged at the earliest opportunity, but it also promotes a collective approach towards project delivery as opposed to each party working as sole agents.
The utilisation of green technologies will be a crucial factor towards ensuring the sustainable development and progress of the construction industry. Manufacturers, building contractors and property developers must make environmentally conscious decisions at each level of the supply chain to meet demand, while promoting a greater interest in clean energies and resources. Under this category, ALEC has identified the use of renewable energy, environmentally sustainable materials, and the sustainable management of waste as top priorities.
While there is much to be done in terms of improving overall standards, the UAE is extremely well positioned in terms of its ability to effectively collaborate, while using its resources responsibly in order to improve the overall state of the industry. With so many extraordinary projects still in the pipeline, there is no reason why the UAE cannot implement these changes to become a role model for industrial efficiency while ensuring that its existing reputation for technological integration is just as equally associated with its built environment.
Riad Bsaibes, president and CEO of Amana Investments
“Amongst the major trends and themes for the industry in 2021 will be cash preservation and liquidity issues across the client and supply base. There are question marks about the appetite for banks to fund construction projects, while given the state of the overall market, there are also justifiable concerns about counter-party liquidity and creditworthiness.
This will be the major challenge facing the industry in the coming year – many general contractors, subcontractors and suppliers are facing liquidity issues, as well as overdue payments from clients.
In the UAE, the industry will also have to deal with the repercussions stemming from the exit of large players in the market over the last two years, and the impact this will have on current projects, supply chains and banks. As a result, companies may need to limit their revenue accordingly so as to minimise any future issues in collection.
We believe that off-site construction – AKA industrialised construction – will also receive a boost this year as companies will look become agile and flexible, while reducing costs and wastage. In the post-COVID work environment, especially on site, the questions companies will ask will be how to maintain safety measures – modular construction offers that security.
That is why we are launching DUPOD – our latest modular offering in the region and putting together a platform to create a seamless off-site construction offering for the region, which today include DUBOX and DUPOD.
As industrialised construction grows as a sector, there is also a growing need for talent coming in with a manufacturing skillset. We see the potential to hire local KSA talent with a manufacturing background, which is something we have a head start on.
Digitisation is another major theme for the industry in 2021, and that’s why we at Amana are going through an ERP system which will digitally enable our teams and allow remote working. We’re also in the early stages of engaging and incubating construction technology start-ups, while we’re keen to expand into research and academia to further strengthen these platforms.
Our focus for the year ahead, particularly in the Design and Build sector, includes data centres, e-commerce fulfilment centres, agritech, and cold storage facilities – food security and digitisation of our lifestyles, essentially. These are great opportunities in the post-COVID-19 world.
Finally, we hope that the prior discord between the UAE, Saudi Arabia and Qatar will soon be water under the bridge, as this would allow UAE contractors and suppliers to better serve the market in Qatar.