Construction

Gulf construction sees ‘dramatic’ decline in optimism

Longer payment periods and a greater-than-expected number of disputes were observed this year, survey finds

PHOTO: The UAE is considered the strongest market opportunity in 2016, Pinsent Masons said. Credit: Shutterstock

The Gulf construction industry is significantly less optimistic about the year ahead compared with 12 months ago, as economic and geopolitical factors weigh heavily on market sentiment, a survey has found.

Findings from law firm Pinsent Masons’ annual GCC Construction Survey, which looked at companies involved in projects with a value of over AED100 million ($27.2m), shows that just a third of respondents (32%) are optimistic about the year ahead. This is in sharp contrast to 77% stating that they were optimistic about 2015 a year ago.

The shift in sentiment is consistent with less positive responses to questions about contract conditions, payment periods and disputes, Pinsent Masons said.

The vast majority of businesses surveyed (93%) said that contract conditions had become less favourable during 2015. Additionally, 95% said payment periods were longer this year, while 60% said they were involved in more disputes during 2015 than had been expected before the start of the year.

“The results are indicative of a hardening economic environment as the construction industry, like many others, grapple with the impact of ongoing low oil prices, simmering geopolitical tensions in parts of the MENA region, and a general concern related to emerging markets from many global investors,” Pinsent Masons said.

Market-wise, optimism surrounding Saudi Arabia saw a sharp decline, with just 12% stating that the kingdom would provide the strongest growth opportunity in 2016 – a substantial drop from 40% of respondents last year.

While the UAE is considered the strongest market opportunity in 2016, a growing portion of the industry also views Qatar as a promising market, with 33% of respondents voting it as the strongest regional opportunity.

“This is the sharpest annual decline in optimism our survey has seen, and there is no doubt that economic and geopolitical concerns are playing heavily on people’s minds,” said Sachin Kerur, head of the Middle East Region at Pinsent Masons.

“Nowhere in the region is falling optimism as pronounced as it is in Saudi Arabia. This is to be expected given the challenges the country is facing and the central role oil maintains in its economy.
Despite this, the Kingdom will remain an attractive market if current conditions lead to greater economic diversification,” Kerur noted.

The Gulf construction sector was also cool towards Iran and India, with only 40% and 42% respectively pursuing opportunities in these countries. The reluctance towards Iran could be due to a wait-and-see approach being adopted, as sanctions are yet to be officially removed.

“The majority of the GCC construction industry is hesitant around pursuing opportunities in Iran and India. A cautious approach is always advisable when entering new markets, particularly ones that have been subject to sanctions,” Kerur noted, although he urged that the industry consider more opportunities in India.

“India is one of the few countries in the world to show strong economic growth and businesses located in the Gulf are ideally suited to access the country. I would encourage them to be more proactive on pursuing commercial opportunities in India, providing the right level of due diligence is conducted.”

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