Coupled with the continuous diversification of the economy – oil targeted to decrease as percentage of GDP from 30% to 20% by 2021 with a 0% contribution by 2066 - and strong reserves, the short to medium term is positive and stable.
Dubai remains the highlight for construction awards accounting for 70% of awards as Abu Dhabi continues to evaluate its project pipeline.
Dubai remains the highlight for construction awards accounting for 70% of awards as Abu Dhabi continues to evaluate its project pipeline. Forecast awards look c.5% below meeting our $43Bn forecast - a decline of 24% on 2015, with half year at c.$25Bn and Q3 recording a total of $36Bn.
Looking forward to 2017 we forecast a small level of recovery in construction awards as the Expo 2020, Dubai Creek Harbour and Dubai World Central developments are contracted and move to site. At this stage, we are expecting c.$45Bn, a 4% growth on 2016's forecast. However, this is still below required levels to support the industry in its 2014 / 2015 shape.
With global liquidity declining (8% from Q1 2015 to Q1 2016), a tightening in credit standards locally, and real estate prices that have contracted, there is a sizable minority of mixed use schemes in the UAE that are likely to be going through reassessment as they are borderline feasible or now unfeasible. The effect on the pipeline of projects planned won’t be dramatic, but will take the $860Bn+ of schemes and will extend the delivery horizon from c.10 to c.25 years.
Q3 and Q4 will see a sizable quantum of construction tenders entering the UAE market as the critical path for Expo 2020 and the committed projects for delivery prior to the event mean awards need to peak in early 2017. The expectation of the regional market is to draw contracting resources from KSA for delivery, returning when KSA has established its PMOs and commences awarding work again in 2018/2019.
In the UAE as well as across the Gulf Cooperation Council (GCC), there are growing concerns around some of the mega infrastructure schemes such as the pan GCC rail network as budgets are squeezed and expenditure scrutinised. At the very least, these schemes are likely to see some significant delays or remodelling.
Construction commodities are still trading inversely to each other in certain parts of the market, although the consistent decline in steel related products is a significant contributor to the decline in construction inﬂation. Further, continued pressure is expected in the short term as global oversupply continues to benefit the local market prices.
Peaks and troughs are still not being addressed at present and to prevent the industry suffering a contraction, government investment in infrastructure needs to grow and continue at a steady rate. The cut backs and delays in major schemes caused by budget balancing are being felt and without awards, talent loss to the country is a likely risk.
As forecast, H1 construction inﬂation went negative by a net 0.5% with Q3 now looking likely to be negative as opposed to the expected increase, due to delays in construction tenders coming to market. 2016 is still expected to be ﬂat, with inﬂation accelerating through Q4 as schemes such as Dubai Creek Harbour are tendered. 2017 and 2018 forecasts remain at 3% & 6% due to VAT being priced in by the supply chain.