Increased optimism in Gulf construction market, but disputes and payment delays on the rise, says expert

Out-Law News | 07 Feb 2018 | 10:24 am | 2 min. read

Optimism has increased among construction companies operating in the Gulf according to a new survey, although concerns over delayed payments, the rising cost of capital and increased disputes remain.

General sentiment in the industry has improved by approximately 7% over the last two years, from 32% to 39%, according to a survey by Pinsent Masons, the law firm behind, of firms involved in major projects across the Gulf Cooperation Council (GCC) countries. The majority of respondents, or 38%, expert the UAE to provide the most opportunities over the next 12 months; while 29% of respondents, compared to 11% in 2016, anticipated increased opportunities in Saudi Arabia.

However, despite the rise in overall sentiment, 20% of those surveyed said that they expected the number of orders on their books to fall by more than 10% in the coming months, compared to 16% in 2016. The majority, or 86%, of respondents said that contract conditions became less favourable during 2017, while the same proportion of respondents said that payment periods were longer in 2017 than during the previous year and 67% said that they became involved in more disputes than expected over the course of the year.

Construction law expert Sachin Kerur of Pinsent Masons said that the survey findings were encouraging, "despite ongoing challenges with lower oil pricing and headwinds facing the private non-oil sector".

"The UAE is set to see an increase in the number of projects during 2018, and we expect the country to remain in top position, particularly in the lead-up to Expo 2020," he said.

"Whilst analysts predict a slight economic revival across many GCC markets during 2018, the survey results are indicative of what has been a challenging time for the construction sector – which has grappled with the impact of lower oil prices and ongoing geopolitical tensions," he said.

Almost 60% of survey respondents expect that power, including renewables, will offer the most opportunities for construction firms operating in the GCC during 2018. The survey also showed improving prospects in real estate this year, with 32% of respondents anticipating growth from this sector in 2018 compared to 25% in 2016.

The UAE was ranked by the overwhelming majority, or 89%, of survey respondents as the easiest GCC country to do business in, with Dubai in particular rated as the best place in the GCC to resolve regional disputes by 71% of respondents. Oman was ranked as the second easiest GCC country to do business in, with support from 46% of respondents.

The survey also found increasing support for public private partnerships (PPPs) as a means of attracting more inward investment to the GCC. More than one third, or 40%, of respondents are currently involved in or expect to be involved in PPP projects during the next 12 months, up from 32% in 2016.

"PPPs provide an opportunity for private sector investors to access the various sub-sectors of the region's infrastructure market," said Sachin Kerur. "We anticipate a rise in PPPs now that regional governments and the private sector have developed longer-term strategies designed to adapt to a new reality of lower oil prices."