There is a 'cooling' in Gulf construction industry optimism about 2015, according to survey

Out-Law News | 09 Dec 2014 | 2:27 pm | 2 min. read

Large construction firms operating in the countries that make up the Gulf Cooperation Council (GCC) remain optimistic about the sector's prospects in 2015, but an industry survey shows a " cooling" in their positivity about certain prospects, according to Pinsent Masons, the law firm behind Out-Law.com.

Construction law expert Sachin Kerur said that the change was partly due to a "more measured view" from the industry about the positive impact that the upcoming World Expo, to be held in Dubai in 2020, would have on the sector. The firm's survey, which was presented to representatives from the industry at a recent conference, showed a 13% fall to 77% in overall industry optimism while less than 10% of respondents predicted a "dramatic upswing" in construction activities ahead of the global event.

Respondents to the survey, the majority of which were involved in larger projects with a value of over AED100 million (£17.5m), said that they expected Saudi Arabia to be the strongest-performing construction market across the wider Middle East and North Africa (MENA) region next year. This was reported by 40% of survey respondents, with 33% stating that the UAE would be the strongest-performing MENA construction market and 14% saying that Qatar would be.

"Optimism clearly remains high, but there is a cooling compared to last year when Expo fever was at its height," Kerur said.

"Construction firms have long perceived the opportunity in Saudi Arabia as being the most promising in the region. But, in the past, the challenge of doing business there has meant opportunities haven't always come to fruition. This situation now seems to be changing, with the ease of doing business starting to improve. This suggests we may see more opportunities converting within the Kingdom in the years ahead, which chimes with the more open sentiment from the Saudi authorities," he said.

According to the survey, 23% of respondents found Saudi Arabia an easy regional market to do business in compared to just 10% of respondents last year. The UAE and Oman were considered the easiest markets to work with overall, while Oman also showed a significant increase in expected market opportunities going in to 2015, the survey found.

It was surprising that survey respondents were not making more use of public-private partnerships (PPPs) as a project finance mechanism given the results of Pinsent Masons' research from the previous year, in which firms fed back their concerns about the cost of capital for projects, said Kerur. However, he said that PPPs were "yet to take off across the board as a primary method to fund major projects in the region".

"61% of responding construction companies said that they had been involved in fewer disputes in 2014," he said. "That's encouraging for businesses. However, we are not surprised to see a real concern about the administration of contracts. The regional sector would do well to acquire a more sensible attitude in promoting risk equilibrium in construction contracts and to take a more collegiate approach in the delivery of major capital assets. This is an issue that has rumbled on for many years and needs an enlightened approach to solve."

Respondents indicated that transport, real estate and power appeared to be where most of the construction industry's opportunities for the year ahead could be found, according to the survey.