Gulf Construction Online - Sector hit by triple whammy, says expert

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The construction sector is expected to face headwinds in 2021 with a slow recovery.

Sector hit by triple whammy, says expert

01 August 2020

With the construction sector in the Mena region hit by the triple whammy of big production cut, low oil prices and contracting non-oil sectors, top data and analytics company GlobalData has further cut its construction output growth forecast for the region for 2020 to -2.4 per cent.

The plunge in the sector’s growth is further down, compared to the previous forecast of 1.4 per cent mainly due to the continued spread of Covid-19 pandemic.

Yasmine Ghozzi, an economist at GlobalData, said: “Construction activity for the remainder of 2020 is set to see poor performance. While there is usually weak construction activity during Ramadan and the hot summer months of June, July and August, this is usually compensated by strong performance at the beginning and end of the year.”

“However, this will not be the case this year due to the strict lockdown policies that extended until the end of May,” stated Ghozzi.

According to her, the sector is expected to face headwinds in 2021 with a slow recovery, but the pace of this will be uneven across countries in the region.

Fiscal deficits and public debt levels will be substantially higher in 2021. Fiscal consolidation will hinder non-oil growth across the region, where governments still play a considerable role in spurring domestic demand.

“In addition, public investment is likely to be moderate, which will translate into fewer prospects for private sector businesses to grow – especially within sectors such as infrastructure. The expected increase in taxes, selected subsidy cuts and the introduction of several public sector service charges will influence households’ purchasing power, having a knock-on effect on future commercial investments,” she added.

Amid the worsening situation with regards to the Covid-19 outbreak and the decline in oil prices, GlobalData has further cut its forecast for construction output growth in Saudi Arabia to -1.8 per cent from its previous forecast of 2.9 per cent in 2020 and expects a recovery in the sector of 3.3 per cent in 2021.

The government’s decision to host limited annual Hajj entails a possible loss of estimated revenue at more than $10 billion, adding more pressure on the kingdom’s economy.

“GlobalData has estimated a contraction of 2.1 per cent in construction output growth in the UAE but expects a rebound in 2021 of 3.1 per cent. In one of the largest global energy infrastructure transactions, Abu Dhabi National Oil Company (Adnoc) raised $10 billion by leasing a 49 per cent stake in its gas pipelines for 20 years,” remarked Ghozzi.

“This landmark deal is important especially during the prevailing industry downturn in order to keep profitability,” she stated.

“GlobalData has also cut further the growth rates for Qatar, Kuwait and Oman in 2020 to -3.4 per cent, -7.8 per cent and -8.1 per cent, respectively. Qatar’s economy this year will be affected by the decline in tourist arrivals, low consumer spending and low oil prices. Nevertheless, strong fiscal stimulus and spending on infrastructure projects should provide support,” she said.

According to her, the negative outlook for Kuwait is weighed down by lower oil prices and the prospect of a higher fiscal deficit, possibly compromising the government’s capital spending on construction and infrastructure

“Business unfriendliness constitutes a barrier to reforms in the Kuwaiti economy; the extensions in tenders’ deadlines compounded by an inflexible bureaucratic procurement setup that slows decision-making will delay progress for several Kuwaiti megaprojects,” explained Ghozzi.