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Sector to see modest growth next year

01 October 2020

The construction sector is expected to see modest growth in 2021, with some countries already witnessing recovery, according to the latest market research by leading international construction consultancy Linesight.

With the ongoing economic volatility, the construction industry across the region is expected to be buoyed by a range of government stimulus packages, stated Linesight in its latest Middle East construction industry findings, underlining the impact of Covid-19 on the sector in the UAE, Saudi Arabia, Bahrain, and Kuwait.

The UAE’s construction industry is expected to grow by 3.8 per cent in 2021, according to the report.

Ciaran McCormack, Regional Director for Linesight Middle East, said: “According to GlobalData, the UAE construction sector recorded growth of 3.3 per cent in 2019. Pre-Covid, this figure was expected to increase to 4.3 per cent in 2020, predominantly driven by a range of government initiatives.

“With the onset of the virus and the subsequent drop in oil prices, output is expected to contract to 1.9 per cent this year, before recovering to 3.8 per cent in 2021.”

“This is predominantly as a result of construction remaining on-site in the UAE during the pandemic, albeit with reduced productivity and site capacity in line with social distancing guidelines. Therefore, the projected contraction is relatively mild, with a return to growth in output expected next year,” he added.

In Saudi Arabia, spending on infrastructure alone in the next 20 years is expected to top $1.1 trillion. Several multi-billion-dollar infrastructure projects relating to Saudi Vision 2030 and the country’s drive to become a tourism hub, have lifted the construction industry. These projects include the $500-billion Neom project, $20 billion Diriyah Gate Development, $10-billion Red Sea Development, and the $5-billion Qiddiya Entertainment project.

“As a result of the IPO of Saudi Aramco and the Public Investment Fund (PIF), we expect to see sustained investment in the construction industry, a result of a significant number of projects alongside the ongoing megaprojects, which will keep the industry buoyant,” remarked McCormack.

Elsewhere in the GCC, the construction industry is expected to witness a sharp contraction. According to Linesight, the annual GDP from construction in Bahrain fell slightly from $631 million in Q4 2019 to $624 million in Q1 2020.

This is likely to be aggravated by increased preliminary costs as a result of setting up sites to meet Covid-19 restrictions, placing further burden on the Bahraini construction industry, said the report.

Bahrain’s government has, however, introduced a range of measures, including a $11.4-billion stimulus package, which will help offset some of the detrimental impacts of the virus.

In Kuwait, a survey by Bensirri public relations revealed that 45 per cent of business owners suspended their activities, with another 26 per cent potentially declaring bankruptcy as a result of Covid-19 and low oil prices. The construction industry in the country is expected to witness an uptick, in line with the country’s Vision 2035.

“On a positive note, pandemic-related restrictions have served as a catalyst for further advancements in the technology sector,” said the top official.

“The data centre market in the GCC, in particular, has remained relatively resilient as the shift towards virtual working platforms and online shopping is compounded by longer-term trends, such as investments in 5G technology. This is creating demand in the technology market segment,” he added.