As per EIU’s estimates, Oman’s construction sector is expected to record average annual growth of 6.0 per cent during 2023-2024, the highest estimated growth in the GCC
Muscat – The construction sector in the GCC countries, including Oman, is poised for a period of strong growth in the short to medium term, outperforming the wider economy and recording average growth of 3.5-4.0 per cent over next two years, according to Economist Intelligence Unit (EIU).
The upbeat outlook reflects the boost to available project financing from record high energy export revenue and the ongoing pursuit across the GCC of long-term energy and non-energy sector development plans, EIU said in a research report.
As per EIU’s estimates, Oman’s construction sector is expected to record average annual growth of 6.0 per cent during 2023-2024, the highest estimated growth in the GCC.
‘Domestic and foreign contractors, consultants and suppliers are expected to benefit from a buoyant construction sector and ample opportunities to participate in lucrative GCC contracts from 2022 and through to 2026,’ EIU said in a research report.
It said the construction sector has a large pipeline of projects, where numerous contracts are yet to be awarded, across a wide range of sectors including energy, power, water and transport infrastructure, commercial and residential real estate, and industrial developments.
The positive outlook for the GCC construction industry is underpinned by a sustained rally in oil and gas prices that started in late 2020 and has continued into 2022.
EIU expects Brent oil to trade in a range of US$90-110 per barrel for the remainder of 2022 and average prices will remain elevated at about US$85-95 per barrel in 2023-2024. Oil prices at these levels are well above what is required by all GCC states—possibly apart from Bahrain—to break even on their fiscal and external balances.
‘High revenue from oil and gas exports will continue to ease the pressure on national finances, help to rebuild financial buffers and enable GCC governments and state-backed organisations to plough ahead with investments in strategic sectors and projects that will support the construction industry,’ EIU noted.
Large pipeline of projects
As per EIU’s calculations, total contract awards for projects across the GCC rose back above US$100bn in 2021 following a pandemic-induced dip in 2020 when the value of total awards slipped below US$70bn. GCC states awarded about US$40bn worth of contracts in the first half of 2022 and the region’s project market is expected to be buoyant through to the end of the year and beyond.
The pipeline of projects planned or under way in the GCC was estimated at about US$2.65tn at the end of June 2022, according to various official data.
‘The combined oil and gas sector will continue to account for the bulk of contract awards, which often entails construction-related activity to maintain and boost production capacity. Other projects related to residential and commercial real estate, essential infrastructure (transport, power and water systems) and industrial developments (light and heavy manufacturing) will provide additional support to the construction sector and its supply chains,’ the report said.
EIU said that in June 2022 about US$77bn worth of construction and transport projects were reported to be at the tender stage and an additional US$352bn worth of contracts were at the design and study stage.
Real estate projects, energy transition, transport (especially railway development), energy sector capacity building (oil, gas and liquefied natural gas production) and industrial developments will feature heavily in the GCC project pipeline through to 2026, EIU added.
The outlook for the construction sector in the GCC is promising but there are significant, largely external, risks that could negatively affect the growth prospects of the sector.
The ripple effects of Russia’s invasion of Ukraine, global monetary tightening and an economic slowdown in China are weighing on the global economy and creating strong headwinds for the GCC region’s major international trade and investment partners.
EIU said the global economic conditions are expected to deteriorate in 2023 and some major markets are expected to slow sharply or enter recession; most notable are a sharp slowdown of economic growth in the US and contractions across the EU and in the UK.
‘These factors are already creating an element of uncertainty and caution within the GCC construction industry and among its clients, which could act to delay key spending and investment decisions until conditions become clearer,’ the report noted.
Moreover, business confidence may be upbeat but is fragile, which reflects the relatively recent large financial hit to firms operating in the construction sector triggered by the emergence of the Covid-19 pandemic in 2020, EIU pointed out.