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Fri 18 Dec 2015 01:00 AM

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Optimism among GCC construction firms slumps dramatically

New survey reveals big drop in sentiment over order books, contract conditions and payment disputes

Optimism among GCC construction firms slumps dramatically
GCC construction, Middle East construction

The GCC's construction sector has shown a dramatic drop in optimism over the last year, according to a survey of companies involved in larger projects worth more than AED100 million ($27.2 million).

Pinsent Masons' Annual GCC Construction Survey showed that just 32 percent of respondents are optimistic about the year ahead, compared to 77 percent saying the same thing 12 months ago.

This sudden shift in sentiment is consistent with the industry's responses to questions about order books, contract conditions, payment periods and disputes, which are all less positive than a year before, the survey said.

Sixteen percent of those surveyed said that their 2016 order books had declined by over 10 percent, which compared to just 4 percent who said the same thing a year earlier.

Asked about contract conditions, 93 percent of businesses said they had become less favourable during 2015, while 95 percent said payment periods were longer this year, and 60 percent said they were involved in more disputes during 2015 than had been expected before the year started.

Pinsent Masons said the results are indicative of a hardening economic environment as the construction industry, like many others, grapple with the impact of ongoing low oil prices, simmering geopolitical tensions in parts of the MENA region, and a general concern related to emerging markets from many global investors.

Optimism surrounding Saudi Arabia saw a pronounced decline. Asked what country will provide the strongest growth opportunity in 2016, just 12 percent named Saudi Arabia, down from 40 percent a year earlier.

A growing portion of the industry now views Qatar as offering the strongest regional opportunity, rocketing up in positivity from 14 percent last year to 33 percent in this year's survey while the UAE is considered the strongest market opportunity in 2016.

Sachin Kerur, head of Middle East Region at Pinsent Masons, said: "This is the sharpest annual decline in optimism our survey has seen, and there is no doubt that economic and geopolitical concerns are playing heavily on people's minds.

"Nowhere in the region is falling optimism as pronounced as it is in Saudi Arabia. This is to be expected given the challenges the country is facing and the central role oil maintains in its economy. Despite this, there is a general sense amongst the industry that if the current financial squeeze can deliver greater diversification of the economy, Saudi Arabia will remain a highly attractive market.

"Indeed there have been some positive diversification measures discussed in the kingdom, which if implemented should enable greater private participation in the economic development of the country. Meanwhile, in Qatar, they are benefiting from a natural bounce as the World Cup edges closer."

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