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Sat 13 Dec 2014 10:05 AM

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Optimism among GCC construction firms tempers in 2014

New survey reveals drop in positivity amid high competition, falling oil prives and order book softening

Optimism among GCC construction firms tempers in 2014
GCC construction, Middle East construction

Companies working in the GCC's construction sector, the majority of which are involved in projects worth over AED100 million ($27.2 million), have indicated that optimism has been tempered over the last year.

Law firm Pinsent Masons' annual GCC Construction Survey suggests that the industry remains overwhelmingly upbeat about 2015 - with 77 percent of respondents stating they were optimistic. However, their optimism has fallen by 13 percent from last year.

The survey said the drop in positivity may partly be explained by ongoing geopolitical concerns, the fall in oil prices, a highly competitive market with a softening in the level of increased order books, and the cost of accessible capital.

This year's survey indicated that 33 percent of respondents were expecting an upswing in their order books of 10 percent or more, which compared to over 40 percent last year expecting that level of growth.

The tempering in optimism may also be related to the industry's more measured view about the positive impact Expo 2020 will have on the sector.

Less than 10 percent of respondents thought that the UAE's Expo project between 2014 and 2016 would provide a dramatic upswing for construction companies.

This compares to last year, when 26 percent of firms believed Expo would provide a major boost between 2016 and 2020.

Saudi Arabia (40 percent) followed by the UAE (33 percent) and Qatar (14 percent) are expected to be the strongest performing construction markets in the MENA region next year, according to those surveyed.

The expectations for Saudi Arabia are particularly encouraging as they are now starting to align with the industry's perception around the ease of doing business in the country.

More than 20 percent of the responses stated that Saudi Arabia was the easiest regional market to do business with, which compares to just 10 percent of respondents last year.

The survey also indicated that Oman is perceived as the second easiest market to do business with, but the UAE, at 96 percent, is by far the industry's easiest market work with.

Commenting on the results, Sachin Kerur, managing partner, Gulf Region at Pinsent Masons, said: "These results offer an insight into how the GCC construction market is shaping up for the year ahead. Optimism clearly remains high, but there is a marked cooling compared to last year when Expo fever was at its height.

"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 emerging from the Saudi authorities."

He added: "61 percent of responding construction companies said that they had been involved in fewer disputes in 2014. That's encouraging for businesses."

Separately, it was reported earlier this week that Dubai is confident that it will be able to raise equity and debt to finance all its huge development projects over the next five years despite the plunge in oil prices,

The head of the emirate's Department of Finance (DoF) said, Abdulrahman al-Saleh, said: "The government in its forthcoming budgets has enough headroom to fund the projects through a healthy debt-equity mix."

Dubai, whose property market crashed in 2008, has recovered strongly from a severe debt crisis in 2009-2010, and has announced real estate and infrastructure projects worth tens of billions of dollars before it hosts the World Expo exhibition in 2020.

In contrast to the rest of the region, it has only a small oil industry, although it benefits from trade and tourism flows when economic growth in neighbouring oil exporting states is strong.

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