Massive construction projects in the GCC, particularly around social and transport infrastructure, will offer tremendous opportunities valued at up to $500 billion for contractors, Deloitte Middle East's annual report "GCC Powers of Construction: Five Lessons to Learn From" released Wednesday said. The Deloitte report showed that there is imminent growth in the Saudi Arabian construction industry, being the biggest market in the GCC in terms of population and GDP. Budget value of contacts to be awarded in Saudi Arabia in 2011 onwards is set to increase to $35 billion, as compared to $25 billion in 2006. The government is undertaking grand investments, with plans nearing $400 billion in five years, demonstrating an increasing trend of projects that will need to be awarded in the coming years ahead. These will include building schools, hospitals, universities, houses, airport expansions, and new railway infrastructure and road improvements. This construction market is therefore expected to be one of the most buoyant in the world. Of the biggest investments currently underway is Qatar's plan to spend $100 billion in preparation for hosting the 2022 World Cup and achieving its 2030 vision, and Saudi Arabia's capital spend program approaching $400 billion over the next 10 years alone, Deloitte Middle East's annual report said. It said despite grappling with challenges and delivery issues related to current projects, major opportunities in the construction sector remain prevalent in Saudi Arabia, Qatar, Abu Dhabi and Iraq in 2012. Opportunities will include continuing upstream and downstream oil and gas related developments in the coming years, the report said. Although there are massive opportunities associated with huge construction spend, many project sponsors still have to deal with illiquid projects and debt, according to the report. "What primarily differentiates participants in the GCC's construction industry from their Western counterparts is that grand opportunities continue to be capitalized upon across the region, despite being forced to deal with continuing negative financial circumstances - simultaneously - in specific locales," said Rizwan Shah, managing director, Corporate Finance, and leader of Deloitte's Capital Projects Advisory services practice for the Middle East. Tahir Rabani, Capital Projects Advisory, Kingdom of Saudi Arabia, said the Kingdom's construction market is expected to be one of the most buoyant in the world. Greater integration across the Kingdom will promote economic stability, job growth and ultimately benefit the real estate markets. Progress in the real estate sector reflects long-term growth potential for the Saudi economy. New demand drivers, for example, the improvement of transportation systems and infrastructure projects, will create investment opportunities and increase the connectivity and attractiveness of the market. Although local Saudi contractors are some of the largest in the region, given the size and range of projects planned in the next few years, there remain significant opportunities for international contractors to enter the market, he noted. Rabani further said the low global demand for construction products together with foreign companies shifting focus to countries such as Saudi Arabia “should provide some buffer against inflationary pressures,” adding that the medium term challenge for the Kingdom remains the price of oil. On the back of strong oil prices, the Kingdom has shown very impressive compound GDP growth in the last seven years (averaging about 4.1 percent) which is expected to continue in the coming years. IMF has estimated growth of 6.5 percent whilst some local experts have put the figure at almost 7.5 percent. Furthermore, to ensure a more resilient and sustainable economy, it has made a concerted effort to diversify its economy away from oil (which now comprises less than half of the overall national GDP). "The region certainly is expected to continue to offer a lot of opportunity for contractors," said Cynthia Corby, audit partner Deloitte Middle East and leader of the Construction industry for the UAE. "Construction contracts alone, worth $40 billion were awarded to contractors in the first quarter of 2011, 47 percent of which were in the energy sector. It is interesting to note that despite such grand investments, governments are still trying to recuperate from the impact of the financial crisis," she added. The report indicates that there are vast opportunities across the Middle East, with longer term infrastructure investment plans for the region estimated to be in excess of $1 trillion.
