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Middle East Market Review 2020

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As a market that is already susceptible to volatility as a result of fluctuating oil prices, the Middle East has been dealt a double blow by the impact of COVID itself, coupled with the impact that COVID is having on the oil market.

-7.3%

Economic growth 2020

US$1.45tn

Projects planned across the GCC states in 2020

Middle East market summary 2020

Middle East video 2020 - still

Middle East Market Review

With the impact of COVID and the realisation of its impacts beginning to be felt around the world, Kevin Gardiner, Associate Director at Linesight, discusses the economic and construction industry performance for the Middle East.

Economic overview

Despite the diversity in the Middle East construction industry making it difficult to draw broad conclusions and forecasts, there are a number of common factors influencing all economies in the region to various extents, including the COVID-19 pandemic. Once again, oil prices are also having a significant impact on growth, along with geopolitical tensions, global trade wars and macroeconomic performance as a whole. These factors coalesce in the region to make the GCC less predictable than most major global markets.

In spite of lacklustre growth in the region over the past few years, economic expansion within the GCC states was expected to reach a modest 2.5% in 2020, according to initial forecasts by the IMF. Not surprisingly, this has been revised downwards to a projected contraction of 7.3% in Middle East oil-exporting countries as of July 2020, due in part to the impact of the global pandemic. Pre-COVID, upside growth prospects were primarily driven by significant investment in infrastructure and major capital projects across key sectors such as hospitality, entertainment, education and healthcare. GCC economies have been dealt a ‘double blow’, as turmoil in the oil markets has been compounded by the economic impact of pandemic-linked lockdowns, particularly in the tourism and trade sectors. Austerity measures in the form of steep government spending cuts have been implemented across the GCC and will have an adverse impact on growth in the short to medium term across the region.

Despite significant regional government efforts to diversify economies in recent years, the GCC’s dependence on oil plays a major role in economic activity and will have a significant impact on the pace of recovery post-pandemic. Since hitting a ten-year low in January 2016, oil prices improved considerably, rising from below US$30 per barrel to US$64 per barrel on average in 2019. 2020 has been another difficult year, as hopes for a more buoyant oil market have been eroded by downward pressure on oil prices, resulting in an estimated loss of US$270 billion in GCC government revenues according to the IMF. This loss of revenue will hinder the ability of oil-exporting governments to stimulate economic growth through expansionary budgets.

Low oil prices have resulted in subdued economic performance in the region in previous years and incentivized governments to pursue ambitious fiscal consolidation measures, including cutbacks on capital expenditure and benefits to public-sector employees, reform of energy and water subsidies, the introduction of land taxes and the introduction of 5% VAT. The pace of consolidation softened in 2019, as most governments approved expansionary budgets with particular focus on developing the non-oil economy and public infrastructure along with pursuing various National Development Plans such as ‘Saudi Vison 2030’ and ‘Qatar National Vison 2030’. The initial outlook for 2020 showed signs of positivity and saw the UAE approve the largest budget since the establishment of the country, whilst Saudi Arabia intended to reinvest the part-sale of state-owned assets such as Saudi Aramco to offset a marginal decline in Government expenditure. The unforeseen economic impacts of COVID-19 have forced governments to curtail some non-essential spending and focus on preservation rather than growth. In addition, some austerity measures have been reinstated, including the implementation of a 15% VAT rate in KSA that came into effect on 1st July 2020, a trend which is likely to continue as governments seek to protect finances.

Construction

Construction activity plays a significant role in regional economic development in the region. In 2018, US$101.8 billion worth of projects were awarded across the GCC region compared to US$102.3 billion in 2019, and this muted growth is reflective of the challenging environment mentioned above. At the outset of 2020, with macroeconomic headwinds showing no sign of abating in the short term, a large-scale region-wide pickup in project awards in 2020 was unlikely. Despite this, there was an estimated US$1.45 trillion projects planned across the GCC states, many of which were supported by solid fundamentals, including increased population growth, young demographics and a growing requirement for infrastructure across multiple sectors. Whilst the monetary impact of COVID-19 on estimated project awards is yet to be established, pandemic-related lockdowns are having a significant impact on the construction sector and will impact underlying fundamentals.

Where growth was previously forecast, it was generally supported by government commitments to increase spending in sectors such as infrastructure, healthcare and education. In recent years, GCC governments have also been making remarkable investments in the tourism and hospitality sectors, as well as leisure attractions. Saudi Arabia, in particular, which has been active in pursuing both social and economic reform, has launched a variety of megaprojects, including the Red Sea Project, Qiddiya Entertainment City, Project Neom and Diriyah Gate, which have a combined value of US$532 billion. Considering the current pandemic, workload expectations over the next twelve months generally depend on an allocation of government funds to stimulate economic recovery and curtail the economic impact of COVID. Given the turmoil in the oil markets and lack of activity in various market segments, the feasibility of many projects, including government-led infrastructure works, will be closely scrutinized. Some economic development programmes have already felt the impact of funding reallocation, such as Ghadan 21 - a US$13 billion development programme in Abu Dhabi, which has seen some projects being suspended and project teams demobilised. Workloads are also reported to have fallen across both public and private sectors in most Middle East counties.

Value of GCC contract awards by country, 2016 - 2019 ($m)

MEA Review - Value of GCC Contract awards by country 2020

Where growth is forecast, this is generally supported by government commitments to increase spending in sectors such as infrastructure, healthcare and education. GCC governments are also making remarkable investments in the tourism and hospitality sectors, as well as leisure attractions. Saudi Arabia in particular, which has been active in pursuing both social and economic reform, has launched a variety of megaprojects, including the Red Sea Project, Quiddiya Entertainment City, Project NEOM and Diriyah Gate, which have a combined value of US$532B. Much of the funding for these projects was to be supported by the part sale of Saudi Aramco, which was initially estimated to raise US$500bn. However, recent reports suggest that only US$25bn was raised, casting doubt over the viability of some of these schemes.

Whilst the UAE has historically been the market leader in the GCC construction market, Saudi Arabia has closed the gap, with the value of unplanned projects, estimated to be US$1.2t, compared to US$780bn in the UAE. It is worth noting that if the Saudi forecast is adjusted for Project NEOM, estimated to cost US$500bn alone, the pipeline in both countries is relatively similar in value terms. Meanwhile, Kuwait, Qatar, and Oman, whilst being the next largest markets in terms of pipeline value, are significantly smaller than both Saudi Arabia and the UAE.

Value of planned and unawarded GCC projects ($m)

MEA Review - Value of planned and un-awarded GCC projects ($m) 2020

The impact of COVID-19 on construction industry output is yet to be fully determined, and is dependent on how quickly restrictions ease and economic activity resumes. Notwithstanding this, further jobs losses are expected across the GCC, with financial constraints and insufficient demand being cited as two driving factors. Hospitality and retail segments are set to be impacted heaviest in the short-term on the back of air travel restrictions and decreased footfall, whilst the impact of working from home may be a catalyst for longer-term trends, such as consolidation or downsizing of office space, impacting the commercial sector. New ways of doing business, including virtual meetings in lieu of business travel may have longer term impacts on specific project viability in associated market segments. 

 

On a positive note, pandemic-related restrictions have served as a catalyst for further advancement in the technology sector. 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 investment in 5G technology, thus creating demand in the technology market segment. 

Despite some disparity across the GCC countries, tender prices have experienced a downward trend, which is expected to continue. A recent survey forecasted a 4% decline in tender prices in the UAE, despite rising material costs, which will put pressure on contractor margins. Whilst labour costs are expected to decrease as contractors move to lower direct costs, this may be offset to a certain extent by a decline in productivity on-site, which is estimated to vary between 10% to 30%. 

The downward pressure on contractor margins and tender prices is evident in an emerging trend of ‘below-cost bidding’, with 50% of respondents in a recent survey by the RICS reporting that they were receiving bids below cost. Should this trend continue, it poses a risk to the long-term financial stability of contractors engaged in the practice and their ability to successfully deliver projects which have been awarded. 

RICS Consensus 12-month expectations

ME September update Illustrator files RICS Consensus Market review

Emerging trend of 'below-cost bidding'

ME September update Illustrator files ME - GCC Review - Underbidding graph

Summary:

As a market that is already susceptible to volatility as a result of fluctuating oil prices, the Middle East has been dealt a double blow by the impact of COVID itself, coupled with the impact that COVID is having on the oil market. The pre-COVID growth forecasts were driven primarily by planned expenditure on large infrastructure and capital projects, so the austerity measures being employed will undoubtedly have an adverse impact on growth in the short to medium term across the region. 

As an industry that plays a significant role in the economic development of the region, the full impact of the pandemic for construction remains to be realized, but already, it is evident that the effects of the lockdowns are being felt and will impact underlying fundamentals. While many sectors will be profoundly affected, such as retail and hospitality, others will see a shift in the new norm, such as the rethinking of commercial spaces to facilitate the new distancing measures and other regulations, and some, such as data centres will see an upturn due to increased demand for web services and virtual platforms. All in all, similar to most other regions, the long-term impacts remain to be seen.

Contributors: Ciaran McCormack, John Chavez, Kevin Gardiner

This section includes:

Kingdom of Saudi Arabia Market Review   

Linesight average Kingdom of Saudi Arabia construction costs 2020  

Kingdom of Saudi Arabia main contractors  

Kingdom of Saudi Arabia design firms 

Below, the * symbol denotes graphs/data last updated in March, and so the impact of COVID-19 is not accounted for in the marked items.

Kingdom of Saudi Arabia Market Review

James Askew, Senior Cost Manager at Linesight, discusses the economic and construction industry performance for the Kingdom of Saudia Arabia.

Economic overview

Saudi Arabia recorded negative GDP growth of 1%, totalling US$189.4 billion within the first quarter of 2020, down 3.2% from Q1 2019. Pre-COVID, the International Monetary Fund (IMF) forecasted that economic growth in the Kingdom would reach 3% in 2020 – however, with the impact of COVID and the large cut in oil production, the figure is likely to be lower, with the World Bank suggesting a growth rate of 2.1% on average over 2020 and 2021. 

Whilst the long-term, economic implications of COVID-19 remain relatively unknown, it is clear that it has contributed to the cuts in oil production and subsequent price decline to below US$20 per barrel in Q1 2020, which is particularly impactful on the Kingdom, as the largest oil producer in the world. In fact, the pandemic is dealing a double blow to Saudi Arabia, with a high volume of COVID cases, as well as energy market turmoil, saddling the Government with a budget deficit that could rise to around 15% of GDP this year. Officials have been reported to have doubled their borrowing plans and implemented a series of austerity measures, including raising the VAT rate from 5% to 15%. 

Non-oil revenue is projected to constitute 38% of overall revenue, a 4% decrease from the same period in 2019, in which it grew at its fastest pace since 2014, with the majority of the increase driven by the retail, hotel and financial sectors. Oil growth decreased by 3.6% in 2019, with GDP growth below the official forecast of 0.9% at just 0.3%, according to the Saudi Arabia General Authority for Statistics. Whilst it was positive that non-oil revenue grew in 2019, it is highly likely to reduce in 2020, and therefore increased investment is key to continue the support of non-oil growth and progress key projects. 

Labour market

The pandemic is having a notable impact on both current and future projects, and one major factor in this could be the Q4 2019 to Q1 2020 increase of 243,000 expats in the labour market - the largest increase in over three years. However, GaStat data showed that in Q1 2020, 342,000 expat work visas were issued, with only 6% utilized within Q1 2020. It is likely that these visas were not utilized due to COVID-19 and the border restrictions, although this is not confirmed. 

Construction

The Kingdom has been working on several economic reforms for some years, most notably within the ‘Vision 2030’ - Saudi Arabia’s ambitious social and economic reform plan set to diversify its oil-reliant economy away from its dependency on finite natural resources. Whilst this is still the main focus, the Kingdom is hoping to increase the production of gas with the recently announced Jafurah field helping to somewhat offset the impact of lower oil prices by contributing US$20 billion a year towards GDP.  

As part of this initiative, Saudi Arabia is attempting to become a hub for tourism and other service industries, with large infrastructure projects such as the US$500 billion NEOM project. The first phase of construction is complete with NEOM Bay Airport and several residential districts opened in 2019. The project is 30 times larger than New York City, with promotional material promising “25,000 square kilometres of inspiration”. Plans include hotels, residential areas and a causeway linking Saudi Arabia with Egypt, and it continues to attract overwhelming interest from foreign investors and is likely to result in vast opportunities for companies working within the construction industry. 

Looking to another Saudi megaproject, Al Diriyah Gate CEO, Jerry Inzerillo, has confirmed that the pandemic will not stop the Al Diriyah Gate Development. It has been reported that the Crown Prince Mohammed bin Salman has told planners to move “full speed ahead”. 

With the Kingdom’s pre-COVID focus on attracting tourists, opening its borders in June 2019, and providing tourist visas on arrival for non-religious tourists and with tourism in mind, the Kingdom plans to spend US$1.1 trillion on infrastructure projects alone in the next 20 years. Work continues on key infrastructure developments within the Kingdom, and works fundamental to ‘Vision 2030’ and the ‘G20’ have begun including the King Abdullah Financial District, US$20 billion Diriyah Gate Development, US$10 billion Red Sea Development and US$5 billion Qiddiya Entertainment Project.  

Key sporting events have recently been held in Saudi Arabia, promoting the Kingdom’s recent change in policy and move away from an oil-reliant economy, and in this vein, Formula E and the Heavy Weight IBF ‘Clash of the Dunes’ boxing match were held in Al Diriyah during the latter quarter of 2019. 

The Initial Public Offering (IPO) of Saudi Aramco, one of the world’s largest companies by revenue, raised US$25.6 billion, valuing the company at approximately US$1.7 trillion. It was previously hoped that the IPO would raise US$100 billion, with the shortfall raising concerns for Saudi Arabia’s investment plans and future potential projects.  

The previous and continued increase in fuel and utility prices, coupled with the introduction of expat levies, are leading to a higher cost of living, and have the potential to have a negative effect on the economy. However, with the proceeds from the IPO of Saudi Aramco and the Public Investment Fund (PIF), a high level of investment within the Kingdom is still likely, which would fund a significant number of construction projects, paving the way for new opportunities and business growth within the GCC. 

Summary

As a particularly oil-reliant nation, Saudi Arabia has felt the acute impacts of the pandemic, both via the economic shock itself and the resulting volatility in the oil market. However, given the level of funds available to facilitate a significant level of investment within the Kingdom, it is hoped that these will result in a significant number of construction projects alongside the ongoing megaprojects, to keep the industry buoyant and continue the nation’s shift away from such heavy oil reliance towards new opportunities.  

Linesight average Kingdom of Saudi Arabia construction costs 2020*

ME September update Illustrator files ME - 1.1. Linesight average Kingdom of Saudi Arabia construction costs 2020

Kingdom of Saudi Arabia main contractors

ME September update Illustrator files ME - 1.2. Kingdom of Saudi Arabia main contractors

Kingdom of Saudi Arabia design firms 

ME September update Illustrator files ME - 1.3. Kingdom of Saudi Arabia design firms

This section includes:

UAE Market Review

Linesight average UAE construction costs 2020

UAE main contractors  

UAE design firms
  

Below, the * symbol denotes graphs/data last updated in March, and so the impact of COVID-19 is not accounted for in the marked items.

UAE Market Review

Oliver Keegan, Senior Project Manager at Linesight, discusses the economic and construction industry performance for the United Arab Emirates.

Economic overview

he UAE Central Bank reported economic growth of 2.9% for the nation in 2019. However, unsurprisingly, this growth has been impacted by the COVID-19 pandemic in the first and second quarters of 2020. In the year to Q1 2020, the UAE’s GDP is estimated to have contracted by approximately 1%, according to the Central Bank, which has also forecast that GDP will contract by 3.6% for 2020.  

However, Oxford Economics expects that the UAE’s GDP is to contract by 7.8% in 2020, before returning to the same levels as Q4 2019, during which 1.3% growth was reported by the Central Bank. Employment is also expected to contract by 7.3%. Looking at a breakdown by city, in Abu Dhabi and Dubai, GDP and employment are expected to decline by 7.2% and 5.4% and 7.4% and 9.1%, respectively. 

The UAE Central Bank (CBUAE) expects economic recovery will have begun in the second half of this year. Under the Targeted Economic Support Scheme (TESS) by CBUAE, Dh256 billion has been allocated as part of a stimulus package to support the economy. As part of the UAE Central Bank’s economic stimulus package, loan-to-value ratios have been increased for first-time buyers by 5% for all property purchases, including off-plan property mortgages. This change was in addition to a range of regulatory changes announced in 2019, which included the announcement of 100% onshore business ownership, easing of visa regulations, the introduction of the golden visa residency scheme and Abu Dhabi’s freehold ownership law. 

Construction

The UAE construction sector recorded 3.3% growth in 2019, and pre-COVID, 4.3% growth was expected, driven by government initiatives, according to GlobalData. With the virus outbreak and subsequent decline of oil prices, output is now expected to contract by 1.9% in 2020, before recovering to 3.8% growth in 2021. 

Residential Sector

Abu Dhabi sales prices fell on average by 8.0% in the year to Q2 2020, while in the rental market,rents softened by 4.7% in the 12-months to May 2020. Similarly, Dubai rents fell on average by 5.6% in the year to May 2020. Whilst there are many challenges facing the residential market in the UAE, historically from a supply perspective and now more so from a demand perspective, authorities and developers have enacted a range of legislation and favorable payment options respectively to support demand. 

Office Sector

Average office rents in Abu Dhabi fell by 8% in the year to Q2 2020, with market-wide vacancies registered at 22.1% as of Q2 2020. Dubai is somewhat similar, with average office rents falling by an average of 7%, and prime office rents falling by as much as 6.8% in the year to Q2 2020. Overall, market-wide vacancies registered at 18.7% as of Q2 2020. 

The well-publicised Expo 2020 was originally scheduled to open in October 2020 and to end on April 2021. Due to the ongoing pandemic, Bureau International des Expositions (BIE) has approved the one-year postponement of Expo 2020, with the rescheduled opening date now on 1st October, 2021. 

The Abu Dhabi government and its related entities are also progressing with approved projects, and even fast-tracking certain expenditures as part of the Ghadan 21 stimulus package. On the other hand, projects in the majority of sectors have experienced delays due the pandemic. This is particularly evident in Dubai, where US$5.8 billion-worth of project work was shelved in Q1 2020. Projects worth US$7.8 billion were completed in Dubai in the same period, with US$2 billion-worth of contracts awarded during the period, according to MEED Projects. 

Summary

While the impact of COVID is undoubtedly being felt in the UAE, there is an expectation that the economic contraction will be relatively short-lived before a return to modest growth is seen. Given that construction remained on-site in the UAE during the pandemic, albeit with reduced productivity and site capacity to adhere to social distancing guidelines, the projected contraction is relatively mild, with a return to growth in output expected in 2021, according to GlobalData. .

Linesight average UAE construction costs 2020

ME September update Illustrator files ME - 2.1. Linesight average UAE construction costs 2020

UAE main contractors

ME September update Illustrator files ME - 2.2. UAE main contractors

UAE design firms

ME September update Illustrator files ME - 2.3. UAE design firms

This section includes:

Kuwait Market Review 

Linesight average Kuwaiti construction costs 2020

Kuwait main contractors   

Kuwait design firms
  

Below, the * symbol denotes graphs/data last updated in March, and so the impact of COVID-19 is not accounted for in the marked items.

Kuwait Market Review

John Chavez, Associate Director at Linesight, discusses the economic and construction industry performance for Kuwait.

Economic overview

Kuwait’s GDP contracted during the first half of the year, primarily due to low oil prices and the impact of COVID-19. Recent surveys by Bensirri Public Relations (BPR) revealed that 45% of business owners have suspended their activities, with another 26% potentially declaring bankruptcy. Further, the survey indicated that about 39% of construction-related businesses have ceased operations.  

Whilst Kuwait is considered the fifth largest OPEC oil producer, with an economy that is highly reliant on the oil and gas sector, returning to an economic performance comparable to that of 2019 will be slow and challenging. Kuwait Oil Company has also confirmed that the intention is to cut its budget by 25% and operating expenses by 18% for the 2020/21 fiscal year, as part of measures to boost "state financial stability". The company also confirmed that some of its proposed projects may have to be cancelled as part of austerity measures.  

GDP is expected to decline by 1.1% in 2020, but will pick-up to about 3.4% growth in 2021. 

In 2019, the country’s economy grew by 0.7% due to the steady expansion of the non-oil segment, driven by continued Government expenditure and increased consumer spending. Subject to post-pandemic global economic recovery, the International Monetary Fund (IMF) have forecasted that the GDP is expected to decline by 1.1% in 2020, but will pick-up to about 3.4% growth in 2021. 

Construction

Kuwait has continued to implement its plans to transform the country through ‘Vision 2035’, which features key Government projects, aiming to deliver economic diversification and sustainability. This strategy is focused on the development of transport and healthcare-related infrastructure, commercial buildings, industrial facilities, water distillation facilities and renewable energy projects. Authorities have also included plans offor making Kuwait a regional data centre hub as part of its strategy for the future. 

Government initiatives focused on transforming the country to a world-class financial and commercial centre, more open to foreign investment and with various megaprojects in the pipeline, are coupled with Kuwait’s tax framework and late implementation of VAT in April 2021 to contribute to the development of the construction sector. 

One of the most significant projects in the pipeline is the US$20 billion Kuwait Metro, which includes over 60 stations within the country’s capital, with some reports suggesting that Kuwait is to link the Metro to its GCC neighboring countries. During the first half of 2019, the total value of active projects in the country was estimated at US$494 billion. However, the impact of the pandemic resulted in a sharp decline during the first half of 2020, with project value contracting by approximately 40%. 

Kuwait’s government, through the Kuwait Authority for Partnership Projects (KAPP), has been promoting collaboration between public and private sectors to develop quality infrastructure and services. This policy is considered as a key element of the country’s programme, that champions the utilization of private sector skills and expertise, in order to maximize value for money and service quality. KAPP is currently in the process of initiating several high-impact projects in the power, water/wastewater, education, health, transportation, communications, real estate and solid waste management sectors. 

In recent years, Kuwait has been successful in delivering several popular architectural, real estate and infrastructure projects, which include the Kuwait Towers, House of Mirrors, Kuwait National Museum, Al Seif Palace, Liberation Tower, Jahra Medical City, Al Zour Refinery, Sheikh Jaber Causeway and Silk City. Key projects include Kuwait National Petroluem Company’s US$12 billion Clean Fuels Project and the Kuwait Integrated Petroleum Industries Company’s (KIPIC) US$16 billion Al-Zour Refinery Project, with the construction of the main processing units having reached completion in December 2019. 

Summary 

Given Kuwait’s reliance on the volatile oil market, its economy is expected to contract in 2020 with the economic shock of COVID and the resulting oil price impact. The Government’s focus on ‘Vision 2035’ and other initiatives to deliver economic diversification and sustainability, and position Kuwait as a world-class financial and commercial centre, is propping up the construction industry, which was heavily impacted in the first half of 2020.

Linesight average Kuwaiti construction costs 2020

ME September update Illustrator files ME - 3.1. Linesight average Kuwaiti construction costs 2020

Kuwait main contractors 

ME September update Illustrator files ME - 3.2. Kuwait main contractors

Kuwait design firms 

ME September update Illustrator files ME - 3.3. Kuwait design firms

This section includes:

Oman Market Review

Linesight average Omani construction costs 2020  

Oman main contractors  

Oman design firms
   

Below, the * symbol denotes graphs/data last updated in March, and so the impact of COVID-19 is not accounted for in the marked items.

Oman Market Review

James Askew, Associate Director at Linesight, discusses the economic and construction industry performance for Oman.

Economic overview

With GDP falling by 1.3% in 2019, and oil and natural gas extraction accounting for 51% of GDP, the Sultanate of Oman is the weakest economic performer of the six GCC states. Furthermore, with COVID dealing a considerable blow to its economy, the outlook for 2020 and 2021 is not hugely positive, with declines of 4.9% and 1.5% expected respectively. Fitch Ratings projects that the nation is set to record a budget shortfall in 2020 of almost 20% of GDP, following a figure of approximately 8% in 2019. However, fiscal reform and the stabilization of oil prices is expected to bring that deficit back down over the coming two years. 

Oman's national oil reserves are projected to last until 2033, and with this in mind there have been several five-year plans in the works, with the latest being ‘Vision 2040’ - an ambitious social reform strategy to transform Oman’s economy by 2040, steering the Sultanate toward fiscal sustainability and a more diversified economy, reducing the need for income based on natural resources.  

The Sultanate has introduced relief measures to mitigate the economic impact of COVID, including the Central Bank of Oman injecting additional liquidity of US$20 billion into the economy, including deferment of loan payments, reduction of fees and interest rates, deferral of tax returns, and exemption from tourist and municipality tax. 

It has been noted that focus is required on tourism, with the sector in Oman mostly untapped. However, according to the latest data released by the National Centre for Statistics and Information (NCSI), the total sectoral revenue in Oman reached US$3.6 billion at the end of 2018, an increase of 6.6 % on the previous year and it is expected to have increased within 2019, which is considered positive growth for Oman. 

 When the GCC states agreed to introduce 5% VAT in 2018 following a slump in oil prices generally affecting revenue, Oman deferred. However, they are now expected to implement VAT in 2021, after Saudi Arabia brought its rate up to 15%. The delay is thought to be a setback, and the International Monetary Fund (IMF) highlighted its recommendation that Oman should work harder on fiscal reforms, including expediting VAT and other measures to support Government finances. 

Sultan Qaboos bin Said, the longest serving Arab leader who ruled Oman for over 5 decades after he overthrew his father in a coup in 1970 died at the age of 79 in January 2020. He was considered a revolutionary leader, as it is thought that that there were just six miles of paved roads and a small number of schools when he ascended to the throne. Under his reign, Oman’s infrastructure has been transformed, including international airports, new road and ports – ultimately turning Oman into a modern and stable Gulf state. Haitham bin Tariq Al Said, the late Sultan’s cousin has been sworn into power, and has vowed to uphold the policies of his cousin and continue to promote Oman’s ‘Vision 2040’, of which he served as head of the committee.  

The number of expats in Oman is decreasing - down to 1,497,511 at the end of July - the lowest since 2015

Labour force

The number of expats in Oman is decreasing, with COVID taking its toll, and according to the National Centre for Statistics and Information (NCSI), there were 1,658,111 expatriates in Oman in January. That number went down to 1,497,511 at the end of July. This is the lowest figure since 2015, and it is thought that the current push for ‘Omanisation’ and labour laws that prohibit a company from employing expats unless they have obtained a permit from the Ministry of Manpower to prove that they have complied with the ‘Omanisation’ is a contributing factor. Unemployment currently stands at 17%. The World Bank estimates that 40% of its 4.9 million citizens are under 25, and that the youth unemployment rate is 49%. 

Construction

The abovementioned exodus of expats has hit construction particularly hard, rendering it one of the industries worst affected by the trend, with over 70,000 workers leaving.  

The pandemic has heavily impacted on the residential and commercial sectors, which were already sluggish pre-COVID. There is an oversupply of office space in Muscat, and with more due to be delivered over the coming year, it remains to be seen what the longer-term impacts will be for the sector. For the residential sector, the aforementioned departure of such a substantial volume of expats translated to downward pressure.  

The Government is focusing on key programs and projects, with an increased role for the private sector, and an emphasis on public-private partnerships. These include Oman Rail, Port Sultan Qaboos, Port Khasab, South Batinah Logistics Area, Oman Rail, Ad Dhahirah Economic Area, $1.5-billion Low Sulphur Fuel Oil (LSFO) Refinery in Oman and Shinas Port.

Summary  

As an already vulnerable economy, Oman was particularly susceptible to the shock brought about by COVID. Bringing down its budget deficit is a priority for the coming few years, as is general fiscal and social reform. Between the impact of the pandemic and ‘Omanisation’, the labour force has been severely affected, as a considerable proportion of expats have left. For construction and real estate, this exodus has hit hard, and while some sectors were slowing down pre-COVID, and this looks set to be exacerbated by the current market conditions. 

Linesight average Omani construction costs 2020

ME September update Illustrator files ME - 4.1. Linesight average Omani construction costs 2020

Oman main contractors 

ME September update Illustrator files ME - 4.2. Oman main contractors

Oman design firms 

ME September update Illustrator files ME - 4.3. Oman design firms

This section includes:

Bahrain Market Review 

Linesight average Bahraini construction costs 2020  

Bahrain main contractors  

Bahrain design firms  

Below, the * symbol denotes graphs/data last updated in March, and so the impact of COVID-19 is not accounted for in the marked items.  

Bahrain Market Review

Vincetan Sooriyaarachchi, Contracts Manager at Linesight, discusses the economic and construction industry performance for Bahrain.

Economic overview

As is the case in the vast majority of countries, a sharp contraction is expected in Bahrain, as global demand slows and oil prices decline. Its economy shrank 1.1% year-on-year in Q1 2020, following a 0.4% contraction in the previous three-month period. 

The non-oil sector, where the repercussions of the COVID-19 pandemic were more evident, contracted 1.7%, led by restaurants & hotels (-36%); transportation & storage (-6.3%); government services (-2.9%); financial services (-1.6%); and real estate and business activities (-0.4%). Meanwhile, growth was recorded in manufacturing (4.8%); social and personal services (1.3%) and construction (0.3%). On the other hand, the oil sector grew 1.8%, driven by a 12.5% increase in production. On a quarterly basis, GDP fell 2.2%, the largest decline since 2011, compared to a 1.4% rise in the previous period. 

In order to stabilize the economy, the Government of Bahrain has recently announced a US$11.4 billion stimulus package to mitigate the economic impact of the pandemic, which includes:

Increasing the Central Bank of Bahrain's loan facilities to US$9.8 billion, to allow the deferment of debt instalments and the extension of additional credit 

Redirection of all Tamkeen (the Government agency responsible for the provision of loans and assistance to businesses) programmes to support adversely affected businesses and the restructuring of debts issued by the agency. 

Construction

During the pandemic, Bahrain’s construction industry has been significantly impacted, but remained active, albeit at a slower rate of progress, with no lockdown or curfew imposed. Despite the implementation of several strategies to combat the impact of the virus, it has hampered productivity on ongoing projects.   

Annual GDP from construction fell slightly from US$ 631 million in Q4 2019 to US$624 million in Q1 2020. In the long-term, it is projected to trend around US$660 million in 2021 and US$676 million in 2022. 

It is anticipated that going forward, increased preliminary costs as a result of setting up sites to meet the COVID-19 restrictions will be felt, including items such as the supply of PPE, appointment COVID-19 Compliance Officers, etc.

Summary

While Bahrain is undoubtedly feeling the impact of COVID-19 on both its economy and construction industry, it is hoped that the measures and stimulus packages being implemented by the Bahrain Government will help to offset some of the detrimental impacts of the virus. However, the long-term implications of the pandemic remain to be seen, depending on the occurrence and severity of a second wave of the virus.  

Linesight average Bahraini construction costs 2020

ME September update Illustrator files ME - 5.1. Linesight average Bahraini construction costs 2020

Bahrain main contractors

ME September update Illustrator files ME - 5.2. Bahrain main contractors

Bahrain design firms 

ME September update Illustrator files ME - 5.3. Bahrain design firms

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