Infrastructure to uplift Middle East construction activity in 2021 - RICS
Infrastructure workloads in ICT and energy will drive the recovery of the Middle East and Africa (MEA) construction activity in 2021, according to the latest RICS Global Construction Monitor.
While MEA construction activity was broadly flat in the fourth quarter 2020, it returned to positive territory globally, the report said.
For the MEA, the RICS Construction Activity Index (CAI), a measure of current and expected construction market conditions among professionals, improved from a low of -40 percent in the second quarter 2020 to -11% in the third quarter and up -10% in the fourth quarter.
Sentiment was deeply negative within the UAE and Bahrain, with the fourth quarter readings coming in at -28 and -26 respectively (-30 and -37 beforehand) but Saudi Arabia bucked the trend, posting the strongest rise in the CAI across all MEA nations covered, returning a figure of +24 compared to +5 previously.
In the MEA, -34 percent of respondents (in net balance terms) said their workloads in private residential fell in the fourth quarter, with -41 percent of respondents also reporting a fall in private non-residential. While -1 percent of respondents saw a fall in infrastructure workloads, which is more or less flat, there was a rise in workloads in ICT (+11 percent) and energy (1 percent) sub-sectors while transportation, social, water and waste, and agribusiness remained in the negative territory.
The infrastructure sector is expected to lead the recovery over the next 12 months in the MEA with a net balance of +29 percent of the respondents expecting workloads to increase.
Expectations are modestly positive within the private residential sector (+13 percent); although private non-residential projections are marginally positive within MEA, the sector is still expected to lag the overall recovery.
In terms of total workloads for 2021, respondents expect a robust rebound in Saudi Arabia, and broad stabilisation in the UAE and Bahrain.
Sean Ellison, Senior Economist, commented: "Despite the early signs of recovery challenges remain. Whilst construction will play a vital role in wider global economic recovery, the sector’s recovery is not yet entrenched – nor is it universal across countries.
With infrastructure a key driver in leading this bounce back, greater government spending will be vital. Many governments have committed to substantial infrastructure spending, bringing forward shovel-ready projects and we can expect more fiscal stimulus. How effectively this capital is put to use will dictate the speed of our recovery.”
Alan Muse, Sector Lead Building & Construction Standards, RICS said: “Using effective and timely infrastructure stimulus measures to rejuvenate the economy is never straightforward. New build infrastructure schemes are invariably complex with long gestation periods. Concentrating on quick wins in the repair and maintenance of infrastructure may have a more immediate impact on the market and a quicker multiplier effect. In addition, fiscally constrained governments need to attract more private sector investment into this sector and de-risking projects through the application of standards to improve reporting, data collection and predictability is crucial.”
Financial constraints had held back activity in the fourth quarter 2020, with 89 percent of respondents reporting this as an issue. Cost of materials and insufficient demand were also holding back activity.
Cost pressures will continue to be acute in 2021 even as -6 percent of respondents expect profit margins to fall during the period. In the MEA, while tender prices are expected to post a marginal increase of 1.7 percent (compared to 1.3 percent globally), construction costs and material costs are expected to jump 6.7 percent each (compared to 4 percent and 4.8 percent globally).
Looking at headcount, a net balance of +7 percent of respondents expects to see a rise in headcount over the course of 2021 with headcounts expected to rise most firmly in Saudi Arabia and Nigeria.
