Project market in GCC shows ‘robust recovery’
MANAMA: The GCC project market turned a corner in the first quarter (Q1) this year after witnessing declines over the last several quarters.
A report by Kuwait-based Kamco says the sector showed healthy recovery during the three month period with value of projects awarded more than doubling from $12.8 billion during Q4-2020 to $26.3bn.
This was mainly led by pending project awards from last year, in addition to efforts by governments in the region to vaccinate the bulk of the population and limit the spread of the Covid-19 that affected economic activity across the globe.
According to Bloomberg, close to 26.5 million doses have been administered with at least the first dose of the vaccine in the GCC out of a total population of 54m residents.
Most of the countries have already announced easing or no restrictions with an eye on providing uninterrupted business activity.
Historically, however, the GCC project market has remained under severe pressure ever since the crude oil prices started declining and the onset of Covid-19 was essentially only partly responsible for the slowdown that the sector is witnessing recently.
The region has seen a decline in new project awards over the years as even the existing and ongoing projects were thoroughly scrutinised for their viability in a low spending environment.
The Kamco report says with rising debt levels and record high fiscal deficits as revenues declined, governments in the GCC cancelled numerous projects after the fall in oil prices.
In terms of full year performance, project awards in the GCC showed a declining trend in the last six out of seven years.
According to data from MEED Projects, total project awards in 2020 reached $67.4bn the lowest recorded level since 2004.
The year-on-year decline in 2020 stood at $46.2bn with Saudi Arabia seeing the biggest decline in the region with a fall of $34bn.
Total value of GCC contracts of the construction sector awarded during Q4-2020, the largest projects sector in the GCC, sank 50.3 per cent to reach $4.1bn against $8.2bn during Q4-2019 according to data gathered by MEED.
According to data from MEED Projects, average project award for the construction sector stood at $5.5bn during the last four quarters.
With year-to-date (YTD-2021) contract awards at $33.1bn, the full year is expected to be promising in terms of project market activity in the GCC.
According to MEED projects, $114bn worth of contracts are expected to be awarded this year, which is more than three times the size of contract awards in 2020 and double the awards in 2019.
The significant increase is expected to come from pending projects from last year as well as an acceleration of diversification efforts in the GCC.
The increasing pace of vaccinations in the region and the expected easing of Covid-19 related restrictions are expected to further boost business confidence and encourage investment in new projects.
Being the largest sector in the GCC in terms of contract awards and project activity, the trends in the construction sector are expected to be crucial for the overall project market.
The sector is expected to remain under pressure in 2021 as governments remain cautious on the Covid-19 related shocks but is expected to see broad-based growth in the next three years.
Stretched balance sheets for most of the countries in the region with record borrowing has limited the government’s involvement in the construction sector.
Estimates provided by MEED showed mixed year-on-year (YoY) growth expectations in construction output in the GCC during 2021 with declines expected in Oman and Kuwait and low-single digit growth in the rest of the GCC countries mainly reflecting efforts to manage rising debt financing in the short term.
However, the forecast for 2022-2024 showed healthy growth in output across the board.
A focus on expanding non-oil economy is one of the key components of near to mid-term strategic plans announced by almost all the countries in the GCC.
In terms of progress on this front, the IMF expects GCC non-oil GDP to grow at double the pace of oil GDP during 2021, indicating a much faster recovery from the Covid-19 pandemic.
According to the IMF’s Regional Economic Outlook, non-oil GDP is expected to grow by 3.5pc in the GCC during 2021 followed by 3.4pc growth during 2022.
Bahrain is expected to clock the GCC’s highest GDP growth of 3.3pc in 2021.
