Value of GCC project contract awards to drop 15% in 2016 – report - Gulf Business
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Value of GCC project contract awards to drop 15% in 2016 – report

Value of GCC project contract awards to drop 15% in 2016 – report

GCC governments have slashed spending as oil prices continue to plummet

The value of project contracts awarded in the Gulf Cooperation Council countries is set to drop by 15 per cent in 2016 as low oil prices hit government spending plans, according to a report by MEED Projects.

The forecast is based on more than 2,100 planned and un-awarded projects in the region. It predicts that the total value of contracts will fall to $140bn this year, compared with $165bn for 2015.

Saudi Arabia will be the worst hit with contract awards predicted to drop by almost $10bn to reach $40.7bn in 2016.

The kingdom has been hit hard by low oil prices, with 2016 revenues forecast to reach SAR 513bn, almost SAR 100bn lower than last year. It has also cut budgeted spending to SAR 840bn, compared with the estimated expenditure of SAR 975bn in 2015.

Meanwhile the United Arab Emirates is anticipated to see a 2.5 per cent drop in the value of contract awards this year to reach $36.5bn, the report said.

The country is buoyed by “continuing spending in the Dubai real estate and infrastructure sectors and long-term strategic spending in the Abu Dhabi oil and gas sector,” MEED said.

Dubai’s commitment to its long-term vision will ensure that spending on projects is maintained despite the worsening financial situation, the report added.

Kuwait is slated to be the third largest projects market in the GCC at $24.3bn, down almost 23 per cent from a record high of $31.5bn in 2015. It will be followed by Qatar, which will see contract awards fall by $7bn to $22.2bn.

“While the two markets will perform worse than last year, their 2016 forecast is still considerably improved on their five-year spending average,” the report stated.

Oman and Bahrain are anticipated to maintain last year’s spending levels at $13.5bn and $2.8bn respectively.

“With oil prices hitting 11-year lows, there is no real surprise that project spending is forecast to fall in 2016,” said director of Content and Analysis at MEED Projects Ed James.

“However, it does mean that it will be a tough 12 months for companies in the sector as the number of project opportunities is reduced.”

But the report stressed that spending on power and water projects as well as social infrastructure investment will be stable in order to maintain economic diversification and job creation efforts.

“Governments frankly have little choice, to keep building affordable housing, schools, hospitals and power plants if they are to maintain the social compact,” said James.

“For example, faced with a choice between building a new power plant or having electricity blackouts, governments have little option but to invest in the facility.”

As a result of falling revenues, governments are also expected to prioritise public-private-partnership projects and schemes that use other forms of funding, such as export credit agency and contractor financing.

“Firms that can bring their own financing to projects will be in a much stronger position to negotiate with clients because it enables them to keep spending off balance sheet,” added James.

At the beginning of 2015, MEED Projects predicted total contract awards of more than $172bn for the year, although the actual value amounted to $165bn.

While Kuwait, Oman and Qatar performed broadly as expected, the UAE and Saudi Arabia were substantially lower than forecast.

“The biggest underperformer last year was Saudi Arabia. The announced hiatus on contract awards in Q4, plus the postponing of several key projects such as Saudi Arabia’s stadium programme and the Mecca metro scheme resulted in a shortfall of nearly $10bn,” said James.

“In the UAE, the principal cause of the country’s underperformances was the Abu Dhabi market. While oil and gas spending has remained robust, investment in the civil construction sector has been relatively anemic compared with previous years.”


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