The value of projects awarded in the GCC fell by 22 per cent to a “new low” of $97bn in 2018, according to data from MEED projects.
Despite rising budget expenditure and higher oil prices, the value of contracts awarded declined by $27bn year-on-year, marking the lowest annual total recorded since 2004, a statement said.
Every GCC state posted a lower value of awarded contracts compared with 2017, the report found.
The UAE, the region’s largest projects market, saw the value of work awarded fall by just under $5bn to $44.5bn – marking the first time in four years that the country registered a decline in activity.
The drop was caused primarily by a sharp fall in contract awards in Dubai from $31bn in 2017 to $24.6bn last year, on the back of softening real estate prices, the report stated.
Contract awards in Saudi Arabia fell by 10 per cent year-on-year to $26.4bn, while Kuwait and Oman both decreased by more than 50 per cent to $5.6bn and $5.1bn respectively.
Every sector, except water, also fell year-on-year as the decline in project spending was spread evenly across different industries.
Construction, the largest single sector, declined to $45.8bn last year, down 13 per cent from $52.7bn in 2017 and more than 40 per cent lower than its peak of $76.6bn in 2014.
It is clear that the much hoped for improvement in the projects market’s fortunes did not materialise in 2018,” said Ed James, director of Content and Analysis at MEED projects.
“This was despite higher oil prices and government commitments to raise projects spending.”
The report highlighted various reasons to account for the drop in contract values.
“Firstly, and perhaps most importantly, historical analysis highlights that it takes at least 18 months for rises (or falls) in the oil price to have an impact on overall project spending levels,” said James.
“Project budgets and expenditure sign-off are often made well before revenues tighten. Conversely, it takes time for increased revenues to translate into budgetary decisions on new projects. A positive implication of this is that the steady rise in oil prices over the past year should result in greater project activity in 2019,” he said.
The failure of public-private-partnership (PPP) projects to take hold in the region, lower private sector activity in the face of a softening real estate market, and challenging global economic conditions also had an impact.
However, the market looks more optimistic for 2019, he added.
“There is a massive pipeline of more than $2.5 trillion worth of planned and un-awarded projects in the GCC, while state budgets across the region in 2019 are all up on previous years. Two of the biggest regional project clients, Adnoc and Saudi Aramco, are now in spending mode, and sectors such as petrochemicals, oil and gas, and utilities look certain to grow over the coming 12 months thanks to a large number of contracts in tender,” said James.
The launch of new projects such as DIFC 2.0 and Downturn Jumeirah in Dubai and ‘gigaprojects’ such as NEOM and Qiddiya in Saudi Arabia will also offer opportunities in the market, he added.