August 9, 2021 real estate

Infrastructure projects are powering the recovery of Middle East construction sector


Infrastructure projects are paving the way for construction market’s recovery in the Middle East region as respondents have seen a slight pick-up in workloads over the last quarter, according to the latest RICS Global Construction Monitor.

The 2021 Construction Activity Index (CAI) for the region posted a reading of +8 in Q2 compared to +3 in Q1, posting its strongest reading since Q2 2020, the RICS report said.

While the reading indicates MEA market moving marginally into expansionary territory, the momentum remains a little more subdued compared to Europe (+34), the Americas (+29) and Asia Pacific (+21), the report noted.

However, Saudi Arabia is ranked third globally after Portugal, and the Netherlands in terms of elevated CAI readings with respondents reporting significant growth in workloads within all market segments.

Infrastructure leads the way with respondents reporting a focus on ICT, energy and agribusiness being the main areas where workloads have grown.

Saudi’s Gulf neighbours, the UAE and Qatar, are also ensconced in the positive territory but Bahrain and Oman have slipped into negative territory while Kuwait has remained flat.

Challenges

In terms of challenges, MEA survey respondents have highlighted financial restraints and cost of materials as the main impediments to current workloads. However, there is a divergence between the region, and rest of the world on how high they rank these factors.

While cost of materials was the main impediment for rest of the world (83 percent versus 79 percent in the MEA), the biggest worry for the MEA respondents was financial constraints (85 percent), whereas for the rest of the world, it was only 67 percent.

A significantly higher share in the MEA (66 percent) reported insufficient demand as a factor negatively impacting construction activity compared to the global figure of 49 percent.

Moreover, shortages of labour, skills and materials appear less of an issue across MEA relative to the rest of the world though respondents in Saudi Arabia and Qatar have blamed the Covid-19 pandemic for shortage of skilled and non-skilled workers.

However, MEA respondents are upbeat about the next 12 months relative to Q1 with workloads anticipated to rise across all sectors. Infrastructure and private residential workloads are expected to gather momentum, while expectations are also slightly positive for the private non-residential sector.

In terms of headcounts, a headline net balance of 18 percent of contributors throughout the region envisaged some uplift in employment levels, marking a modest improvement on the reading of 12 percent last time.

The profit margin growth expectations over the next year remains subdued due to material cost inflation fuelled by supply chain bottlenecks. At the global level, 12-month projections for material cost inflation have increased to over 8 percent from 6 percent previously.

However, net balance of 6 percent of MEA respondents expect profit margins to improve over the next 12 months (compared to -3% previously) with Saudi Arabia the most optimistic in the Middle East at 36 percent.

zawya



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