GCC Projects Revving up?

Shady Elborno - Head of Macro Strategy
Published Date: 21 June 2021

 

The construction sector in the GCC has always been a conduit through which governments in the region could realize a large extent of their fiscal spending targets. This happened through direct government spending on infrastructure projects or via quasi government entities that carried out projects in their respective sectors. Another important driver of the region’s project market has increasingly been the private sector, backed both by private regional investors, and increasingly through FDI inflows. The classification of the regions’ project market is broad, covering everything from pure infrastructure projects in areas like power, transport, and healthcare, through to residential property market and leisure facilities projects like hotels and resorts.

With the onset of the multi-year decline in oil prices that began in 2014, the GCC project market underwent a long-term structural adjustment, that has seen a very wide-ranging program of spending rationalization. This has led to many years of stagnating and even falling spending on construction projects in the region, as existing and ongoing projects were thoroughly scrutinised for their viability in a low spending environment, as lower oil prices led to higher debt levels and record fiscal deficits. The aggregate project market was declining in the region even before the Covid-19 pandemic started, with its onset last year placing further downward pressure on the market’s dynamics.  

The focus of our first paper on the region’s project market is to get a snapshot of where we stand in terms of the pan-GCC project activity. The data in Q1 of this year is looking decisively healthier, especially in contrast to last year.  The question is whether this pick-up in spending will be more persistent or is otherwise a blip from a low base that will slow, as has been the case over the last few years. With oil prices in a “good place” this year, the region has more room to boost spending than was the case in 2020, but  as most governments in the region have committed to reducing budget deficits over the medium term, it is too early to call. However, should data continue to edge up into the end of the year, the structural dynamics of the GCC construction market will tilt to one of “growth on” for this year and over the medium term. This paper will give a brief outlook on the GCC project market, followed by a country by country snapshot, to create a document that will be published quarterly and allow for a reading of how much and where project spend in the region stands.  

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