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COVID-19 prompts a rethink by the Gulf’s troubled construction industry, says GlobalData’s MEED

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World Cement,

More than US$2.2 trillion of construction and transport projects are planned or under construction in the Gulf Corporation Council (GCC), according to a report by GlobalData’s MEED. This includes long-term transformational masterplans and megaprojects such as Saudi Arabia’s US$500 billion Neom future city. The GCC’s 2020 outlook highlights the increasing pressures facing the Gulf construction industry as a result of the pandemic.

Richard Thompson, Editorial Director of GlobalData’s MEED, comments: “While there are abundant opportunities for construction companies in the GCC, there is no shortage of challenges. Over the past five years, contractors, consultants and manufacturers have faced considerable pain and uncertainty as a result of the fall in oil prices in 2014. Cuts to government spending and a growing oversupply in the key real estate markets such as Dubai reduced new project opportunities and increased competition for work, while delayed payments hit cash flow.”

“In terms of contract awards, 2019 was the worst year for the GCC construction industry since 2012 with only about US$57.8 billion worth of construction and transport project contracts awarded in the Gulf. The figure is 9.5% down on award levels in 2018 and is far below the US$107.5 billion of contract awards seen in 2013 – the best year on record.”

By the end of 2019, construction companies were looking forward optimistically to a long-awaited rebound in construction activity, led by the giant Saudi Arabian market. The stabilisation of oil prices and the launch of the kingdom’s megaprojects promised a new dawn for GCC construction. By March 2020, the optimism was dashed as it became clear that the COVID-19 pandemic was not going to pass quickly, and companies shifted their focus to simply surviving the crisis.

Thompson continued: “While the COVID-19 lockdowns have disrupted supply chains and on-site delivery, a new slump in oil prices in March and April has raised new doubts about future project opportunities. The problems of the past five years have accelerated in the first five months of 2020, and construction companies must rethink their processes and strategies in order to prepare for the new GCC construction market in a post-COVID-19 world.”

“Key to rethinking business development strategy is understanding where the future growth will come from, and who the key clients will be.”

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