MENA Construction Sector Forecasts

Fitch Ratings expects public spending in Saudi Arabia, Qatar and Abu Dhabi will continue to provide support to the construction sector, as these markets have undertaken massive infrastructure spending plans backed by government investment. Dubai’s construction sector and market is expected to remain fragile in the medium term.

In Saudi Arabia and Qatar, government spending remains strong, albeit with margins dropping in line with international peers as competition within the MENA construction sector – between construction firms – has increased. There has been a decrease in the number of construction related projects in Abu Dhabi due to concerns about an oversupply in the housing market and an increase in the emirates financial commitments. However, Fitch claims that key projects remain in the pipeline as Abu Dhabi has prioritized major infrastructure projects. However the sharper than expected slowdown in the MENA construction sector could have implications for contractors working in the UAE.

A decline in projects tenders across EMEA will increase competitive pressures, and rebalancing risk/reward expectations in an increasingly thin margin business will be a challenge for management in 2012. Companies operating in oil and gas producing countries with large government surpluses and clear investment programs are well positioned, particularly in comparison to Spain, Portugal and Ireland (countries with a well developed infrastructure undergoing severe fiscal consolidation). However contractors with exposure to Libya have been affected, with the loss of order books and future cash flow, and an increased risk of equipment loss.

The article above has been published as a part of Bank Audi`s MENA Weekly Monitor of Week 02 (2012). It can be accessed via Internet at the following web address: http://www.banqueaudi.com