The Falling Oil Prices are a Huge Challenge for the Construction Sector of the GCC

Home - Blog - The Falling Oil Prices are a Huge Challenge for the Construction Sector of the GCC

The construction sector’s input to the Middle East’s GDP almost stayed flat from the 5.5% back in 2010 to the 5.7% in 2014.

The fall of the oil prices has posed a huge challenge to the development of the construction sector under the GCC, according to a report by Alpen Capital.

The fall in the oil prices may drive nations under the GCC to put restrictions on the state spending, which would further hamper the growth of the sector. This sector is substantially dependent on funding from the government.

Opportunities accessible in this industry could likewise be affected, owing to less investment from the private sector and plummeting income levels.

According to the report, a lowered number of tourists coming in from oil-dependent countries may also hamper the sector’s growth.

Global crude prices dropped from $115 a barrel last year to a mere $45 in January of this year, even though prices have since recovered to approximately $60-$65 a barrel.

Even though the Gulf countries have discharged any proximate effects of the drop in oil prices on their economies, specialists project that the impact might only be detected nearing the end of this year.

Alpen also drew other challenges the GCC construction may face, such as a potential scarcity of raw materials – mainly cement and greater costs, excessive dependence on expatriate staff, and amplified competition, all of which would influence margins.

Regional construction industry also witnessed amplified activities in the infrastructure segment in the years 2013 and 2014 due to optimistic economic sentiment.

However, the report emphasized that the industry is predicted to experience growth from 2015-2018, stimulated by the elements, such as positive demographics, positive macroeconomics, and increasing tourism activities.

According to the Managing Director of Alpen Capital, Sameena Ahmad, greater budget provisions for the construction sector, which is being set as a tactical vision of the member countries, serves as an extra thrust to the construction industry.

The governments under the GCC face a challenge of having to expand their economies from oil and gas, and their regular focus on infrastructure expansion has kept the construction industry in the center of focus.

In Saudi Arabia, exertions to increase religious tourism have interpreted into greater economical allocations towards the retail, hospitality, and infrastructure segments. Efforts towards reasonable housing and the recent law permitting mortgages, are projected to further surge construction activities in the upcoming years, according to the report.

Share:

Categories

Get a quote now!