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Oil volatility could hit Oman construction in 2017

Oil price fluctuations could impact the Sultanate's construction sector in 2017, despite a healthy order book for contractors in 2015 and 2016

Infrastructure investments by the Omani government will steady the construction sector through to 2016.
Infrastructure investments by the Omani government will steady the construction sector through to 2016.

Oman could face a temporary slowdown in construction from 2017 if oil price volatility continues, an expert has claimed. 

An economic diversification programme currently underway in Oman, however, is expected to buoy investments in the country's infrastructure, hospitality, commercial, and residential schemes, a new study has found. 

Siraj Bhavnagarwalla, senior executive officer at Alpen Capital, warned, however, that the Sultanate could face financing roadblocks in light of oil price volatility, which is likely to impact all GCC economies. 

"Such a situation may push the Omani government to restrict state spending, hampering the growth of the construction industry, which is materially dependent on government funding," Bhavnagarwalla said. 

"The construction industry opportunity could be affected due to lower investments from the private sector, and declining disposable income levels.

"Furthermore, lower tourist inflow from oil-dependent nations may also indirectly hamper the growth of the construction industry," he said.

Oman's government continues to focus on employment generation and economic growth, Bhavnagarwalla added, stating this could lead the Sultanate to "come up with innovative ways to finance infrastructure schemes if public funds are squeezed by the downturn", Oman Daily Observer reported. 

"We (envision) new and innovative financing structures (such as Build Operate Transfer (BOT), Build Own Operate Transfer (BOOT), and other forms of public private partnerships being employed for some of these projects," he said. 

"The external debt position of Oman is comfortable and there is adequate headroom for innovative borrowing solutions to fund important infrastructure projects." 

Downturns in funding could also intensify competition in the Sultanate's construction industry, Alpen's expert added. 

"The GCC construction market has been facing intense competition over the past few years due to the entry of new players," he said.

This includes the merger of large developers, leading to the formation of larger organisations with enormous negotiating power. Such developments add to the woes of small and medium contractors in the region.

"Also, an increasing number of contractors vying for a project have considerably reduced the margins of firms in recent times.

"To counter this, we could see larger companies resorting to consolidation, geographical diversification and focusing on high margin business segments in order to protect market share and margins," Bhavnagarwalla added. 

Infrastructure projects launched by the Omani government have given most contractors "healthy order book positions for the current year through to 2016". 

"If low oil prices persist, we could see a temporary slowdown in the sector from 2017," Bhavnagarwalla added. 

"That said, we believe that the construction sector will continue to play a decisive role in transforming the Sultanate's landscape."  

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Construction Week - Issue 761
Mar 21, 2020