Confidence is returning to our construction market
Confidence appears to be returning to the Middle East’s construction community, not only in spite of market challenges but also, perhaps, because of them
The Middle East’s construction community hasn’t been afforded many breaks since the global economic downturn of 2008. In 2014, just as market conditions appeared to be returning to pre-crisis levels, the price of oil began to free fall.
Most of those who attempted to predict the its future in the immediate aftermath of this nosedive did so in vain. While optimists proclaimed that the market would correct itself, even the most pessimistic commentators were unwilling to entertain the possibility that it would dip below $40 per barrel. After all, prior to the drop, this figure was hovering above $110.
However, the pessimists were wrong and the optimists were very wrong. At its post-2014 lowest, the price of crude fell below $30 per barrel. At one point, there were even murmurs that the physical barrels cost more to procure than the oil they contained.
Although we have witnessed somewhat of an improvement of late (the current price of crude is just over $45 per barrel), the market is still a far cry from its 2014 peak. Unsurprisingly, with reduced government budgets and market uncertainty, this extended period of stagnation has done little to bolster confidence among the region’s construction outfits.
With this in mind, when Greg Kane, the newly promoted Middle East managing director of WSP | Parsons Brinckerhoff, told me that market sentiment had improved during the last six months, my ears pricked up (page 28). After spending the best part of two years speaking to cautious optimists, it was refreshing to interview to somebody whose optimism was unqualified.
Even more interesting were Kane’s reasons for believing that confidence was returning to our industry. He contends that sentiment is improving not only in spite of low the low oil price but, perhaps, because of it.
“The oil price has remained low for more than 18 months and, while that has had an impact, it hasn’t resulted in construction activities grinding to a halt,” he told me. “As this situation has persisted, I think that our industry has come to realise that it can continue to function well, in spite of lower oil prices.”
Unfortunately, the lacklustre price of oil is not the only threat to regional construction. Other externalities, such as the UK’s recent decision to leave the European Union, have been blamed for a softening within the UAE’s real estate market, for example. Nevertheless, such concerns don’t appear to be hampering the performance of local developers, many of which reported impressive financial results in H1 2016.
If WSP | Parsons Brinckerhoff’s Middle East MD is right, and our industry is beginning to realise that is not completely beholden to events beyond its control, this spells good news for the future of regional construction. As Kane puts it: “Confidence is a self-fulfilling prophecy; it engenders more confidence.”