Leaders UAE 2017: Economic review and outlook from Deloitte
Deloitte Middle East’s regional leader discussed the current and future state of the Gulf’s economy, and its impact on regional construction activities
Deloitte Middle East’s regional leader discussed the current and future state of the Gulf’s economy, and its impact on regional construction activities...
Cynthia Corby, audit partner and Middle East construction industry leader at Deloitte & Touche Middle East, said she is optimistic about the growth prospects of the GCC’s construction sector.
Delivering a presentation entitled ‘Economic Review and Outlook: A Region Rebounding’ at Construction Week: Leaders in Construction UAE Summit 2017, Corby said that despite a relative downturn in the Gulf's economy, forecasts for the regional construction sector are positive.
Corby’s presentation followed the event’s keynote address, which was delivered by Ahmed Al Khatib, vice-president of real estate and delivery at Expo 2020 Dubai (p22).
Commencing her speech, Corby said: “Just listening to what’s happening [in terms of] Expo 2020 Dubai reminds me why it’s very exciting to be involved in the region’s construction sector, despite the challenges that we’ve all faced over the last couple of years.
“If we look at the regional economic backdrop, you’ll find that we have faced several challenges, and it’s quite interesting when you put the data together and start analysing it to understand what’s actually happening.”
Corby said that growth of gross domestic product (GDP) has significantly slowed down across the region as a result of the challenges posed by low oil prices.
“If we look at Saudi Arabia, it is expected to [record] close to 0% growth in 2017, and [the figure stands at] 1% in the UAE.”
According to the International Monetary Fund, Corby continued, the GCC’s fiscal deficit amounted to $160bn in 2016, and may narrow in 2017 due to higher oil prices. Corby also pointed to structural reforms underway in the Gulf, and a slowdown that has followed government-led budget reassessments, especially in Saudi Arabia.
“New revenue measures are now being adopted by governments,” she added, citing the value-added tax (VAT) as a key part of the Gulf’s drive to boost its economy.
“There was some speculation that VAT’s implementation would be delayed, but Saudi Arabia and the UAE have issued their [laws] for the system, and it is on track to be implemented.
“This will affect the construction industry,” Corby said, adding that VAT’s “cost to the end-user is still something that people are weighing up”.
Project spending in the GCC this year is anticipated to be in the range of $100bn to $120bn, the Deloitte leader revealed.
She continued: “Last year ended with $117bn in project spending, and we know from the [earlier] years of significant growth that the figure has been [between] $140bn and $150bn, so a significant slowdown [is noticeable].
“In the UAE, contracts worth $34.5bn (AED126.7bn) are expected in 2017, so we are anticipating lots of activity in the last quarter of this year, and [according to] some of my contacts, there seems to be a lot of optimism in the market.”
The value of projects awarded in the UAE in 2016 was $42.3bn (AED155.3bn), significantly higher than this year’s anticipated figures. However, as Corby pointed out, priority schemes covering social infrastructure and housing, transport, and power and water projects, are moving forward as planned. Additionally, regional governments continue to target the private sector for funding, as is perhaps best evidenced by the introduction of public-private partnership (PPP) laws in countries such as the UAE and Saudi Arabia.
Corby explained that since “no significant PPP projects” have been announced – with the exception of a few major schemes in the space of power and water – there is ample growth opportunity in the PPP sector. For now, the power and transport industries together account for almost 65% of the value of planned and ongoing PPP projects in the GCC, which is worth $169bn.
She added: “There are significant opportunities in the pipeline, but [there is] risk associated with those developments for which planning and design is incomplete.
“This [trend] is one we continue to witness in the market, so we’re encouraging developers to weigh their development [costs] and [finalise] their designs before commencing construction.”