Leaders UAE 2019: Construction remains GCC economic barometer
EXCLUSIVE: Diversifying regional economies will require more time and resources, Deloitte’s Cynthia Corby says
The year 2018 has been categorised as a period of recovery for the GCC, with the region noting 2% growth in gross domestic product (GDP) compared to -2% in 2017, when increased oil prices impacted investor sentiment.
Audit director of operations for the Middle East and Middle East construction industry leader at Deloitte, Cynthia Corby, said during her Economic Overview and State of the Construction Industry presentation at Construction Week’s Leaders in Construction Summit UAE 2019 that oil reliance remains a key trend despite the GCC’s countries steadily investing in diversification.
The UAE, Saudi Arabia, and Bahrain implemented value-added tax (VAT) in 2018, while Oman raised its corporate tax rate in the same year, which Corby said had impacted businesses as well.
She added: “[VAT] has raised some uncertainty in spends, and a number of companies are still choosing to wait and watch [in terms of] how to deal with VAT and the ultimate cost to the end-users.”
During her presentation, Corby said that both the UAE and Saudi Arabia have recorded significant progress in the implementation of their respective diversification plans, titled Vision 2021 and Vision 2030.
Addressing the audience during her presentation, Corby said that while several structural reforms had been implemented in the region to similarly spur and ensure future economic growth, diversification was a long process that would require buy-in and resource commitments from the public and private sectors alike.
Stating that 2019 had so far proven to be a period of stability for regional economies, Corby said that the GCC’s GDP growth was projected to touch 2.1% in 2019 and 3.2% in 2020, with the upward movement expected to be supported by megaprojects, as well as the “anticipated rise” in oil prices.
Commenting on the GCC’s funding requirements, Corby pointed to positive signs such as Saudi Arabia’s $7.5bn (SAR28bn) sovereign bond in January 2019, which was oversubscribed at the time, and similar success with sukuk arrangements in the UAE, especially Sharjah.
Corby said: “Fiscal deficits remain a challenge for the next two years, and [is adding] pressure to budgets, which impacts the construction markets significantly.”
She added that “megaprojects remained a key focus for builders in the GCC”, adding that it was important to understand ownership structure changes to boost foreign direct investment (FDI) flows in the region.
With just over a year to go before Expo 2020 Dubai opens its doors, “construction activities around the World Expo are expected to [complete] by the end of March 2020”, Corby said, adding that this could also impact corporate spending patterns in the months to come.
So far in 2019, contract awards worth $67bn have been recorded in the GCC, while the value of the projects for which these contracts were awarded is estimated at $25bn, Corby said, adding that both valuations were significantly lower than in previous years.
The oil and gas sector continued to drive contract awards, she continued, adding that and optimism was expected in the months ahead. For instance, construction projects worth $316bn are planned to be awarded in 2019-21 across the GCC, with much of this growth to be driven by mega-city development in the region, led by Saudi Arabia.
“The construction industry remains an important economic barometer in the GCC,” Corby added, concluding her presentation at Leaders UAE 2019.