Oil and gas revenues will boost real estate and construction spending in the Gulf

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Construction and real estate in Saudi Arabia, the United Arab Emirates and Qatar, sectors that are critical to diversifying these economies away from hydrocarbons, are recovering from the challenges posed by COVID-19 lockdowns.

Income Windfall gains from high hydrocarbon prices are expected to drive construction sector performance in the rest of 2022 and 2023. The United Arab Emirates, Qatar and Saudi Arabia are expected to see healthy growth in total construction, estimated at 6.8%, 6.3% and 5.6%, respectively, in 2022. By 2023, all three countries are likely to continue to enjoy high construction growth rates, although Saudi Arabia is expected to overtake the two countries, posting a growth of 6.8%, while Qatar and the United Arab Emirates increase to 5.6%.

total construction spending data Middle East Qatar Saudi Arabia UAE

Relatively high consumer prices and tighter global financial conditions are unlikely to slow the trend significantly. The key constraint to the performance of these sectors is likely to arise from the supply side of the building materials market and the construction worker market. Demand for both is expected to rise, especially in Saudi Arabia, where several mega-projects are likely to face delays as building materials become increasingly scarce.

Weaker growth in other parts of the world will make relatively high projected growth in Saudi Arabia and other Gulf Cooperation Council (GCC) construction markets more attractive to foreign workers in the sector. Limited building material production capacities are likely to lead to increased building material shortages and increased building material price inflation.

Saudi Arabia

Construction sector results for the first quarter of 2022 have been disappointing in Saudi Arabia (and probably the UAE as well) as the sector was caught in recession during the COVID-19 induced lockdown in 2020 and 2021. A large number of foreign workers, who represent the majority of the workforce in the sector, returned to their home countries when the pandemic broke out and have been returning, albeit more slowly.

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Sector performance improved in the second quarter of 2022, as construction gross value added in Saudi Arabia was estimated to have increased by 8.0% in the quarter, seasonally adjusted. That result, combined with extremely strong growth in fixed investment, with the release of capital expenditures for planned megaprojects in addition to the sectoral recovery, convinced us to raise the construction sector’s production outlook for 2022 and 2023.

Most of the mega-projects in Saudi Arabia will become major tourist attractions, creating further multiplier effects for construction sector spending in the form of accommodation, services and other infrastructure. Thus, tourism, construction and real estate, among other sectors, will be boosted by large-scale projects, which are in line with the kingdom’s goal of income diversification.

The challenge for construction prospects in the kingdom is the availability of construction workers, especially qualified personnel, and the rising prices of building materials. Both of these factors are likely to be mitigated by an increased influx of construction workers, predominantly from countries in South Asia and East Africa, and the ongoing fall in building material costs following the spike in prices. of raw materials after the Russian invasion of Ukraine. The high demand could still cause shortages of both materials and workers in the kingdom in the short term.

Qatar

Qatar’s high overall construction growth has been fueled in part by ongoing preparations for the 2022 FIFA World Cup. It is estimated that Qatar’s economy spent more than 60 times what South Africa spent during the World Cup. World of 2010.

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Qatar is planning a pause for various construction sector projects during the World Cup, which will slow projected activity in November and December while the event takes place. We do not believe that the pause will cause a long-term slowdown in the activity of the construction sector in the emirate.

The question of the use of stadiums and hotel rooms after the world cup persists. While the risk could be partially offset by the prospects for increased tourism and hospitality in the coming years, especially in the event of a successful World Cup, the pace of construction and infrastructure spending is likely to slow markedly, relative to the previous World Cup. period 2022.

We assess that the main strength of the Qatari economy in this decade, after the World Cup event, remains the expected massive expansion of gas production capacity through the North Field expansion, which should increase capacity of gas production by more than 60% by 2027. It is likely to drive an expansion in economic activity, especially as fast-growing European economies seeking to replace Russian gas supplies will seek new gas production from the Gulf country.

Neo Construction Outlook Joseph Sibiya, Economist, Global Construction, S&P Market Intelligence

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Publisher’s note: The bullet points in this article were chosen by the editors of Seeking Alpha.

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