Middle East and North Africa construction output growth forecast sees 4.5% drop

The construction output growth forecast for the Middle East and North Africa (MENA) region for 2020 predicts a contraction of 4.5 percent this year, before a recovery with growth of 1.9 percent in 2021, and 4.1 percent in 2022, according to GlobalData.

The region is wrestling with two distinct but related issues: climate change, and the slowdown in oil demand.

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The data and analytics company reports that the 2020 contraction reflects the severe impact of COVID-19 lockdowns, as well as other restrictions on construction activity. Much will depend on its ability to embrace digital transformation.

Yasmine Ghozzi, economist at GlobalData, said: “The construction sector will face headwinds in 2021 with a slow recovery, but the pace of recovery will be uneven across countries in the region. Throughout 2020, and running to 2021, spending on real estate megaprojects, especially in the GCC, is likely to take a backseat as a result of budget revisions.

“However, large-scale projects in the oil, gas, power and water sectors have gained traction against the downturn in market conditions this year, and this is likely to continue. As a result, some local contractors are pursuing development in these sectors to replace the loss of real estate work.

“There is also a push towards decoupling power and water production across the region to reduce energy consumption continuing to provide the impetus for Independent Water Projects (IWP) implementation and in the future, there will be a lot of contract awards in that respect as the region pushes its renewable energy programme, particularly solar photovoltaic and wind.”

Saudi Arabia

GlobalData has slightly revised up its forecast for Saudi Arabia’s construction output to -1.9 percent from -2.8 percent and expects a recovery for the sector of 3.3 percent in 2021. This revision reflects an improvement in economic performance and the Kingdom ending a nationwide curfew at the end of September, lifting restrictions on businesses after three months of stringent curbs and a notable decrease in infection rate.

Recovery is also underlined by the crown prince’s announcement in mid-November that the Public Investment Fund (PIF) is to invest £29.5 billion (5% of GDP per annum) in the economy in 2021-22.

Nearly half of the construction of the five minarets of the Grand Mosque in Makkah is now complete.

The UAE

GlobalData still maintains its forecast for construction output growth in the UAE of -4.8 percent, with a rebound in 2021 of 3.1 percent and a promising medium-term outlook.

Ghozzi adds: “The recent approval of a new Dubai Building Code is a positive development for the UAE. The new code outlines a revised set of construction rules and standards and seeks to reduce construction costs by streamlining building rules.”

The UAE is proceeding with plans to expand its production capacity with Abu Dhabi National Oil Company (ADNOC) announcing its five-year investment plan worth £90.1 billion.

Qatar, Kuwait, and Oman

GlobalData has not changed its estimated growth rates for Qatar and Kuwait in 2020, at -4.5 percent and -9.5 percent, respectively. However, it has further cut the growth forecast for Oman to -10.3 percent from an earlier estimate of -8.1 percent, as the construction industry struggles with the challenges presented by the outbreak of COVID-19, low oil prices and the impact of sovereign credit rating downgrades.

Ghozzi adds: “The new fiscal plan launched by the Omani Government to wean itself off its dependence on crude revenues through a series of projects and tax reforms is a good step which will aid the construction sector recovery in the medium term”.

Egypt

GlobalData expects construction in Egypt to grow at 7.7 percent in 2020, slowing from 9.5 percent in 2019 – given a short-term slow down due to the pandemic – and 8.9 percent in 2021. The industry is also expected to continue to maintain a positive trend throughout the forecast period.

Ghozzi continues: “Egypt has become the first sovereign nation in the MENA region to issue green bonds with a £553.9 million issuance. Bonds’ earnings will be used to fund projects that meet Egypt’s commitment to the UN goals for sustainable development.”

Egypt’s comprehensive development plan provides varied opportunities for construction companies, such as the national project to develop the countryside which targets 1,000 villages nationwide.

Israel

GlobalData expects Israel’s construction industry to contract by 8.9 percent in 2020, reflecting the significant fallout from the pandemic, with growth expected to resume at a modest pace in 2021.

Ghozzi said containing a second wave of the virus, while trying to revive the economy and approve budgets for 2020 and 2021, are the government’s top priorities. “However, difficult decisions will be postponed, with the deadline to pass the 2020 budget being pushed to the end of 2020,” he said.

Arab Maghreb

In the Arab Maghreb, GlobalData maintained its forecasts for construction growth in 2020 for Morocco and Algeria to -5.5, and -3.4 percent, respectively.

Ghozzi adds: “Amid a second wave of COVID-19 with restrictions placed on public mobility along with increasing public sector doubt about economic prospects and social tensions continuing to cause shutdowns at oil and phosphate-manufacturing facilities, GlobalData has further cut its forecast for Tunisia to -13.3 percent from an earlier estimate of -12.5 percent.

“Recovery in the sector is expected to be very slow and expectation of an early legislative election is likely in 2021 but is unlikely to reduce political volatility.”

Source: www.constructionglobal.com