GCC project spending to feel oil price hangover even amid recovery

Last year was the worst recorded in terms of the value of project contracts awarded across all sectors in the region, according to data compiled by Meed.

The UAE, and Dubai in particular, held up better than most of their neighbours and led the GCC with more than $36 billion of contracts signed last year. Above, construction activity at the Dubai Canal. Tom Dulat / Getty Images
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Spending on large projects across the GCC will feel the after-effects of the oil price slump this year, even amid signs of recovery.

Last year was the worst recorded in terms of the value of project contracts awarded across all sectors in the region – construction, transport, oil and gas and power and chemicals, industry and water – according to data compiled by Meed, a business information company.

The value of infrastructure contracts awarded slumped by 44 per cent to US$100 billion compared with the year before, which itself was down at $178bn from a record high of $186bn in 2014.

The sharp drop in oil prices from late 2014 depressed spending across the board, although a rebound in recent months may help reignite project spending.

“With the outlook for oil prices improving, 2017 is set to see some improvement with strong recovery expected in 2018,” said Richard Thompson, executive editor at Meed. “But considerable uncertainty remains,” he added.

Meed is forecasting a rise of between 10 and 20 per cent in GCC contract awards this year, “but it will depend on many factors, such as implementing economic reforms and rolling out attractive [public-private partnership] contracts”, Mr Thompson said.

The worst case scenario for the GCC is for a further decline this year, to $93bn, with the best case a rise to $138bn, according to Meed.

Tracking project contracts is an inexact science, with variable transparency across public and private sector organisations.

The national oil companies in the region have sought to keep their major projects moving along to take advantage of a huge slump in private sector spending globally, which has meant pushing contractors on price and neither side has been keen to divulge project values.

Saudi Aramco, for example, is expected to see a sharp increase in the value of contracts awarded this year, according to Jean-Charles Guilhem, the head of 2B1st Consulting, a company that tracks oil and gas contracts in the region. He expects Aramco’s contract awards to shoot up to about $17bn from below $10bn in each of the last two years, driven particularly by downstream, such as its prospective refineries at Yanbu and East Kalimantan in Indonesia, and an oil-to-chemicals joint venture with Saudi Basic Industries. But he said the pace of contract awards could be highly variable over the next few years depending on the major reforms under way in Saudi Arabia, which include plans to sell a share of Aramco to the public, as well as a backlog of investment decisions.

“In 2017, many companies are in the same situation as Saudi Aramco, facing a mountain of investments they will have to review,” Mr Guilhem said.

The Meed forecast also notes that the value of “project workload” lags the award of contracts, which means, for example, that the construction sector in the UAE – the largest by value of contracts it tracks in the region – will continue to see a slowdown in actual spending.

The UAE, and Dubai in particular, held up better than most of their neighbours and led the GCC with more than $36bn of contracts signed last year, down from $42bn the year before. But even with a pick up this year, Meed forecasts project workload trends will decline by about 23 per cent.

amcauley@thenational.ae

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