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Gulf boom to return

Economic growth could return to the Middle East as early as 2010, delegates at the Arabian World Construction Summit in Abu Dhabi were told this week.

According to a report in NCE’s Dubai-based sister title MEED, the Gulf Cooperation Council (GCC) economy is likely to see a “short, sharp, shock!, with a recovery driven by an upturn in the oil price in 2010.

“We are forecasting a strong recovery from a comparatively short dip that will bounce back by 2010,” explained MEED events chairman Edmund O’Sulliavan. “With an average oil price of $60 a barrel, governments in the region will avoid major budget deficits and should be able to lift capital spending on vital infrastructure project in 2009.”

Delegates were also upbeat about prospects in the region. The majority predicted construction revenue to grow in 2009, and over 70% said the construction market would also show real growth in 2010.

Saudi Arabia was identified as a key region for construction activity going forward, followed by Abu Dhabi and Qatar. “The Kingdom [of Saudi Arabia] has announced its largest budget. Government will announce major infrastructure projects in the next few years,” said developer Saudi Oger’s vice president of corporate business development Ali Kologhassi. “There will be big opportunities for developers and contractors who are solid and not highly leveraged.”

However, consultants and contractors highlighted that the region faced some difficult challenges in dealing with the fall out from the collapse of speculative property developments in Dubai. “We are faced with a dramatically different scenario and a whole set of new management challenges,” said Dutco Balfour Beatty general manager Graham McCraig. “The reality is that there is not the volume of work. We have got to focus on quality turnover and quality clients – we have to take a reality pill and understand that the volume isn’t there.”

Late payment was also highlighted by delegates and speakers at the summit as a major and growing problem, with 85% reporting increased payment delays on last year. On major projects, with high turnovers, this could amount to hundreds of millions of dollars. “There is speculation over whether or not there will be a raft of arbitrations or claims launched,” said Andrew Greaves, partner at lawyer Trowers and Hamlins.

THE TURN AROUND

Public investment by the governments of the GCC states is the only way to turn around the current economic downturn in the Middle East, delegates at this week’s Arabian World Construction Summit in Abu Dhabi were told.

Collapse of the property market in Dubai, combined with the severe global banking crisis, has seen some $1.9 trillion worth of construction projects suspended across the region since last October, and left major parts of the industry in turmoil. “Private financed projects were leading the game in 2008 until the financial crunch. Now it is the role of the government to stimulate the economy,” Al Jaber Group chief operating officer Fatima Obaid Al Jaber told delegates.

“Government needs to stimulate the construction economy through investment in infrastructure projects.” Aldar Properties chief operating officer Sami Asad agreed that public investment in infrastructure was the solution and in particular pointed out that there was a huge demand for affordable housing. Asad added that although all of Aldar’s current projects would continue others, such as the Al Raha Beach project in Abu Dhabi – being developed in joint venture with Laing O’Rourke – would be replanned to include more middle end and affordable property. “We are optimistic for 2009,” he said. “There is still a lot of demand for affordable housing.”

Ali Kologhassi, vice president of corporate business development at Saudi Oger, added that Saudi Arabia’s high young population meant that the Kingdom’s demand for social housing had risen to around 1.5M units.

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