New10 | Egypt Projects 2020

Construction 2017: A positive market outlook?

Perspectives

According to the International Monetary Fund (IMF), GDP growth across the Gulf Cooperation Council (GCC) is expected to have reached 1.9 percent by the end of December 2016. In 2017, it is forecast to increase to 2.3 percent. This growth is a reflection of a stabile oil price and increased market confidence, underpinned by strategic initiatives aimed at reducing oil dependency, such as Vision 2030 in Saudi Arabia.

The current oil price rebound has resulted in the price per barrel reaching anywhere between US$55-60, which is a marked improvement on previous lows of mid-high US$20 per barrel. That said, oil prices hovered around US$100 per barrel for a prolonged period of time until mid-2015, and it is therefore not unreasonable for oil-generating economies to tighten their belts against a backdrop of falling revenues.

This has meant that governments have been reviewing their budgets more closely and prioritizing expenditure on strategically important projects, rather than speculative or vanity projects. A decline in project awards has impacted the construction industry first and most profoundly. The markets most affected are Saudi Arabia, Qatar and Abu Dhabi, while Dubai, Oman and Bahrain have been less affected due to a greater level of economic diversification.

Impact on the construction industry is significant

The reducing volume of project awards has been a major issue affecting the construction industry, but it is not the only one. Due to the lower number of projects and tightened budgets generally, there is an increased level of competition across the industry to secure those few contracts that are still being awarded, and this has translated into downward pricing pressure, i.e. reduced margins when preparing project budgets or estimates.

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