government expenditure and some keynote private sector clients known to be greatly increasing their portfolios in the new year. With known budgets at client entities and government spending commitments aggregating at close to $30bn for 2018 and further growth expected in oil & gas as well as other developments coming to market, the forecast for awards is expected to be robust at c.$42bn. Buildings and associated infrastructure are expected to be a significant contributor with upwards of 40% of net awards, including significant developments in mid-range and affordable housing as well as continuation of funding for the national housing programme. Certain schemes are expected to move ahead in the new year that have experienced delays, be it funding, approval or other industry-related reasons. With expected strong economic growth, regional banks, traditionally among the main sources of capital, should be able to be more active in the market. Unlike many previous years, there has been a relative lack of awards in mega projects across the country, with the stand-out projects being the $3.9bn Dubai Solar Energy contract and Nakheel’s Deira Islands Mall. No one developer dominates the list of contracting awards. There has been a significant trend towards plotfilling – in essence, completing vacant areas in established master plan developments. Tendering activity is starting to pick up in the UAE, although any delays in awarding works remain a concern. Moving into mid-2018, we expect to see a meaningful return of the oil & gas sector in country as years of constrained investment mean upgrades are required by oil companies
GDP growth, 2008-2018 ($bn) 400 350 300 250 200 150 100 50
Average rebar price, 2017 (AED/tonne) 2000
UAE construction as a percentage of GDP 14%
and their partners. This can be supported by the historical procurement of major schemes by oil majors at the bottom of the market (as in 2008/9 when major schemes were awarded). Given the drop in awards, to survive the backlog drop, the industry needs to address productivity and utilisation, as there is little room for movement in the current competitive landscape, with low margins. We expect 2018 to be a significant year in moving through the innovation cycle for construction, as the industry has to adapt and adopt leaner processes and procedures with a focus on using analytics and new systems to enhance delivery. With lower than expected awards in 2017, inflation in the industry moved little. When compared to general inflation, the actual effect is one of small contraction. This also plays into a slight contraction in the percentage the industry contributes to GDP. With backlogs for most of the industry shrinking, leaving nearly $15bn of work to be completed this year, a rapid period of awards is required to move the industry from a contracting state to an even keel or expansionary period. The signs from central and Emirates-level government are encouraging, though for the private sector, further funding is broadly required – though there are several bankable organisations. With further fiscal uncertainty with Brexit, it is expected that European ECAs will become a greater contributor to deal making in 2018 and 2019. We expect inflation to be a little lower than previously forecast this year as the industry backlog has contracted more than expected. However, commodity prices are still expected to be firm, so these costs will have to pass through.
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