18 Dec 2020
Posted in Construction
MENA construction sector to slowly recover in 2021 as region ramps up vaccination programmes, says GlobalData
The construction output growth forecast for the Middle East and North Africa (MENA) region for 2020 is forecast to contract by 4.5% in 2020, before recovering with growth of 1.9% in 2021 and 4.1% in 2022, according to GlobalData, a leading data and analytics company. The 2020 contraction reflects the severe impact of the COVID-19 lockdowns and other restrictions on construction activity.
Yasmine Ghozzi, Economist at GlobalData, comments: “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.”
GlobalData has slightly revised up its forecast for Saudi Arabia’s construction output to -1.9% from -2.8%, and expects a recovery for the sector of 3.3% 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 SAR150bn ($40bn, 5% of GDP per annum) in the economy in 2021-22.
GlobalData still maintains its forecast for construction output growth in the UAE of -4.8%, with a rebound in 2021 of 3.1% 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 US$122.
Qatar, Kuwait and Oman
GlobalData has not changed its estimated growth rates for Qatar and Kuwait in 2020, at -4.5% and -9.5%, respectively. However, it has further cut the growth forecast for Oman to -10.3% from an earlier estimate of -8.1%, 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”.
GlobalData expects construction in Egypt to grow at 7.7% in 2020, slowing from 9.5% in 2019 – given a short-term slow down due to the pandemic – and 8.9% 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 $750m issuance. Bonds’ earnings will be used to fund projects that meet Egypt’s commitment to the UN goals for sustainable development.”
GlobalData expects Israel’s construction industry to contract by 8.9% in 2020, reflecting the significant fallout from the pandemic, with growth expected to resume at a modest pace in 2021.
Ghozzi comments: “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 end of 2020.”
In the Arab Maghreb, GlobalData maintained its forecasts for construction growth in 2020 for Morocco and Algeria to -5.5, and -3.4% 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% from an earlier estimate of -12.5%. 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.”