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GCC construction struggling through pandemic

The Gulf Cooperation Council (GCC) construction industry is as the other industries worldwide that have faced some crisis this year. The economic shocks of Covid-19 and falling oil prices left the demand for building materials such as rebar weak for most of the year.

Around 550 projects worth over $ 60 billion are known to have been postponed, delayed, or cancelled since March due to the virus, most of them in Saudi Arabia and the United Arab Emirates. Only $ 4.1 billion in contracts were awarded to the GCC in April, down by 40% from the previous year. In the United Arab Emirates, the construction sector is expected to contract by 1.9% this year against a growth forecast of 4.3% before Covid.

Shareholders of UAE-based construction giant, Arabtec Holding, voted in September to liquidate the debt-laden company after registering a $216mn loss in the first half of 2020. Drake and Scull, another UAE-based construction company, announced in October that it was in the “advanced stages” of financial restructuring talks with banks.

This has left the rebar producers in the Gulf Cooperation Council countries suffering from lower demand. Rising costs amid rising global raw material prices have also put pressure on factories to sell increasingly expensive materials in an ever-negative demand environment.

Mills are pessimistic, but most short-term forecasts expect the construction sector to return to growth in the first half of next year. The output is expected to remain below pre-pandemic levels regardless. Government measures aim to boost the flagging sector. Local authorities in Dubai allowed a revised set of construction codes in October to cut costs, simplify design processes, and diversify projects. Building fees have also been restructured in the Emirate to attract investment.

It is unclear how effective these measures will be like, but the pandemic is unlikely to impede construction in the area. As the GCC states seek to wean their economies from dependence on crude oil, the imperative to diversify through mega-state-sponsored projects such as the “Vision 2030” plan in Saudi Arabia will likely help the industry recover from the turbulent year of 2020.

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