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Contractors face slowdown in Abu Dhabi unless new projects come to market

Abu Dhabi’s construction sector is set to outperform the emirate’s wider economy this year, but there are fears that not enough projects are coming to market to replace those being completed.

BMI Research said Abu Dhabi’s GDP growth is set to slow to 2.8 per cent this year, down from 4.3 per cent last year. It said that construction would outperform the overall economy, with an average annual growth rate of 5.9 per cent predicted between 2016 and 2020 across the UAE.

Richard Marshall, a senior infrastructure analyst at BMI Research, said that there are US$103 billion worth of UAE projects under construction, with $45bn of that in Abu Dhabi alone – more than any other emirate.

The pipeline of projects due to come to market is just $62bn. Given that more than 70 per cent of the $103bn of live projects is due for completion in 2017, a potential slowdown in the sector awaits unless more tenders come to market.

Moreover, the biggest project in the pre-tender phase is phase two of the Dh40bn Etihad Rail project, which was suspended last month until a review for “the most appropriate options for the timing and delivery” of the project is undertaken.

Tenders for the project were first floated in mid-2012, but no contracts were ever awarded. Etihad Rail last month announced a restructuring following cuts to the UAE federal budget, with Bloomberg reporting that about 30 per cent of its staff were being laid off.

“Etihad Rail has said that the temporary suspension is because of its efforts to ensure the optimum delivery and timing, although ensuring that the project is implemented in the most cost-efficient manner is likely the chief factor in the decision,” said Mr Marshall.

“Other GCC markets have been slow to deliver on their sections of the planned network, which has lessened the pressure on the UAE to meet the 2018 deadline.”

On Wednesday, the ratings agency Moody’s said that Abu Dhabi was facing an economic slowdown as a result of government cuts in response to lower oil revenues.

Moody’s senior vice president, Steven Hess, said that a prolonged period of low oil prices could gradually erode the emirate’s fiscal buffers if it did not maintain prudent budgeting, but that it has enough reserves to be able to finance fiscal deficits for five to 10 years if it liquidated some of its assets.

“Overall, the [emirate’s] considerable foreign assets should mitigate the negative consequences of oil price volatility on Abu Dhabi’s fiscal and external accounts,” said Mr Hess.

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