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GCC construction sector expected to recover by 2018, Meed says

The GCC construction market is facing pressure from cuts in government spending, late payments, increased overseas competition, bureaucracy and staffing challenges, according to a report from Meed.

Yet despite all that, the Dubai-based research house expects the sector to recover across the GCC by 2018.

The recovery would be helped by an improvement in crude prices, which Meed anticipates will hit $60 a barrel by 2018.

Brent closed on Friday at US$48.72 a barrel, while West Texas Intermediate closed at $47.75.

Additionally, Meed said, value-added tax will have been imposed in all six GCC markets, adding at least $20 billion to government incomes across the Arabian Gulf. National oil company restructurings will be complete and trade with Iran should have recovered. The UAE will be also looking forward to Dubai’s Expo 2020, Meed said.

“A lack of liquidity is the biggest issue facing the GCC construction industry today," said the Meed editorial director Richard Thompson.

This could lead the market to “reinvent itself" through financing projects through public private partnerships (PPP).

“[PPP has] worked well in the power sector over the past decade and the opportunity now is to adapt the model for social infrastructure and transportation projects," said Mr Thompson.

According to Mashreq Bank’s executive vice president and group head of international banking, John Iossifidis, the GCC has to refinance $94bn of debt over the next two years, of which $52bn is bonds and $42bn is syndicated loans, the large concentration of which is in the UAE and Qatar. This could lead to a tightening in regional liquidity amid recent downgrades from credit agencies and higher interest rates.

In Qatar, the value of new construction contracts awarded during the first three months of this year fell to the lowest level in more than five years because of the government cutting back on infrastructure spending thanks to lower oil prices.

Meed said last month that GCC construction contracts awarded in the first quarter fell to $830 million – a decline of 92 per cent year-on-year, and a 70 per cent drop on the previous quarter.

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