THERE is renewed optimism in the region’s construction sector, according to PwC’s (PricewaterhouseCoopers) latest Middle East capital project and infrastructure survey, which indicated that about 75 per cent of the respondents expect an increase in spending in the next 12 months.
Mega events like the Expo 2020 in Dubai, UAE, and the Qatar World Cup 2022 as well as a focus on social infrastructure including housing, education and healthcare will drive increased spending, stated the study by the multinational professional services network.
However, the survey results show that there is a ‘capacity crunch’ looming on the horizon, meaning market capacity is failing to keep pace with demand.
PwC says there are two fundamental areas that will limit the ability to progress with project plans: people and financial resources.
There are already signs that these capacity constraints are beginning to impact project delivery. About 95 per cent of respondents say their projects are delayed, 45 per cent of which have been delayed by more than six months. However, client decision-making is also a big concern, with 35 per cent of contractors citing it as the greatest challenge they face delivering projects.
“Whilst our survey shows a good dose of optimism, there is a capacity crunch looming which threatens the delivery of projects. It is already having an impact, as we are beginning to see more delays on projects that are under way,” said Stephen Anderson, PwC’s leader of capital projects and infrastructure in the Middle East. “Broadly speaking, these problems have been apparent in our region’s infrastructure sector for several years, but the increase in activity is making them more acute. They need to be urgently addressed if the region is to deliver on its ambitions.”
The ability to find skilled people, both in terms of quality and volume, was identified as a key challenge for both project owners and contractors. “Difficulties securing funding are also expected to lead to project delays – our survey suggests that there simply isn’t enough funding available. The sheer scale of commitments is making private sector finance a more attractive, and indeed necessary, option for funding infrastructure projects,” Anderson said.
Respondents identified the UAE as their top target for investing in capital projects and infrastructure, closely followed by Qatar and Saudi Arabia. Strong economic growth and budget surpluses in these countries provide the backbone for ambitious spending plans, as their governments continue to invest in economic diversification while at the same time spending to maintain or expand hydrocarbon and downstream petrochemical production.
However, optimism in the rest of the region is not as high, as political instability continues to affect confidence.
The 2014 Capital Projects and Infrastructure survey was completed by 130 of the region’s most prominent project owners, developers, contractors, advisors, and financiers. They provided their views on the challenges they faced in 2013 and early 2014, and their outlook for the coming 12 months.