Dubai's Expo 2020 infrastructure spending to boost UAE construction sector

The UAE’s construction market remains on course to grow at a faster pace than its wider economy, fuelled by infrastructure spending in Dubai, according to one analyst.

BMI Research is forecasting growth of 6.6 per cent for the UAE’s construction market in 2016, considerably ahead of the IMF’s forecast of 2.6 per cent growth for the wider economy.

The value of the UAE’s construction industry is set to increase to Dh181bn in 2017 from an estimated Dh162bn this year, the firm said. BMI Research also predicts growth of more than 6 per cent for the following three years as Dubai ramps up infrastructure spending ahead of Expo 2020, but a fall off to 2 per cent to 3 per cent a year from 2020 onwards.

It argued that Dubai’s planned projects in real estate and energy infrastructure are “progressing well”, but said that Abu Dhabi had been more exposed to the downturn in commodities, as both government and private sector spending were more reliant on the oil & gas market.

Using remittances from the emirate to Pakistan as a proxy for construction activity (because so many many labourers in Abu Dhabi come from the country), it said there was a slowdown in activity for most of last year.

Despite this, BMI Research said that major projects such as the Route 2020 Metro extension on the Red Line, the expansion of Jebel Ali Port and the nearby Al Maktoum Airport would continue to drive activity. It added that even the postponed Etihad Rail phase two – providing the link to Dubai and Abu Dhabi – is likely to be built as it has been assured federal government funding and there remains a solid business case for the UAE to build its own network regardless of the wider GCC project.

“The UAE would gain a major competitive advantage over regional peers with the introduction of a rail service,” the report said. “Congestion on the UAE’s road networks has become a major issue, so removing significant volumes of freight traffic would be of dual benefit to businesses and the wider population.”

William Bodie, an executive vice president at US-based building consultancy Parsons, agreed with the report’s assertion that Dubai is likely to drive growth in the near future.

“In our work as a consultant, we’re seeing a heavier volume of proposals and work orders across the board in Dubai as compared with Abu Dhabi.

“That doesn’t mean there’s nothing going on in Abu Dhabi, but you are seeing the effects of the oil pricing model right now affecting things much more in Abu Dhabi than in Dubai.”

Yet Patrick McKinney, head of Gulf States for contractor BAM International, said that the 6 per cent growth figure put forward by BMI Research was “very optimistic”.

“There is activity in Dubai, for sure, but if you look across the region from Saudi Arabia to Kuwait, even Qatar and Oman, it is unquestionably slowing down.

“The real estate sector in Dubai is holding up for now, and there’s a bit of infrastructure work, but generally I don’t think anyone is saying it’s growing at six per cent. A lot of stuff has been in the planning stage for a while, but it’s been pushed back and delayed,“ Mr McKinney said.

“If you talk to the big consultants, they’re laying people off, which is a harbinger of bad times coming.”

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