The construction sector in the MENA region will continue to be supported by government spending in Saudi Arabia, Qatar and Abu Dhabi in 2012 as these markets have undertaken massive infrastructure spending plans backed by the governments, according to a new Fitch report.
"In Saudi Arabia and Qatar, infrastructure spending continues to be strong but with lower margins. During the construction boom, MENA region contractor margins have remained higher than international peers," said Bashar Al Natoor, Director in Fitch's EMEA Corporates team in Dubai.
"However, with the recently increasing competition, contractors have started to go for lower margins and Fitch expects this to remain the case over the next few years," Al Natoor added.
Fitch's outlook on Dubai's construction market was more cautious, which according to Fitch will remain fragile in the medium term. The key factors in assessing the construction outlook at the country level are government fiscal flexibility and the extent of historical infrastructure spending (below or above trend).
Fitch also noted that Abu Dhabi has cut its spending on construction-related projects, due to concerns about oversupply in the real estate market, an increase in the Emirate's financial commitments, and the slowdown in the global economy.
Nevertheless, key projects remain in the pipeline; some contracts have been delayed or possibly cancelled, as the Abu Dhabi government has prioritised major infrastructure projects.
The impact of this sharper-than-anticipated slowdown in the construction sector in Abu Dhabi could have some implications for contractors operating in the UAE.
Companies that operate in oil and gas producing countries with budget surpluses and clear investment programmes have historically benefited and are well positioned to benefit from the expected growth. Nevertheless, contractors with exposure to Libyan operations have been affected, with loss of the order book and future cash flow as well as increased risk of machinery loss.