Construction company Mace Group said that tender prices in the Middle East and North Africa (MENA) region could improve in 2018 after a two-year contraction in project spending
The company said that an uptick in construction, driven by higher oil prices, and higher costs, could drive tender prices.
Oil prices, which hit multi-year lows in 2016, have recovered in 2018 on the back of production cuts from OPEC countries since late last year.
The drop in oil prices forced governments such as Saudi Arabia and the UAE to put in fiscal consolidation policies, cut subsidies and introduce a value-added tax, driving up input costs.
Mace Group said that the resulting higher costs could hurt margins for contractors in a market that remains competitive.
Megaprojects and privatisations
The company, which delivered the iconic London Eye, said that a string of mega project awards and a privatisation drive by governments in the region presented an attractive opportunity for private contractors.
Mace Group said it was seeing a trend reversal, with contractors increasingly vying for projects from Saudi Arabia as new projects in a key market like Dubai become harder to come by.
According to the report, a majority of the biggest construction projects in the region are from Saudi Arabia, which has announced a string of construction projects in an effort to cut its dependence on oil revenues.
Saudi Arabia launched a US$500bn project last year, the largest in the region, to develop Neom City. The plan includes a bridge, passing over the Red Sea, connecting the city to Egypt and the rest of Africa.
The report said that it expects privatisation of state services in the region to speed up in 2018 as governments look to reduce their balance sheets. It cited Saudi Arabia's plan to sell five per cent of Saudi Aramco, Abu Dhabi National Oil Company?s sale of 10 per cent of its gas stations unit among others.
Mace Group also said that construction sector would need to attract private investors as governments cut spending.
