UAE a bright spot as regional construction industry optimism fades

Longer payment periods, rising disputes and less favourable contract conditions hit sentiment in the Middle East.

The Lilian Tower under construction n Dubai's Business Bay. Antonie Robertson / The National

The UAE will remain a bright spot for the construction industry next year even as a survey showed that geopolitical concerns and lower oil prices will affect sentiment.

The study conducted by the global law firm Pinsent Masons revealed “its sharpest decline in optimism” in connection with market conditions, which it said were reflected in longer payment periods, rising disputes and less favourable contract conditions.

However, the UAE was found to be the strongest market in terms of opportunity in 2016. Qatar also showed greater promise for 2016 versus 2015 – with 33 per cent viewing it optimistically, compared to only 14 per cent in 2015. Saudi Arabia’s market potential dropped to 12 per cent in 2016 versus 40 per cent in 2015.

For the GCC region, about 32 per cent of the respondents were optimistic in their outlook for next year, as opposed to 77 per cent who were asked the same question a year ago.

Among the respondents, 16 per cent said that their order books for 2016 dropped by 10 per cent versus 4 per cent a year ago.

About 93 per cent of the businesses felt that contracts had become less favourable this year – showing a 14 per cent rise over a year ago.

The survey also showed that 60 per cent of those polled were involved in more disputes in 2015 than they had expected before the start of the year. Payment periods are also stretching this year, according to 95 per cent of the survey participants.

“This is the sharpest annual decline in optimism our survey has seen, and there is no doubt that economic and geopolitical concerns are playing heavily on people’s minds,” said Sachin Kerur, the regional head at Pinsent Masons. “It would seem that good fundamentals in many places are being obscured by the role that politics is playing. However, it is possible that as these issues lift there could be just as a swift a return to positivity,” he added.

In terms of GCC construction opportunities outside the Arabian Gulf region, Mr Kerur said that most of construction industry in the region is cautious about seeking opportunities in Iran and India.

“However, India is one of the few countries in the world to show strong economic growth and businesses located in the Gulf are ideally suited to access the country. I would encourage them to be more proactive on pursuing commercial opportunities in India, providing the right level of due diligence is conducted,” he said.

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