Project awards across GCC decline in Q1 2019

This follows a 19.7 per cent contraction in project awards in 2018.

GCC project awards have remained well below the pre-2015 levels over the last three years.

“The weak awards reflect a number of factors in our view, including a number of megaprojects in Saudi Arabia still being in the planning and design phase, and Dubai and Qatar’s investment programmes maturing. Dubai was a key driver of GCC project award growth from 2013 to 2017,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank (ADCB).

Construction comes out tops

In the first quarter, 2019 project awards were dominated by the construction sector, which accounted for 39.5 per cent of the total in value terms.

The UAE comprised 65.2 per cent of the total GCC construction awards in the quarter. These included construction projects related to the gas sector in Abu Dhabi.

Water and oil projects were the second- and third-largest in terms of awards by sector, largely driven by Saudi Arabia.

“Some regional budgets point to a moderation in planned investment spending [Dubai, Oman and Qatar], partly reflecting the completion [or close to] of some central projects in Dubai and Qatar,” said Thirumalai Nagesh, an ADCB economist.

“In Oman, the importance of foreign funding for key projects and the government’s tighter fiscal position were likely factors in the slated fall in capital expenditure in the 2019 budget.”

In Saudi Arabia, a large proportion of projects will be implemented by the Public Investment Fund (PIF) and thus will not be reflected in the government budgets.

In the first quarter of the year, Saudi Arabia saw the highest awards, accounting for 38.2 per cent of total GCC awards in value terms and surpassing the UAE at 35.1 per cent.

Below average

The value of UAE projects awarded fell 45.6 per cent and 10.8 per cent on a year-on-year and quarter-on-quarter basis in the first quarter of 2019.

ADCB economists said some softening in project award momentum in the UAE in 2019 is expected, as was the case in 2018, as Dubai moves closer to Expo 2020 and uses the time remaining to complete ongoing projects.

Direct and indirect awards linked to Expo 2020 have been an important driver of project and economic activity in Dubai since 2014.

“We still expect Dubai’s investment implementation to strengthen in 2019 and early 2020 as projects are completed ahead of the event, which is planned to start in October 2020,” Malik said. “Positivity, signs of stronger award momentum in Abu Dhabi should limit the degree of overall softening in the UAE. Thus, we also see investment activity strengthening in Abu Dhabi in 2019.”

In Abu Dhabi, the value of project awards fell by 32.5 per cent year on year in the first quarter of 2019, though it was up 2.9 per cent quarter on quarter.

Refinery upgrade

“The annual contraction was due to the high base in the first quarter 2018 when a large project was awarded to upgrade the Ruwais refinery [$3.1 billion or Dh11.38 billion]. Indeed, the value of project awards in [the first quarter] was some 41 per cent higher than the quarterly average seen over the past three years,” said Nagesh.

A number of key projects were awarded in the first quarter of 2019, which the ADCB’s research team believes shows investment momentum continues to build.

This included projects related to the hydrocarbon sector, particularly gas development, and Etihad Rail Phase 2.

There has been a rise in hydrocarbon and refining-related projects since 2018 as the Abu Dhabi National Oil Company (Adnoc) moves ahead with its expansion plans.

Adnoc announced its integrated gas strategy in November 2018, which looks to achieve gas self-sufficiency for the UAE with the ultimate goal of becoming a net gas exporter.