The UAE is planning to carry out projects in construction and other sectors worth around $494 billion, accounting for nearly a third of the total projects planned in the region, according to a Gulf business chief.
Despite tightened bank lending in the region, he construction market in the six-nation Gulf Cooperation Council (GCC), which controls more than a third of the world's proven oil deposits, remains one of the most active sectors in the world, with its value standing at nearly $1.5 trillion, said Abdul Rahim Al-Naqi, Secretary General of the Dammam-based Federation of GCC Chambers of Commerce and Industry (FGCCI).
Naqi said he saw a boom in the GCC contracting sector, with Saudi Arabia and the UAE alone planning to carry out projects worth $629 and $494 billion respectively.
"The GCC residential and commercial construction market is highly competitive and fragmented, marked by the presence of several small and big players across the value chain. The increased competition within the sector is likely to result in competitive bidding by the players and this is expected to drive down the profit margins of construction companies further… Many of them already suffer from high prices," he said.
Naqi said a trend by foreign firms to enter the GCC construction market in partnership with local companies would help reduce risks by both sides.
He said foreign companies, seeking to tap what he described as massive investment opportunities in the region, have the capabilities of handling large and complex projects.
"They are entering the GCC construction sector either in partnership or joint venture with established local players. The partnership or the joint venture model mitigates the business risk of both the partners significantly," he said.
"In pursuit of expanding their top line and geographical presence, the established construction and real estate companies are looking to grow both organically as well as inorganically through M&A route."