• The construction industry in the Gulf Co-operation Council (GCC) is poised for a sustained period of growth, which will provide new and ample opportunities for domestic and foreign contractors, consultants and suppliers.

• Buoyant international energy markets and record high export revenue, as well as inflows of foreign investment, will help to improve national finances and enable GCC states to plough ahead with their growth plans for strategic sectors that will support robust construction activity.

• The GCC has a large pipeline of projects that include expansions to oil and gas sector production capacity, new residential and commercial real estate, upgrades to transport, power, and water systems and major industrial developments.

• Construction sector activity will be focused largely on Saudi Arabia and the UAE, with the former having the fastest-growing construction industry in the GCC owing to its enormous wealth, large market and long-term development strategies.

The construction sector in the GCC is poised for a period of strong growth in the short to medium term, outperforming the wider economy and recording growth in the region of 3.5‑4% a year on average in 2023‑24. The upbeat outlook reflects the boost to available project finance from record high energy export revenue and the ongoing pursuit across the GCC of long-term energy and non-energy sector development plans. The construction sector has a large pipeline of projects, where numerous contracts are yet to be awarded, across a wide range of sectors including energy, power, water and transport infrastructure, commercial and residential real estate, and industrial developments. Domestic and foreign contractors, consultants and suppliers are expected to benefit from a buoyant construction sector and ample opportunities to participate in lucrative GCC contracts from 2022 and through to 2026.

Financial boost for energy exporters

The positive outlook for the GCC construction industry is underpinned by a sustained rally in oil and gas prices that started in late 2020 and has continued into 2022. EIU expects oil (dated Brent Blend) to trade in a range of US$90‑110/barrel for the remainder of 2022 and average prices will remain elevated at about US$85‑95/b in 2023‑24. Oil prices at these levels are well above what is required by all GCC states—possibly apart from Bahrain—to break even on their fiscal and external balance balances. High revenue from oil and gas exports will continue to ease the pressure on national finances, help to rebuild financial buffers and enable GCC governments and state-backed organisations to plough ahead with investments in strategic sectors and projects that will support the construction industry.

Large pipeline of projects to deliver

Total contract awards for projects across the GCC rose back above US$100bn in 2021 following a pandemic-induced dip in 2020 when the value of total awards slipped below US$70bn. GCC states awarded about US$40bn worth of contracts in the first half of 2022 and the region’s project market is expected to be buoyant through to the end of the year and beyond. The pipeline of projects planned or under way in the GCC was estimated at about US$2.65trn at the end of June 2022, according to various official data. The pipeline of future opportunities is vast and largely concentrated in Saudi Arabia and the UAE, which account for about 60% and 20%, respectively, of GCC future planned construction and transport projects.

The combined oil and gas sector will continue to account for the bulk of contract awards, which often entails construction-related activity to maintain and boost production capacity. Other projects related to residential and commercial real estate, essential infrastructure (transport, power and water systems) and industrial developments (light and heavy manufacturing) will provide additional support to the construction sector and its supply chains. In June 2022 about US$77bn worth of construction and transport projects were reported to be at the tender stage and an additional US$352bn worth of contracts were at the design and study stage—mostly in government-backed infrastructure projects linked to the development of highways, railways, seaports, airports, bridges and water sewage systems. Real estate projects, energy transition, transport (especially railway development), energy sector capacity building (oil, gas and liquefied natural gas production) and industrial developments will feature heavily in the GCC project pipeline through to 2026.

Lingering threats and confidence issues

The outlook for the construction sector in the GCC is promising but there are significant, largely external, risks that could negatively affect the growth prospects of the sector. The ripple effects of Russia’s invasion of Ukraine, global monetary tightening and an economic slowdown in China are weighing on the global economy and creating strong headwinds for the region’s major international trade and investment partners. Global economic conditions are expected to deteriorate in 2023 and some major markets are expected to slow sharply or enter recession; most notable are a sharp slowdown of economic growth in the US and contractions across the EU and in the UK. These factors are already creating an element of uncertainty and caution within the GCC construction industry and among its clients, which could act to delay key spending and investment decisions until conditions become clearer. Moreover, business confidence may be upbeat but is fragile, which reflects the relatively recent large financial hit to firms operating in the construction sector triggered by the emergence of the covid‑19 pandemic in 2020. Looking ahead, construction companies operating in the GCC will need to account for potential risks associated with further covid‑19 outbreaks, additional supply-chain disruption and the prospect of rapidly rising input and investment costs.

The analysis and forecasts featured in this piece can be found in EIU Viewpoint, our new country analysis solution. EIU Viewpoint provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.