Sharp decline predicted for construction in MENA region – with one exception

Economic analyst GlobalData has predicted that construction output in the Middle East and North Africa will fall by 2.4% as a result of the coronavirus, reduced oil production and shrinking non-oil sectors.

However, countries will be affected differently, and one – Egypt – is set to experience rapid growth despite the pandemic.

Yasmine Ghozzi, an economist at GlobalData, said: "While there is usually weak construction activity during Ramadan and the hot summer months of June, July and August, this is usually compensated by strong performance at the beginning and end of the year. However, this will not be the case this year due to the strict lockdown policies that extended until the end of May."

She added that the region was likely to make a slow and uneven recovery next year, hampered by a slowdown in public investment owing to the decline in hydrocarbon revenue.

The lack of government spending means that infrastructure projects will face delays, and tax increases may reduce demand in the commercial and residential sectors.  

The largest economy in the region, Saudi Arabia, is now facing a 1.8% decline rather than the 2.9% growth expected before the pandemic.

Rating agency S&P Platts reported in May that oil revenue had fallen by more than half in the kingdom, and its foreign reserves fell $27bn in March to $464bn.

Another rating agency, Moody’s, said at the time that it expected government revenue to drop around 33% in 2020 and about 25% in 2021, relative to 2019.

The smaller Gulf petro-economies are facing sharper contractions, with the UAE’s construction output falling 2.1%, Oman’s 3.4%, Kuwait’s 7.8% and Qatar’s 8.1%.

GlobalData’s Ghozzi singled Kuwait out for criticism, owing to its "business unfriendliness" and its "inflexible bureaucratic procurement setup that slows decision-making will delay progress for several Kuwaiti megaprojects".

Opec+, consisting of the Opec members and non-members such as Russia, agreed in April to cut supply by almost 10 million barrels a day, about 10% of global production.

Since then, the Opec basket price per barrel rose from around $12 to $37 at the end of June.

By contrast with the Gulf states, Egypt’s construction sector is set to continue growing despite the poor performance of the non-oil sector in April. GlobalData expects construction to grow at 7.7% in 2020, compared with 9.5% in 2019.

Elsewhere in the Maghreb, Morocco’s construction sector is expected to contract by 2.1%, Algeria’s by 2.5% and Tunisia’s by 3%.

Image: Saudi oil revenue has reportedly fallen by half in 2020 (Dreamstime)

Further reading:

Story for GCR? Get in touch via email: [email protected]

Latest articles in Markets