15 January 2011
MUSCAT -- Oman's construction sector is set to derive the maximum benefit from the Budget 2011 and the Eighth Five-Year Plan as the government is ramping up spending on infrastructure development. Along with investments made in large-scale projects and propelled by information technology sector, the Sultanate is in good stead along with other emerging economies.
Sustained infrastructure build-up led to strong growth wave powered by large spends in housing, road, seaports, water supply and airports development. The construction sector has achieved significant growth during the last few years and its share to the GDP registered considerable increase. Preliminary forecasts of the plan show that GDP during its period will grow at an average annual rate of six per cent at current prices and five per cent at constant prices.
The fiscal framework is formulated to serve the objectives of the plan in general and stability and growth of the national economy in general. Oil revenues have been based on the expected increase of the annual average of oil production and at a rate of $59 per barrel during the period. The RO 850 million deficit will be financed from the budget surplus, if any, or from any other financing means approved in the budget.
According to experts, the deficit is within the limits of the previous budget. Though this deficit could be considered relatively high in terms of its absolute value, its rate to the GDP is within the economically safe and acceptable limits.
They say the increase in size of investments and expansion in the construction activity will provide additional work opportunities for the national workforce. As data shows performance during the Seventh Plan in regard to human resources development was exemplary. The present plan strives to widen the scope for more work opportunities for the nationals.
Construction sector arena is the major employment driver.
According to Nirmal Thomas, Director, Global Group of companies, this is because of the chain of backward and forward linkages that the sector has with other sectors of the economy. Several ancillary industries such as cement, steel, brick, and building material are dependent on the construction industry. A unit increase in this sector has a multiplier effect and the capacity to generate more employment and income.
From a policy perspective, the consensus is on private-public partnership for the removal of difficulties concerning the development of infrastructure in the country. During the Seventh Plan, the share of private players in the total investment registered remarkable growth.
"The Oman government's commitment to furthering the private sector role by stimulating domestic and foreign investments will ensure the private sector's role in contributing to the national GDP", Niraml says.
The steady growth recorded by the construction industry is on the top line and with strong order backlog, the next fiscal will be more promising, he adds.
With several construction and infrastructure projects are either in the initial stage or are progressing, suppliers of material to these sectors will be kept busy in the future. Many of the local firms including cement manufacturing and steel units have already increased output or are looking to boost capacity.
The government, during the plan period, under the investment expenditure item in the budget, will fund projects at a total cost of RO 6.6 billion. Of these RO 3,200 million will be as investment expenditure for oil production and RO 3,407 million as investment expenditure for gas production.
The total cost of the projects that will be financed by the government during the plan period under the participations item in the budget is estimated at RO 2.2 billion. Of these, RO 566 million for financing the projects of Oman company for tourism development, RO 800 million to finance the government energy companies working in electricity transport and water distribution and electricity supply, and RO 87 million to fund projects of the Oman sewage company and Salalah sewage company.
An amount of about RO 30 million is allocated to cover the operational expenditure of the new projects planned for operation in some ministries during 2011.
This will result in provision of new job opportunities plus the expected economic growth as a result of the operation of these projects, leading to an increase in private sector investment and social development in areas of these projects.
"The construction boom will pave way for foreign direct investment into the country thereby strengthening the economy further and diversifying the revenue streams. Already many international contracting companies have started moving in and tying up with local Omani constructions firms to be part of this economy build-up. This will vibrate strongly along this region and strengthening the position of Oman on the world market," adds Nirmal.
Real estate investments account for majority of the total construction investments. Favourable demographics, rising affordability levels, availability of financing options as well as fiscal benefits available on availing of home loan are the key drivers supporting the demand for residential construction.
"The accelerating investment in the Sultanate's infrastructure will be of significant benefit to the industrial sector, particularly in terms of logistics capabilities. This will lead to increase in real estate activities within the industrial sector," according to Matthew Wright, Strategic Consultant at Cluttons.
From a wider perspective, continuing and increasing investment into the development of the Sultanate allied to an expanding economy will undoubtedly provide impetus to the real estate market across all sectors, he says.
While long-term factors are likely to work in favour of the real estate developers, the outlook for the short term remains bleak. Also the fact that the realty companies have lined up huge projects, across all the segments residential, commercial, industrial and retail is likely to widen the supply-demand gap, going forward. Entry in to affordable housing is likely to pressurise margins but arrest the free fall in top line as witnessed during the downturn, according to experts in the sector.
Although demand-supply gap for residential housing has reached the equilibrium, demand for residential and office space segment is expected to continue.
Port of Salalah, a world- class transshipment hub, sohar Port and Industrial area and the southern port town of Duqum are the major areas now under focus. Development is progressing at rapid pace for several heavy industry projects including metal and petrochemical plans at these places.
Upgrade of Muscat and Salalah airports, construction of domestic airports and the planned railway project will add steam to the construction sector's engine.
MUSCAT -- Oman's construction sector is set to derive the maximum benefit from the Budget 2011 and the Eighth Five-Year Plan as the government is ramping up spending on infrastructure development. Along with investments made in large-scale projects and propelled by information technology sector, the Sultanate is in good stead along with other emerging economies.
Sustained infrastructure build-up led to strong growth wave powered by large spends in housing, road, seaports, water supply and airports development. The construction sector has achieved significant growth during the last few years and its share to the GDP registered considerable increase. Preliminary forecasts of the plan show that GDP during its period will grow at an average annual rate of six per cent at current prices and five per cent at constant prices.
The fiscal framework is formulated to serve the objectives of the plan in general and stability and growth of the national economy in general. Oil revenues have been based on the expected increase of the annual average of oil production and at a rate of $59 per barrel during the period. The RO 850 million deficit will be financed from the budget surplus, if any, or from any other financing means approved in the budget.
According to experts, the deficit is within the limits of the previous budget. Though this deficit could be considered relatively high in terms of its absolute value, its rate to the GDP is within the economically safe and acceptable limits.
They say the increase in size of investments and expansion in the construction activity will provide additional work opportunities for the national workforce. As data shows performance during the Seventh Plan in regard to human resources development was exemplary. The present plan strives to widen the scope for more work opportunities for the nationals.
Construction sector arena is the major employment driver.
According to Nirmal Thomas, Director, Global Group of companies, this is because of the chain of backward and forward linkages that the sector has with other sectors of the economy. Several ancillary industries such as cement, steel, brick, and building material are dependent on the construction industry. A unit increase in this sector has a multiplier effect and the capacity to generate more employment and income.
From a policy perspective, the consensus is on private-public partnership for the removal of difficulties concerning the development of infrastructure in the country. During the Seventh Plan, the share of private players in the total investment registered remarkable growth.
"The Oman government's commitment to furthering the private sector role by stimulating domestic and foreign investments will ensure the private sector's role in contributing to the national GDP", Niraml says.
The steady growth recorded by the construction industry is on the top line and with strong order backlog, the next fiscal will be more promising, he adds.
With several construction and infrastructure projects are either in the initial stage or are progressing, suppliers of material to these sectors will be kept busy in the future. Many of the local firms including cement manufacturing and steel units have already increased output or are looking to boost capacity.
The government, during the plan period, under the investment expenditure item in the budget, will fund projects at a total cost of RO 6.6 billion. Of these RO 3,200 million will be as investment expenditure for oil production and RO 3,407 million as investment expenditure for gas production.
The total cost of the projects that will be financed by the government during the plan period under the participations item in the budget is estimated at RO 2.2 billion. Of these, RO 566 million for financing the projects of Oman company for tourism development, RO 800 million to finance the government energy companies working in electricity transport and water distribution and electricity supply, and RO 87 million to fund projects of the Oman sewage company and Salalah sewage company.
An amount of about RO 30 million is allocated to cover the operational expenditure of the new projects planned for operation in some ministries during 2011.
This will result in provision of new job opportunities plus the expected economic growth as a result of the operation of these projects, leading to an increase in private sector investment and social development in areas of these projects.
"The construction boom will pave way for foreign direct investment into the country thereby strengthening the economy further and diversifying the revenue streams. Already many international contracting companies have started moving in and tying up with local Omani constructions firms to be part of this economy build-up. This will vibrate strongly along this region and strengthening the position of Oman on the world market," adds Nirmal.
Real estate investments account for majority of the total construction investments. Favourable demographics, rising affordability levels, availability of financing options as well as fiscal benefits available on availing of home loan are the key drivers supporting the demand for residential construction.
"The accelerating investment in the Sultanate's infrastructure will be of significant benefit to the industrial sector, particularly in terms of logistics capabilities. This will lead to increase in real estate activities within the industrial sector," according to Matthew Wright, Strategic Consultant at Cluttons.
From a wider perspective, continuing and increasing investment into the development of the Sultanate allied to an expanding economy will undoubtedly provide impetus to the real estate market across all sectors, he says.
While long-term factors are likely to work in favour of the real estate developers, the outlook for the short term remains bleak. Also the fact that the realty companies have lined up huge projects, across all the segments residential, commercial, industrial and retail is likely to widen the supply-demand gap, going forward. Entry in to affordable housing is likely to pressurise margins but arrest the free fall in top line as witnessed during the downturn, according to experts in the sector.
Although demand-supply gap for residential housing has reached the equilibrium, demand for residential and office space segment is expected to continue.
Port of Salalah, a world- class transshipment hub, sohar Port and Industrial area and the southern port town of Duqum are the major areas now under focus. Development is progressing at rapid pace for several heavy industry projects including metal and petrochemical plans at these places.
Upgrade of Muscat and Salalah airports, construction of domestic airports and the planned railway project will add steam to the construction sector's engine.
© Oman Daily Observer 2011
