DOHA: Qatar's construction sector will continue to be strong in 2012, but with lower margins. The country's construction sector will continue to benefit from the government's spending in the key sector, Fitch Ratings said yesterday.
The rating agency expects that the construction sector in Mena will continue to be supported by government spending in Qatar, Saudi Arabia and Abu Dhabi in the New Year as these markets have undertaken massive infrastructure spending plans backed by the government and government entities.
The Dubai construction market will remain fragile in medium term. The key factors in assessing the construction outlook at the country level are government fiscal flexibility and the extent of historical infrastructure spending, the rating agency said yesterday.
"In Qatar and Saudi Arabia, infrastructure spending continues to be strong but with lower margins. During the construction boom, Mena region contractor margins have remained higher than international peers", said Bashar Al Natoor, Director in Fitch's EMEA (Europe Middle East and Africa) Corporate team in Dubai. "However, with recently increasing competition, contractors have started to go for lower margins and Fitch expects this to remain the case over the next few years", Al Natoor said.
Fitch also notes that Abu Dhabi has been cutting its spending on construction-related projects, due to concerns about oversupply in the real estate market, an increase in the Emirate's financial commitments, and the slowdown in the global economy. Nevertheless, key projects remain in the pipeline; some contracts have been delayed or possibly cancelled, as the Abu Dhabi government has prioritized major infrastructure projects. However, a sharper-than-anticipated slowdown in the construction sector in Abu Dhabi could have some implications for contractors operating in the UAE.
A decline in project tenders across EMEA will increase competitive pressures. Contracting is inherently about managing project risk and completing on budget. Balancing this risk and reward in an increasingly thin margin business will be a key challenge for management in 2012. Companies that operate in oil and gas producing countries with budget surpluses and clear investment programmes have historically benefited and are well positioned to benefit from the expected growth. Nevertheless, contractors with exposure to Libyan operations have been affected, with loss of the order book and future cash flow as well as increased risk of machinery loss.
By contrast, countries with an extreme negative outlook are Spain, Portugal and Ireland-all severe fiscal consolidators with structurally well developed infrastructure. The UK market wills also contract over 2012 and 2013, although not as much as other fiscally restrained countries given the historical underinvestment in infrastructure, more active private sector involvement and better capitalised banking sector.
© The Peninsula 2012
