Construction sector, arguably the biggest employer in Oman, faced unprecedented hardships during the year as the softening of global oil prices forced the government to delay many projects whereas ongoing liquidity crunch following the higher borrowings, plus visa restriction and other problems made life difficult for the industry.

The  sector currently accounts for around six per cent of the country's GDP as the government, over the past years, had invested heavily in improving infrastructure and in boosting economic activities thus creating a boom for the sector. Most people believe that these figures can be almost doubled through partnership with the government and the implementation of effective strategies.

The industry, which has been growing at double digit rate for the past years, suddenly felt the pressure in the second half of 2015 as declining government revenues squeezed budget for many upcoming and ongoing projects. Moreover visa restrictions imposed by the government as most companies couldn't fulfill the Omanisation target further aggravated the situation.

According to industry insiders, a vast majority of construction firms operating in the country are very small, and they don’t have the resources to meet Omanisation targets. As per available information, there are over 100,000 contracting firms in Oman. Most of them are without any infrastructure and offices, and are operated through one pick up truck and few visas. A large number of contractors have expressed their inability to meet the Omanisation target, and hence they struggled in getting the required labour force.

The sector also witnessed a steep increase in competition among companies to get government contracts. The competition also rose sharply in the sector as more and more foreign firms along with large number of new entrants from the local market also started looking to tap into the growing construction boom. Industry captains say that the firms from emerging markets such as China and Malaysia looking to widen their global footprint, and those from developed markets aiming to offset slowing growth in their home markets.

Another major problem with the sector was delay in payment for large number of workers. However, the situation in Oman was comparatively better than some of its wealthy neighbours. Oman has large number of small and very small contracting firms, around 80 per cent of the registered ones. Most of them provide manpower and material services to mid and large scale firms. With government delaying payments to large firms, smaller ones were the worst hit as most of them didn't have enough cash reserves to maintain business activities.

Positive outlook

Despite hiccups, most believes that construction sector will continue to grow in the near term as the government's push for diversification could means for more opportunities for the construction sector.

The government is aiming to attract 12mn tourists a year by 2020. And that means there would be an increasing demand for hotels, resorts and other leisure facilities such as marinas, golf courses and theme parks. Oman’s focus on high-end rather than mass tourism will require an expansion of luxury hotel capacity across the country, one that is already starting to take shape with projects like the ITCs.

The sultanate's latest five-year plan has earmarked an annual allocation of RO2.5bn for the tourism sector, of which 50 per cent goes for infrastructure development. According to reports by both BMI Research Group and Alpen Capital, Oman’s construction sector will remain robust. BMI is forecasting a 4.4 per cent growth in the construction sector despite weak oil prices and their impact on Oman's economy.

Omran is currently implementing an ambitious expansion plan and no projects have been put on hold in the tourism sector. Oman’s tourism has increased by 23 per cent over the last five years and the government will continue to invest in these projects to help diversify their economy from oil and gas dependency.

The Ministry of Transport was scheduled to award a contract to build the first segment of their impressive railroad project (Buraimi to Sohar in a 207km stretch)  this year. Oman Rail have also started issuing tenders for the construction of a further 1,207km of the railway network, which will have an estimated length of 2,135km.

Oman’s power and water sectors have numerous critical projects coming up which include OPWP’s tenders for the second phase of Salalah Independent Power Plant, several temporary water desalination plants, and Raeco’s RO153mn in the next three years.

As per an estimate by Deloitte, the total value of projects planned and under construction in Oman stands at US$163.5bn. These investments are spread across a wide range of segments, indicative of Oman’s efforts to develop utilities, transport and industrial sectors to support broad-based economic growth. 

© businesstoday 2016