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A Convenient Investment Environment and Transparency Drive Optimism in Gulf Construction Sectors

The Business Climate Index indicates that foreign investors will seek new technology standards, despite large start-up capitals

The coming year will witness accelerated construction activities in the Arab Gulf Region to meet the growing demand for residential units and investment enterprises, according to the Business Climate Index (BCI), a survey-based indicator that measures the pulse of the business community.

The index, which is a closely monitored leading indicator for economic activity, predicted a quantum change in the type of construction and realty sectors targeted by foreign investors who, according to the index, will seek new technologies and standards despite the huge start-up capital required by the industry. The index attributed this positive trend to the transparency and the rule of law that solidifies the investment environment in the region.

According to the BCI, these predictions are aligned with the recorded improved levels in consumer positive sentiment with respect to the current and future economic conditions in the construction sectors of GCC states. The predictions show remarkable consistency in the data revealed by the development indices in all Arab countries.

Al Mazaya Holding’s weekly report expects that the construction sector will be favorably affected by a set of positive factors that create optimism about the business outlook in this sector, including the inflation rates, which are considered one of the key indicators that determine industry prospects, overall attractiveness and the ability to survive pressures and generate ultimate profit potential.

The construction sector in the Gulf region will show remarkable progress on different platforms, which will reflect positively on the GDPs of GCC States this year and the next few years, during which good growth rates up of up to 3.4% will be achieved, according to the report. This is attributed to the growing interest displayed by the government and private sectors in the construction industry, with the governments of these countries vying with each other to improve their business environment by providing further impetus to reforms that improve their economic development efforts.

Most of the Gulf countries are suffering high inflation rates that reached up to 1.8 per cent in the first quarter of this year, the report indicated. The inflation caused by unsubsidised water, electricity and gas services is not included in this percentage. In this respect, the report highlighted that the GCC states’ decisions to lift the direct subsidy provided a large number of commodities, the top of which are energy by-products.

The report noted that Gulf countries are surging ahead with strategic future plans and visions aimed at ensuring top rankings at different business platforms. These plans are premised on increasing productivity and dependence on non-oil resources to boost their GDPs. Recent statistics show that the forecast growth of non-oil sectors in the region will reach up to 3.5 per cent during this year, with the construction sector spearheading efforts to improve confidence in different business platforms. Other production platforms, atop of which come processing industries, will play an eminent role in the drive of economic growth over the coming period.

The positive business outlook in the UAE creates more optimism and confidence as shown by the progress recorded by the business indicators during the second quarter of this year, according to the report. Up to 65 per cent of the companies operating in the UAE are planning to expand their investments over the coming period, with the industrial and construction sectors leading the optimistic outlook.

UAE’s first place ranking among Arab countries on the Global Innovation Index for 2016 provides considerable impetus for further improvement on different business platforms, not to mention to the set of rules and regulations and sophisticated infrastructure developed to cope with the new business developments – all these incentives have helped mitigate the impact of inflation and enabled the country to secure advanced positions on the foreign investment and market competency map.

The Saudi economy posted a 1.5 per cent growth rate during the first quarter of this year compared to the same period of last year, as per the Saudi Balance of Payments statistics, added the report. The KSA economy is expected to continue growing up to 1.3 per cent by the end of the year as a direct result of the recorded 5 per cent rise in oil prices.

Business indicators in Bahrain and Oman showed remarkable leaps, with Bahrain recording an advanced position on the Human Capital Index and Oman leading the Transparency Index.

This progress is coupled with persistent endeavors made by the GCC states to ensure accountability and transparency, despite the mounting pressures faced by the production sectors as a result of rising costs, reducing subsidy and the concomitant decrease in related activities and projects.

Al Mazaya Holding’s Report underlined the necessity of conducting close reviews of economic and investment plans and implementing cost optimization policies aimed at reducing inflation rates in order to ensure a positive business outlook over the coming period.

This positive business outlook will not be possible unless the property sector experiences further recovery and lures more projects. In addition, banking and credit sectors have to provide full support to fund these projects and investment plans in order to ensure the aspired business optimism levels. Strengthening private-public sector partnership is another requirement for these projects to see the light of the day.