Boston, MA -- (ReleaseWire) -- 01/14/2013 -- UAE's 2011 real construction industry growth came in, as expected, just above 3%. The latter underpins our forecasts (expected 4.2% growth in 2012) of a gradually improving construction industry following the crash in 2008. Significant public spending and a burgeoning tourism sector is driving activity and picking up some of the slack left behind from the slowdown in the real estate sector.
However, we now see a more moderated scale of future projects, in line with a more realistic demand picture. We believe this outlook will be supported by ongoing, or re-started, projects, rather than a stream of new construction contracts.
Factors driving construction industry growth:
- The second phase of the US$11bn Etihad Railway Network - also part of the US$100bn Gulf Cooperation Council (GCC) Railway Network - has entered the tendering phase. Construction is scheduled to start early 2013 and will provide a significant boost to the construction industry.
- Progress is being made on flagship multibillion dollar projects, such as the expansion of Dubai and Abu Dhabi international airports. These projects sustain industry activity, though they are also seeing delays and downsizings, such as those experienced at the Al Maktoom International Airport (Dubai).
- We continue to see increasing opportunities in the hospitality and tourism sectors. Tourism and tourism-related projects provided a welcome source of value for the construction industry and wider economy in 2011. We expect this to continue through 2012 and beyond as the UAE, most notably Dubai and Abu Dhabi, position themselves as global business and tourism hubs.
- Though the nuclear power project in Abu Dhabi has been plagued by project delays and cost inflation - the cost estimate has risen by a staggering US$10bn since its initial announcement, taking the total to US$30bn - we have seen significant steps forward during the second half of 2012. US$3bn worth of contracts to provide, convert and enrich uranium has been awarded, and a frame-work contract has been signed with Canada, enabling the latter to export its technology.
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Downside risks to outlook:
- While certain large-scale projects are still ongoing, the pipeline for new mega-projects is very thin, with the Hassyan independent power project (IPP) - though facing undetermined delays, following a halted bidding process in April 2012 - being the last of the big-ticket projects on the agenda.
- Data and estimates on the value of projects that have been cancelled continue to surface. Citigroup estimates that from the beginning of 2009 to August 2011, projects worth US$170bn were delayed or cancelled in the UAE. The majority of these were in the real estate sector, the most notable of which were the Louvre Abu Dhabi, Zayed National Museum and the Guggenheim Wing, which are all facing delays of up to three years.
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