Regional Overview - MENA Construction: Mid-Year Forecast Review - AUG 2017


BMI View: In response to lower oil prices and ambitious economic diversification plans in the MENA region, we have revised three of our construction industry forecasts between 2017 and 2021 . The region will continue to hold its position as one of the better- performing construction markets globally over the coming years.

In this article we outline revisions made in 2017 to the short-to-medium growth outlook for several construction markets in the Middle East and North Africa (MENA). These include:

  • An acceleration in anticipated construction sector growth in Oman, as the country effectively solicits foreign investment in service of its economic diversification programme

  • A slackening of construction sector growth in Saudi Arabia, weighed down by lower oil prices and the resultant economic slowdown.

  • A brightening outlook for Algeria on the back of continued progress of a key, multi-billion dollar port project

Saudi Arabia: Lower oil prices continue to take their toll on the Saudi Arabia's construction sector, with a resulting paring back and rationalisation of the project pipeline prompting us to revise construction growth for 2017 and 2018 substantially downward. The Kingdom's attendant economic weakness is the primary factor underpinning our short-term pessimism. Our Country Risk team expects the country to enter recession in 2017, which will negatively affect the country's ability to allocate capital into infrastructure investment. We note that there remain concerns over substantial cuts to the Saudi infrastructure project pipeline as the implementation of the National Project Management Office (NPMO) looks to make spending efficiencies ( see 'Construction: Worst Over, But Weakness Ahead', February 10).

Our positive view towards the tail-end of our five year forecast window remains intact, as we expect that Saudi Arabia will continue to prioritise infrastructure investment as a means to facilitate economic diversification under the auspices of its 'Vision 2030' plan. We are now forecasting 5 .0 % real growth between 2017 and 2021, down from 6.2% previously.

Saudi Arabia - Breakdown Of Government Spending
Source: Ministry of Finance, BMI

Oman: A burst of high-value investment pledges in the latter half of 2016 has prompted a substantial upward revision to our construction sector growth outlook for 2017. We are now forecasting real growth of 10.1% for the year, up from 7.4% previously. Oman has largely been able to offset declining oil revenues by attracting private sector investment, through its robust public-private partnership (PPP) framework and through traditional bilateral investment. We highlight greater levels of Chinese investment in particular as a key driver of future growth, with projects like the recently announced USD10.7bn Sino-Oman Industrial City funded by Chinese capital (see 'Chinese Investment To Further Diversify Construction Sector,' August 16 2016).

Infrastructure investment forms one of the central pillars of the Omani government's economic diversification agenda, supported by oil prices that we expect to gradually rise in the coming years. The government plans to invest an estimated USD20bn over the next 15 years to develop the country's transport infrastructure and has ambitious plans to establish Oman as a regional tourism hotspot, factors which inform our more positive longer term outlook ( see 'Government Support To Galvanise Transport Growth' , November 18 2016 & 'Tourism Emphasis To Energise Construction Sector' , June 26). We are now forecasting 10.6% real growth on an annualised basis between 2017 and 2021, up from 6.5% previously.

Fiscal Deficit to Persist
Oman: Total Revenue, USDbn, Total Expenditures, USDbn, & Budget Balance, % of GDP
f = BMI forecast. Source: BMI, Ministry of National Economy

Algeria: Our upward revision to Algeria's construction sector growth reflects ongoing progress on the USD3.5bn El Hamdania container port, which broke ground in March 2017 and is slated for completion in 2021 ( see 'Port Project Underpinning Growth, But No Game Changer', February 7). The port will be constructed by China Harbour Engineering Company and China State Construction Engineering Corporation, with the state-owned companies taking a joint 49% stake in the project (the Algerian government will retain 51%). Initial financing for the project is in place, with the African Development Bank loaning USD900mn. Given the presence of Chinese contractors in the project's construction phase, we believe it likely that multilateral funding will be further supplemented by Chinese capital as the project progresses through the pipeline. We are now forecasting 4.9% real growth between 2017 and 2021, up from 6.8% previously.

SELECT MENA MARKETS - CONSTRUCTION INDUSTRY VALUE, REAL GROWTH Y-O-Y (%)
2017f 2018f 2019f 2020f 2021f
f = BMI forecast. Source: National Sources, BMI
Algeria 4.05 5.61 5.23 4.93 4.91
Oman 10.08 10.49 11.62 12.22 8.81
Saudi Arabia 1.42 3.49 5.25 7.59 7.09