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UAE projects pick up momentum on higher government spending

The UAE witnessed solid increase in project awards in the first quarter of 2018 denoting improving investment momentum driven by higher public spending.

According to data from Meed Projects and Abu Dhabi Commercial Bank (ADCB) on project award in the GCC for the first quarter of 2018, the value of UAE projects awarded remained solid and markedly above the two-year average in the first quarter of 2018. Total awards in value terms were up 29.5 per cent year on year in the first quarter with both Abu Dhabi (up 97.3 per cent) and Dubai (up 7.8 per cent) seeing a solid increase.

In stark contrast, for the GCC as a whole, project awards softened in the first quarter of 2018 albeit with some variations in different countries’ performances.

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The total value of GCC project awards contracted by 8.8 per cent year on year and 25.8 per cent quarter on quarter though this drop came after a number of capital-intensive hydrocarbon and utility projects were awarded in the fourth quarter of 2017.

The UAE accounted for about 53 per cent of total GCC awards in first quarter of this year with broad drivers including the construction, power and hydrocarbon sectors.

“Awards in the first quarter of 2018 continued to show steady progress, supporting our expectations of an acceleration in investment activity in 2018 as a whole. The construction sector continued to dominate (44 per cent of the total value) but moderated for a second quarter,” said Monica Malik, Chief Economist of ADCB.

Construction projects continued to be led by Dubai, including projects linked to the Expo 2020 site, real estate and retail and hotels. Dubai awards in the first quarter were also boosted with over $1.5 billion of water and power contracts, including from Dubai Electricity & Water Authority (Dewa). This included projects to raise the capacity of the Aweer power station, a waste-to-energy plant, and the expansion of the desalination plant at Jebel Ali.

With the exception of the UAE, all GCC countries witnessed weak pick up in investment activities in the first quarter reflecting decline in project awards. Saudi Arabia saw above-trend awards in the first quarter of 2018, led by the construction sector. Despite this, analysts do not see any meaningful signs of a build-up in investment momentum in projects in Saudi Arabia to diversify the economy or meet vital infrastructure requirements. Meanwhile, the value of project awards in the remaining four GCC countries such as Bahrain, Kuwait, Qatar and Oman was weak in the first quarter 2018.

“The first quarter project awards data is in line with our expectation that it will take time for momentum to build in investment programmes across the GCC with the exception of Oman and the UAE, both of which saw a solid rise in project awards in 2017. We have already seen governments shifting their priorities towards reviving capital expenditure to meet medium-term economic objectives in their 2018 fiscal budgets,” said Malik

The strengthening of oil price is expected to support governments to move forward with projects to meet their medium-term economic objectives. However, foreign funding and some degree of private investment will remain important for certain projects to progress, especially in those countries with a large deficits.

Strong outlook

Despite the generally softer start to GCC project awards in 2018 (ex-UAE), analysts believe that the pace of awards could potentially pick up in the coming quarter from the first quarter 2018 levels. The pipeline of projects close to being awarded is solid — including on the construction, hydrocarbons and transportation fronts. The stronger oil price in the first quarter of 2018 is also expected to boost governments’ confidence to progress with projects, especially to meet their medium-term growth objectives.

Analysts see support to regional project awards in the coming quarters from some key sectors. Notably, a number of metro projects are expected in 2018, including in Dubai and Doha. Utility projects also still a priority across the region with the main objective being to increase capacity. A factor that could potentially slow down the award of projects could be the earlier timing of Ramadan (from mid-May) this year, which will be followed by the traditionally quieter summer period.

“We remain most confident in the UAE’s project market in terms of the outlook for planned projects being awarded. These include projects related to Expo 2020 in Dubai and hydrocarbon and refining contracts in Abu Dhabi. We estimate that the total value of UAE project awards in 2018 will surpass that of 2017, just as 2017 surpassed 2016, resulting in further acceleration in investment growth,” said Thirumalai Nagesh, an economist at ADCB.

Source: Gulf News

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