Looking at the Middle East, UAE can be seen as one of the fastest growing economy, with its construction industry ranked third among the construction industries of the Middle East countries. The construction industry is third largest economic activity after oil and trade, in the UAE, including approximately 6000 companies with most of the construction activities taking place in Abu Dhabi and Dubai. The construction sector can be broadly classified into five categories: Commercial, Industrial, Infrastructure, Institutional and Residential. One of the major driver i.e. Industrial constructionscan be further analysed, focussing on construction activities segmented into: new construction, repair and maintenance, refurbishment and demolition.
Historical (2008-2012) and forecast (2013-2017) valuations of the construction industry in the UAE using construction output and value-add methods, implies that the UAE construction industry increased in value at a CAGR of 0.49% during the review period.The reason of the growth can be attributed, among other construction sectors, to the growth in the industrial construction industry.
SWOT Analysis of the Construction Sector in UAE
| STRENGTHS
· Oil-rich country · Political stability · International business and investment from overseas · Growing non-oil sector · Tax free environment · Attractive salaries |
WEAKNESSES
· Inflation growth · Currency value instability (AED peg to USD) · Oil production spending increase, government saving decrease · Shortage of skilled manpower · Image of the ‘Disney World in the desert’ · Disparities between Emirates |
| OPPORTUNITIES
· The rise in oil income · Progress toward diversification into service sectors such as high-tech, logistics, ports, tourism, financial services, health, education and media · Global increase in oil consumption and oil price rise · Private sector-led economic expansion promotion |
THREATS
· Restart of Iran’s nuclear weapons programme · Conflicts in the GCC region and worsening security · Downside risks from the global economy · Worsening international financial market conditions · Competition from other emergent markets in the Middle East and worldwide |
From the analysis above, it is clear that the construction sector in UAE has strength and weaknesses as well. The potential capacity can be harnessed only if the opportunities are utilized in a profitable manner.
The UAE’s industrial construction industry is expected to exhibit increased growth rate and continue the boom in coming future, on account of expansion of the overall construction sector through increasing investment in infrastructure, residential, commercial and energy projects. The industry’s output value in real terms is forecast to rise at a CAGR of 6.52% in the next five years period; up from 3.55% during the period 2010-2014.
The promising future of the construction industry can be seen by observing its past trend. After facing the slowdown in 2008, on account of global financial crisis and with the recovery of GCC economies, UAE’s construction sector has exhibited sustainable growth over the years, with its value following an upward trend from 2009 through to 2011 and forecasted to be continuing with the same pattern in future as per the Dubai Chamber of Commerce and Industry. The industry is also contributing increasingly in the nation’s GDP and that this trend is also forecast to be continued in coming years reaching 11.5% of GDP in 2021. The reasons for this growth can be attributed to various macroeconomic factors conducive to the construction sector.
Key Macroeconomic Trends Driving Growth in UAE Industrial Construction Sector
UAE is one of the most diversified economies in the Gulf region. The non-oil sector contributes 14% of GDP in 2014. Govt. is focusing increasingly on manufacturing, services and construction, to leverage the economy by increasing the share of these sectors in the economy and hence reducing the effect of adverse oil and gas market conditions on the nation’s GDP. Govt. targets to increase the share of non-oil sector in the GDP to 80% by 2030.
| UAE ECONOMY SNAPSHOT | 2011 | 2012 | 2013 | 2014 | 2015 |
| Population (million) | 8.5 | 8.8 | 9.0 | 9.3 | 9.6 |
| GDP per capita (USD) | 40,072 | 41,685 | 41,980 | 42,067 | – |
| GDP (USD bn) | 341 | 365 | 379 | 391 | – |
| Economic Growth (GDP, annual variation in %) | 5.2 | 6.9 | 4.3 | 4.6 | 3.1 |
Some macroeconomic factors driving growth in UAE Industrial Construction industry include:
- The population of UAE which is increasing and is also anticipated to increase at a higher rate in future, necessitating the need of power, water supply, health concerns, increased food production through fertilizers etc. This ultimately necessitates industrial constructions of power plants, chemical and pharmaceutical plants, water storage etc. expanding the industrial construction sector.
- As can be observed from the increasing GDP, strong economic performance of UAE along with its strategic location has always attracted investors.
- Various investor friendly govt. policies, such as permitting non-UAE national freeholds and leaseholds are attracting Foreign Direct Investment (FDI) in construction sector.
- Due to Dubai hosting the World Expo, 2020, Govt. is investing in related infrastructure and facilities, as well as, investing for developing country into a tourist destination ahead of World Expo, is driving up the growth of construction sector.
- The UAE construction industry’s growth will be driven by the government’s plan to increase the share of renewable energy in terms of total energy consumption, encouraging investment in renewable energy infrastructure. The government aims to generate 7% of the country’s total electricity needs through renewable sources by 2020.
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Related Reports:
Commercial Construction in the UAE to 2019: Market Forecast
Worldwide Construction Industry – Opportunities in Developing Regions
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