04 March 2008



Middle Eastern construction markets continue to prosper, driven, in many cases, by the wealth generated from high oil and energy prices. Although construction will slow from the 9.9% compound growth seen over the last five years, it is still expected to expand at a 7.0% compound rate over the next five years. These are real growth rates – nominal growth will be even higher as inflationary pressures are beginning to be felt in several of the region's major economies.

The larger story is the impact of diversification on the construction markets of the Middle East. Despite high prices, oil production is on a gradual downward trend for many nations, with investments being made for a less oil-dependent future.

After expanding at better than a 7% real rate over the last five years, construction spending on petroleum refining is expected to increase at less than 4% over the next five. Dubai's economic success, which has come despite having insignificant oil reserves, is encouraging not only other emirates, but also other nations, to follow similar economic strategies.

Abu Dhabi, Sharjah and Ras Al Khaimah are undertaking market-orientated economic reforms to attract more foreign investment. Oman, another country with limited oil resources, is paying the most attention to economic diversification than any other Gulf Cooperation Council member. It is developing its liquefied natural gas production and export capabilities as an alternative to oil, in addition to growing its petrochemical, manufacturing and tourism industries.

While construction spending is decelerating overall, growth will still be strong, particularly in the infrastructure sector. This segment broadly comprises energy, transportation and water & sewer projects. The driving force behind declining rates of growth is the energy sector, which expanded at more than 16% in recent years, but is projected to slow to less than 7% growth over the forecast. The transportation and water & sewer elements will do relatively better as the region develops the road, port and airport networks required by more service-orientated economies.

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