Construction Market Growth in MENA

IMF GDP Forecast for the MENA Region

Amidst the whirlwind of economic shifts and fiscal policies tightening, the International Monetary Fund (IMF) has cast a spotlight on the Middle East and North Africa (MENA) region. As of Q3 2023, the IMF projected a modest GDP growth of 2.04% for the year, a significant drop from the impressive 5.56% seen in 2022. The dip is largely due to the bite of tougher fiscal policies and domestic challenges hampering many MENA economies.

What's driving these changes, you ask? Picture a region where oil-rich countries like Saudi Arabia and the UAE benefit when oil prices soar, creating fiscal surpluses that act like a protective financial cushion against global economic woes. Meanwhile, countries that import oil, like Egypt and Lebanon, grapple with economic burdens heightened by debt and inflation.

Oil, it turns out, plays a starring role in the economic narrative of the Middle East. During the high-price oil spectacle of 2021 and 2022, oil-rich nations reveled in fiscal gains, which not only buffered their economies but also fueled diversification and investment strategies. On the flip side, high oil prices can spell trouble for oil-importing neighbors, exacerbating economic pressures.

Under the lens of the IMF, the outlook for the region remains a patchwork of highs and lows. The expectation is slow growth that persists through 2024 as the global economy faces its own tribulations. Yet, nestled within these broad strokes are bright spots and opportunities for MENA's economic future, particularly as oil prices remain high, offering fiscal flexibility and confidence to oil-exporting countries.

Oil Exporting vs. Importing Economies

The Middle East and North Africa (MENA) region presents a fascinating landscape divided by its oil exporting and importing nations. According to recent International Monetary Fund (IMF) data, the economic fates of these countries are heavily influenced by their oil status.

Oil Exporting Nations

The likes of Saudi Arabia, the United Arab Emirates (UAE), Qatar, and Kuwait, among others, find themselves on the front lines of oil production. These countries are sitting atop approximately 48% of the world's proven oil reserves.

When oil prices surge, as seen during 2021-2022, these economies experience fiscal windfalls. Such periods usher in financial surpluses that arm these countries with increased resilience against global economic headwinds. Consequently, they enjoy heightened fiscal flexibility that feeds into investment confidence and the funding of diversification initiatives.

Oil Importing Nations

On the flip side, countries like Egypt, Jordan, and Lebanon face substantial economic pressures. Egypt's challenges include a shortage of hard currency and soaring inflation, despite positive structural reforms pre-dating the global pandemic.

The Egyptian economy, however, remains determined and is propelled by ongoing investments in infrastructure. Yet, it's important to note that the costly external debt is a significant burden, alongside the bottleneck of imports stuck at ports due to currency shortages.

Economic Recovery and Challenges

The MENA region's economic journey has been anything but smooth, characterized by fluctuating global commodity prices and tighter financial conditions worldwide. The disparity in fiscal strength between oil-exporting and importing economies continues to produce uneven outlooks across the region.

The MENA region's construction market is on an upward trajectory backed by robust pipelines and significant investments particularly in Saudi Arabia and the UAE. Central to this optimism is the vast array of projects planned across these countries which are anticipated to propel the construction industry forward in 2024 and beyond.

According to MEED, the construction projects pipeline in the MENA region has burgeoned to an estimated USD 3.7 trillion. A staggering 84% of this, amounting to approximately USD 3.1 trillion, is concentrated within the GCC countries. The focus is on transportation infrastructure, building real estate sector, educational and healthcare facilities to keep up with the region's growing urban population.

Geopolitical Conflicts

The MENA region faces extensive economic challenges due to rising geopolitical conflicts. These conflicts create a wave of uncertainty and exacerbate existing regional issues such as political instability, unemployment, and economic disparities. The geopolitical tensions contribute to higher uncertainty about the economic outlook, impacting the confidence of investors and governments alike.

The situation is complex, with the consequences of conflicts being heavily dependent on their duration, intensity, and geographical expansion. These tensions could potentially lead to disruptions in trade and international relationships, thus adding further pressure on an already strained economic environment. The uncertainty driven by conflicts adds another layer of complexity to managing construction projects and infrastructural development across the region.

Economic Challenges and Risks in MENA

The Middle East and North Africa (MENA) region, showcasing a tapestry of economic challenges and opportunities, grapples with an uncertain economic outlook. Recent data paints a somber picture as the International Monetary Fund (IMF) predicts a GDP growth rate of 2.04% for 2023, a significant drop from 5.56% in 2022.

Key factors contributing to this downturn include the global tightening of fiscal policies and domestic challenges specific to different MENA countries. Remarkably, the economic landscape presents a stark contrast between the oil-rich and oil-importing nations in the region. While oil-exporting countries like Saudi Arabia and UAE find some cushion in high oil prices, their oil-importing peers such as Egypt and Jordan, grapple with formidable economic obstacles.

The year 2023 saw project awards in the Middle East soar, posting new five-year records and setting a vigorous market far ahead of pre-pandemic figures. Remarkably, the UAE and KSA recorded surges of 232% and 94% respectively in construction project awards from the previous year's figures. Notably, the UAE's investment emphasis was on building sectors, reinstating its vibrant construction environment. Meanwhile, KSA continues channeling efforts into its PIF-led giga-project programs, notably including the NEOM and Red Sea developments. Such projects exemplify the country's commitment towards diversification from oil-dependent economic activities.

Despite the impressive strides in construction project awards in the region, Egypt discovered itself amid contrasting conditions. The Egyptian construction market faced a sharp 63% decline in project award values, influenced predominantly by inflationary setbacks and foreign investment hesitance due to perceived market volatility. Nonetheless, Egypt maintains a promising construction pipeline with strategic projects aligning with its 2030 vision.

As for the smaller markets, Qatar showed a 41% increase in project awards while Oman and Kuwait also noted substantial awards focusing on sustainable energy projects and infrastructure expansions. Bahrain, although witnessing minimal awards in 2023, is positioning itself through transformative projects like the Bahrain Strategic Projects Plan to serve as a business conduit to the prolific Saudi Arabian market.