Kuwait’s construction gathers pace

With the government planning a series of big-ticket infrastructure investments and demand for private sector real estate developments heating up, Kuwait’s construction sector could be a strong performer over the next few years. However, concerns regarding project delays may have a dampener effect on investor interest.

Activity across segments

Kuwait is a relatively small player in the Gulf construction market, with global consultancy Deloitte estimating that it accounts for 10% of building work in the GCC region.

According to Deloitte, around three-quarters of construction work that is planned or under way is in the transport sector, which has benefitted from the government’s infrastructure investment programme. The energy and resource sector makes up a further 20% of construction outlays, with developments including a new refinery and facilities to boost electricity and desalinated water production.

Some of the projects in the pipeline are of a specialist nature, including a $4.2bn facility to extract heavy oil, set to be tendered before the end of the year, and a proposed large-scale aromatics plant, currently the subject of a feasibility study.

Also in the utilities sector, there are plans to expand wastewater processing capacity. Industry magazine Construction Week reported that Kuwait is set to invest $4.4bn in municipal water and wastewater projects up to 2016, representing another area of opportunity for contractors.

Steady growth forecast for this year and 2014

According to a recent analysis prepared by Kuwait Finance House, the construction sector is expected to grow by 3.6% this year, slowing to 3.4% in 2014. The reported noted that, while infrastructure projects valued at up to $20.5bn are in the pipeline, past delays have resulted in foreign investors being wary of Kuwaiti infrastructure schemes, with political bickering at times slowing progress or halting developments altogether.

This was a point also made in a recent report from business consultancy Ventures Middle East, published in August, which cautioned that expansion in the construction sector is contingent upon political and social consensus. If achieved, the state can push forward its medium-term plan to invest up to $108bn in economic development, with much of the focus being on infrastructure, housing and support facilities for social services.

“With a gradual return to political stability and better focus on the development of the manufacturing sector, growth levels are gradually likely to be restored with the major beneficiary being the construction sector,” the report said. Other positives include relatively low rates of inflation and steady prices for building materials, which will help keep costs within set boundaries, the Ventures report added.

Private sector home building could provide another area of opportunity for construction firms. According to the National Bank of Kuwait (NBK), residential property sales were up 35% in August compared to the same month last year, hitting $370.2m. Housing loan data from the Savings and Credit Bank, the state public lender, showed a sharp year-on-year jump for both the value of approved and disbursed loans for August, increasing by 410.1% and 77.4%, respectively. The composition of lending is also trending towards credit for the purchase of newly constructed units. Nearly 90% of the KD36.5m ($94.2m) in approved home loans in August was for new construction, compared to an average of 50% in 2011.

Though there is solid potential for the construction sector, a cautious note was struck by the IMF in early October, when it again lowered its growth forecast for Kuwait from its April estimate of 1.1% to 0.8%. The slow pace of rolling out the state’s infrastructure development programme was cited by the international lender as being one of the root causes of the downgrade in prospects.

While any further delays would likely have a negative effect on the broader economy, its impact on local contractors could be particularly acute. However, growth in the housing sector may be sufficient to offset at least part of the effect of delays in infrastructure investments.

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