Kuwait builds momentum in construction

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Kuwait is seeing significant activity in its construction sector this year, with contracts worth $17.5bn already signed or on offer. There are also a number of large-scale projects already underway and at the stage of moving from the drawing-board to the development stage, adding further momentum. However, raw material supplies, including cement, are in short supply and could cause delays and cost increases.  

 

Emerging star

In a new report released mid-July, the value of contracts in the pipeline for 2014 represents more than a 50% increase on $11.17bn worth of contracts awarded in 2013, according to business consultancy Ventures Middle East. Project values have nearly doubled over the past two years as Kuwait pushes on with infrastructure and housing development, awarding contracts at a pace that outstrips the regional average.

Across the Gulf, a 22% rise in building works being contracted this year is forecast. Kuwait may still be behind many of its neighbours in terms of total budgetary outlays, but it is described as an “emerging star” by the report authors in terms of the rate of increase in construction spending.

“The UAE, along with Saudi [Arabia] and Qatar, are the top three markets for the construction sector in 2014, said Saleh Muradweij, managing director at Drake & Scull Construction, quoted by business intelligence portal Zawya.

This trend is likely to continue through to 2020 and beyond. Estimates by Timetric put the total value of projects in Kuwait already under development or expected to be launched - and completed over the next six to seven years - at $188bn. Zawya Projects Monitor data puts the figure at $205bn up to 2025 with a strong emphasis on transport, education and energy sectors, along with infrastructure development. Projects include a complete remodelling of Kuwait’s international airport, a $7bn metro network and up to $96bn on energy.  

Potential hurdles

While Kuwait has set out its long-term programme for infrastructure and economic development, there are concerns it will struggle to keep to the planned timeframe. The Emirate’s construction industry has in the past had to deal with projects being suspended or even cancelled.

Some of these problems have stemmed from bureaucratic difficulties. Projects falling foul of parliamentary oversight, with final approval for developments being stalled in the committee stage, have also slowed the flow.

Kuwait's construction industry will also have to contend with soaring regional demand for cement and potential price increases. According to a report by industry publication Cement World, regional demand for this and other building materials will surge as a result of increased infrastructure spending.

There is also strong competition in the Gulf construction market. Saudi Arabia, for example, leads the way and has budgeted for up to $700bn worth of works over the next two decades. However, Kuwait is also expected to be a significant market for building materials, with its cement industry set to account for around 10% of the Gulf Cooperation Council (GCC) construction materials market.

On the macro-economic front, supply shortages could increase inflationary pressure - directly through rising materials costs and indirectly should blockages in the supply pipeline slow the delivery of projects, in particular in the residential component of the industry where the private sector is more active.

Housing inflation, the increase in housing costs mainly fed via an imbalance between availability of residential stocks and demand, has been on the rise in Kuwait this year. A report issued by the National Bank of Kuwait in July said rising core pressures, especially in the housing sector, were expected to drive inflation higher this year, estimated to average 3.5%, well above the 2013 average of 2.7%.

On the positive side, increasing demand for residential properties will boost the non-infrastructure component of the industry with the private sector likely to step up investments in housing developments.

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