A multibillion-dollar cash injection from the state is supporting new growth across Oman’s construction sector, amid efforts to encourage the industry to source labour, services and supplies locally to broaden the contribution to its economy.
Oman, which accounted for about 6% of construction and infrastructure projects among the GCC countries as of April 2014, has $150bn worth of programmes planned or underway according to MEED. Oman awarded contracts worth $6bn-$8bn over the past seven years – making it one of the most stable markets in the region – with the value of spending expected to increase thanks to major projects planned over the next five years.
According to the sultanate’s current five-year economic development plan, running from 2011 to 2015, the government has earmarked around OR2.5bn ($6.5bn) a year to develop infrastructure. Priorities of the investment programme include alleviating pressure on Muscat’s ports and airports, and improving connectivity with the rest of the region. Transport is the primary focus of construction investment, accounting for 66% of the total.
The government announced in October 2013 that the country will spend more than $50bn in infrastructure projects over the next 15 years. From this budget, $20bn is earmarked for the transport sector, including Oman National Railway.
Investments have been growing incrementally over the past few years thanks to increasing oil revenues. Indeed, the construction sector performed strongly during the past five years, outpacing the overall economy by notching up average annual growth of 5.5%, according to data from the Oman Society of Contractors. The industry accounted for 5% of GDP in 2013.
A robust pipeline, particularly in the transport infrastructure sector, and investment associated with a burgeoning tourism industry will provide growth of 6.4% in 2014, Business Monitor International (BMI) estimates, while will average out at 5.4% over the next five years.
Not only is the scale of construction activity set to rise over the coming year, the scope of building development is also set to expand, according to Youssef Shammas, the managing partner of Target, an Oman-based contractor.
“In addition to the traditional drivers of the construction sector, mainly oil and gas and infrastructure projects, the activity in the power sector and on waste management projects is creating new prospects for local companies,” Shammas told OBG.
One segment that is likely to experience a cooling-off is real estate, due to existing oversupply in the market. However, an increase in projects in rural areas may offset this, added Shammas.
Another concern for construction companies is the impact of the government’s Omanisation policy, which favours firms that guarantee a certain proportion of their workforce is Omani – in the contracting sector, the figure is 30%. With 665,679 foreigners and 57,464 Omanis recruited in the sector - according to the latest statistics from the Ministry of Manpower - this presents several challenges for companies that rely on expatriate labourers and skilled staff.
However, raising local labour participation is seen as instrumental in keeping more of the wage bill within the country. It will also help to offset any skills shortages in the industry resulting from a reduction in the foreign workforce.
In another bid to keep value within the country, the government has bolstered efforts to support the local building material manufacturing sector by the introduction of its “in-country value” (ICV) initiative. The scheme requires firms to source services and products locally, especially in the materials segment, whenever possible. Obligations under the scheme vary between sectors, with the initiative focusing on manpower, developing new businesses, using local contractors for services and local content for the construction industry.
Devaki Khimji, the executive director for oil and gas of Al Turki Enterprises, said the initiative, launched last year, was positive, though it had some limitations, particularly regarding client specifications in the civil engineering space. “ICV is great and all companies should be procuring locally if they can,” she told OBG. “ICV in areas where it makes sense is possible, but it should not be forced in areas where the cost would make the company uncompetitive.”
Follow Oxford Business Group on Facebook, Google+ and Twitter for all the latest Economic News Updates. Or register to receive updates via email.
Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.
Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.
Register Here×Following delays, the long-awaited GCC Railway looks likely to be revitalised, a move that could transform trade and connectivity across the Gulf.
During a time of heightened global macroeconomic uncertainty, progress on new cities and mega-projects has helped Egypt maintain positive economic growth during the pandemic.
The Turkish Prime Minister Bulent Ecevit has spent the last week in the US hoping to garner support for economic reforms at home and trade concessions for Turkish exports to the US.
