Mace forecasts tender cost increases in the Middle East

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Mace, the international consultancy and construction company, has today published its Middle East & North Africa Market View report for H1 2022. 

For two of its key markets in the Middle East, United Arab Emirates (UAE) and The Kingdom of Saudi Arabia (KSA), Mace expects tender prices for 2022 to increase by 1.5 to 2% and 7 to 7.5%, respectively, following the Ukraine crisis and ongoing supply chain issues caused by the COVID-19 pandemic.

The report notes that inflation in the UAE is weaker than in the vast majority of countries in the Middle East, even with low unemployment rates and mainly due to less dramatic material price rises. Still, the construction sector suffered more than the wider economy during the pandemic, and it will take another year for output to get back to its 2019 level. 

Although at a relatively low level, the increased tender price inflation this year is an indication that supply chain issues are only slowly easing and that the conflict between Russia and Ukraine is increasing the cost of energy and transport. 

For the KSA, Mace’s report shows that tender price figures are more in line with global trends. Propelled by market demand and material inflation, tender costs for 2022 will increase notably, similar to other markets around the world.

With numerous ambitious giga-projects in the pipeline, it is not surprising that forecasts for construction cashflow are at record levels. However, Mace’s report cautions that if the global economy cannot sustain oil prices over US$100 a barrel, then forecasts for construction growth in Saudi Arabia may need adjusting down.

Overall, the biggest risk to strong growth in the coming years is if oil prices were to fall back to pre-2022 levels. On the backdrop of the Ukraine crisis, this scenario seems doubtful, but with parts of the global economy looking likely to go through a period of stagflation, and the potential for recessions to follow, demand for oil may weaken and in turn prices could drop.

Steve Gee, Head of Cost Consultancy, Mace, Middle East & North Africa

“It has been fantastic to see significant new opportunities come to market following the relative quietness caused by the pandemic, particularly in countries like the UAE. This increase in construction activity is aligned to a surging oil price, which bodes well for capital works investment in upcoming years. Set against this backdrop, however, there are also headwinds and increased risks to consider around supply issues and the effects of the conflict between Russia and the Ukraine, which have driven global commodity prices sky high. The view we have on the ground in regions like UAE, KSA, Oman and Egypt show that tender costs are rising across the board.”