Although oil is often regarded as the Arabian Gulf’s lifeline, the construction industry has emerged as a new economic driving factor in the region.
The two are undoubtedly linked. Higher oil prices provide Gulf States with ample revenue to spend on construction projects. Yet, despite the recent fall in global oil prices, the Gulf construction market has remained relatively strong, even as some countries look to reassess their budgets.
Saudi Arabia is a prime example of this reality. Since 2010, the Saudi construction industry has grown by an average of around 10 percent annually. Current estimates place the value of planned construction projects in the Kingdom at over $1 trillion, with several ventures aimed at improving the country’s transportation, healthcare, and education infrastructure. The Kingdom remains committed to its construction industry amidst falling oil prices, although building priorities may require a bit of reshuffling.
“There is no doubt that the Kingdom will face challenges in these years, which requires prudential measures, diversifying our economy, and rationalizing public spending,” Saudi Finance Minister Ibrahim al-Assaf explained during a conference in Riyadh this past May.
Al-Assaf is referring to Saudi Arabia’s attempt to diversify its economy away from oil. The Kingdom has put $100 billion towards building the King Abdullah Economic City, located on the country’s western seaboard. Saudi leadership anticipates that the city will serve as the main manufacturing and logistics hub for the Red Sea region and as a leading international port connecting Europe, the Middle East, and East Asia.
Qatar and the United Arab Emirates (UAE) are two other countries that remain devoted to their construction sectors despite the fledgling oil market. In anticipation of the upcoming 2022 FIFA World Cup, the Qatari government has handed out $200 billion worth of contracts, with approximately $20 billion being allocated toward improving Qatar’s transportation infrastructure and an additional $32 billion designated for stadium building.
The UAE is also surging ahead with its construction plans. The country’s construction sector is expected to grow by 9.3 percent in 2015, as the country continues to prepare for the 2020 World Expo in Dubai.
It remains to be seen whether the Gulf countries live up to their ambitious construction commitments and fulfill all of their contractual obligations. Nevertheless, it appears that the region’s construction boom is indeed built to last.
Bennett Seftel is the Deputy Director of Editorial at The Cipher Brief.
