Contractors in Gulf hydrocarbon producers need to create a joint bloc to serve their interests and face challenges arising from increasing foreign competition, the representative of the region’s private sector said on Sunday.
Contracting firms in the six-nation Gulf Cooperation Council (GCC) also need to enter partnerships with foreign companies and to merge to create bigger entities capable of vying with giant foreign contractors, the Saudi-based federation of the GCC chambers of commerce and industry (FGCCI) said in a study, sent to Emirates 24/7.
FGCCI said its forecasts showed the value of construction projects to be executed in the GCC could reach USD800 billion in the next five years.
It said the contracting sector in the GCC countries is poised for high growth in the coming few years in line with a projected 5-6% increase in their combined GDP to nearly USD3.6 trillion in 2016 from around USD2.4 trillion in 2012.
“It has become important for the GCC contracting companies to create a bloc to work for the development of their sector, face challenges, address their common interests and assess decisions on the sector issued by each GCC member,” it said.
The report said the challenges include the “tough” competition from foreign contracting firms, which it described as more capable financially and technically.
“This should prompt the GCC countries to give priority to local contractors to encourage them to enter partnerships with them, especially in rail and other projects with high added value which requires expertise and technology,” it said.
“Since finance is one of the main challenges facing GCC contractors, they should seriously consider merging to create blocs capable of vying with foreign firms following a surge in competition because of global mergers.”
The report said it expected the public sector to remain the “driving force” in the region’s construction activity mainly in the infrastructure and public services utilities, accounting for more than 50% of the total projects in the coming years.
In separate comments in Saudi Arabia, the head of the contracting commission said contracting firms in the Gulf Kingdom are expected to suffer from big losses this year because of high labour costs.
Fahd Al Hammadi was quoted by Al Riyadh newspaper as saying that the losses account for nearly 13 per cent of the total project value this year. He said nearly 80 per cent of the contracting firms could record losses in 2014.
Hammadi said the contracting committee had forecast such losses and proposed solutions but that they were ignored by authorities.