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- Dubai 05:29 06:47 12:13 15:10 17:33 18:51
Economies such as Saudi Arabia, Qatar and Abu Dhabi, which are greatly insulated from the global economic slowdown, are expected to drive the demand for mechanical, electrical and plumbing (MEP) services riding on increased government spending.
The GCC MEP services market is likely to witness a decline in growth for 2009 followed by a gradual pick up in 2011 and will grow marginally till 2013 (see box) as it is strongly associated with the construction sector.
It is expected to generate revenues of $22.446 billion (Dh82.37bn) by 2013, at a compound annual growth rate (CAGR) of 10.6 per cent from 2008 to 2013. This was revealed in a recent Frost & Sullivan study titled 'An overview of the mechanical, electrical and plumbing (MEP) services market in the GCC nations'.
The report said the UAE is the major driver for the growth of the MEP services market in the GCC, followed by Saudi Arabia and Qatar accounting for a combined share of 88.2 per cent and the remaining 11.8 per cent is shared by Kuwait, Oman, and Bahrain.
The report, written by Vivek Vijayakumar, Research Analyst, Environment and Building Technology Practice, South Asia and Middle East, noted that the GCC market for MEP services was still one of the most prominent and relatively more resilient markets across the world. The construction boom has fuelled the growth of the MEP sector due to the massive cash reserves generated from oil revenues over the last decade.
"MEP is mandatory and considered as the "service-on-demand" within the construction industry. According to industry sources, it makes up about 25-30 per cent of total project costs. The market for MEP services in the GCC is at the growth stage and the revenue was estimated to worth $13.539bn in 2008," said the report.
The MEP contracting companies either cater to the entire GCC or focus their operations on specific countries. As each GCC market requires operators to have a different licence to operate, the potential for synergies by operating in all the geographic markets are limited. In terms of market potential, Dubai and Abu Dhabi are clearly the leaders with higher margins and growth opportunities. Other emirates in the UAE have the advantage of lower business costs, limited competition and are less profitable, it added.
The commercial, residential, hospitality and infrastructure segments are the major end-user verticals that collectively accounted for 72.6 per cent of the total market revenues in 2008 while the remaining 27.4 per cent were shared among industrial, institutional, government and other buildings. It has been observed that high rise buildings, malls and hotels are expected to offer better profit margins.
The report said the GCC market for MEP contracting services was highly fragmented. The market players are competing with various international, regional and local companies. Following the recent construction boom, many new entrants are trying to establish themselves. However, there are companies which are still suffering from unattractive margins, the report said.
This has led to a shortage of quality contractors. Significant requirements such as having high levels of technical expertise, ability to bear the high risks involved, and withstand low margin pressures have deterred many new entrants. The competitiveness is believed to be sustained only if a company has a substantial operating history, proven track record, and reputation in the market. In future, new entrants, who are into diversified business segments attempting to consolidate into MEP contracting services market, could face stiff competition.
The report said the global financial crisis had halted, postponed or cancelled many projects in the private sector. Therefore, government spending in residential, commercial, hospitality and infrastructure projects was likely to drive the demand for the MEP market.
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