How construction impacts our economy

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HH Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai and Vice President of the UAE, issued a note on 20 June 2015 on the “State of the UAE’s Economy”, outlining the performance of key economic indicators. He said “2014 has been the strongest year for the UAE’s economy since its foundation where GDP grew 4,6% reaching AED 1.47 trillion” and added that “Production in the UAE’s construction sector reached AED 295 billion ($81bn)in 2014, up from AED 155 billion ($42.2bn) in 2006.” HH Al Maktoum went on to say that they are expecting to continue achieving strong growth in 2015 as work continues on a large number of infrastructure projects, such as the expansion of national airports totaling AED 100 billion, building the Union Rail Network (a project worth AED 40 billion), in addition to roads and transport projects, new and improved tourist facilities, electronic infrastructure, real estate and financial services”.

This year’s annual Deloitte construction publication is around the theme ‘Construction – The economic barometer for the region,’ showcasing the interconnection between the construction sector and the economic development of the GCC economies.

Strong oil prices over the past years have boosted the economic growth of GCC countries, however, there has been a gradual move from an oil-based economy towards economic diversification, giving significant importance to other sectors of which construction has been key. Infrastructure and capital projects have been receiving the largest piece of government investment and the UAE has experienced a record boom in infrastructure projects. Proof of this massive construction activity throughout the country is apparent in the high concentration of cranes.

The United Arab Emirates is one of the fastest growing economies and one of the top construction markets in the Middle East with more than 6,000 construction companies operating in the country, and most of the projects taking place in Dubai and Abu Dhabi. The construction sector is expected to add 11,1 % to UAE’s GDP in 2015 and to grow at a CAGR of 11.3 %. Optimistic forecasts for the coming years are due to governments firmly focusing on diversification, the strong population growth, rising social infrastructure needs and governments’ high levels of liquidity – the construction industry is materially dependent on government funding.

Projects such as the Palm Jumeirah, one of the world’s largest man-made islands, or Dubai World Central (DWC) with an approximate value of US$ 45 billion, the Burj Khalifa and many other mega projects and tourism attractions (such as the Al Maktoum International Airport and the mixed use developments Al Reem Island in Abu Dhabi and MBR City in Dubai) all reflect the rapid development phase being experienced by the UAE’s construction sector. Tourism has been stimulated with some 20 million tourists visiting the country, and a wide range of commercial projects are planned and underway due to this positioning as a tourist destination. The UAE aims to underpin its position as a global center destination following the global event EXPO 2020.

Despite various challenges, the GCC construction sector remains robust. A favorable macroeconomic environment, government support and a growing tourism sector will ensure that it continues to play a crucial role in transforming the GCC countries landscape.

Source: Abu Dhabi City Info (http://www.abudhabicityinfo.com)

By: Cynthia Corby, audit partner and construction industry leader at Deloitte Middle East

The views and opinions expressed herein do not represent nor reflect those of Deloitte. Deloitte shall endeavor, as reasonably as possible, to screen such information which is obtained, to the best of Deloitte’s knowledge, from reliable source. As such, Deloitte cannot guarantee the accuracy of the information featured nor the validity of the opinions and/or analysis and interpretation expressed herein. Opinions, conclusions and other information in this interview/article which have not been delivered by way of the business of Deloitte are neither given nor endorsed by it.

This article contains general information only, and neither DTME, DTME affiliates nor any of Deloitte Touche Tohmatsu Limited member firms are, by means of this article, rendering any accounting, business, financial, investment, legal, tax, or other professional advice or services of any nature whatsoever. Information included in the article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. None of Deloitte Touche Tohmatsu Limited, its member firms, or its respective affiliates shall be responsible for any loss or damages whatsoever sustained by any person who relies on this publication.

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