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July week 5

Al Mazaya report says construction materials industry survives pressures on developmental plans

Construction materials industry accounts for 18% of total number of factories operating in Gulf region, an annual growth rate of over 7%

The construction material industry in the GCC region currently accounts for a significant share of the ongoing and projected investments. The growing importance of this industry is attributed to the significant correlation it enjoys with the construction sector, where current and future projects until 2020 are valued at more than $2.5 trillion.

According to Al Mazaya Holding's weekly real estate report, the construction materials sector in the countries of the region has been very important since the beginning of the development drive embraced by the GCC region. The sector contributes to increasing mobility and developing the industry. The pace of activity reflected by the construction materials sector at the present time is a testament to the strength of real estate and construction activities.

Current indicators in the regional markets show that the sector has been affected by the slowdown witnessed over the past period. However, it has managed to maintain a good level of cohesion and investment until the moment, and survived all pressures and headwinds.

According to the report, the high economic feasibility of this industry depends mainly on the natural resources boasted by the GCC region, including availability of raw materials and energy resources at reasonable prices in addition to the existence of promising investment opportunities that can be utilised to develop the performance of the sector and raise the volume of investments, considering the large number of employment opportunities provided by the industry.

With regards to the UAE market, the report confirms that the performance of the construction materials industry depends on the number of real estate projects being launched and, on the momentum, provided by the medium and long-term development plans. Therefore, the sector has gained exceptional importance that manifests itself in the continued pumping of projects across the UAE. Within this context, the World Expo 2020 Dubai augurs well and acts as a significant stimulator for the building materials industry. Accordingly, the residential real estate sector is reportedly expected to experience high demand and consequently higher prices on the back of the establishment of amusement parks, festivals, cultural events and large investments in infrastructure, which in turn have reflected positively on performance. It's worth mentioning that the Emirate of Fujairah will invest AED 550 million to establish a new cement plant, in a qualitative addition to the actual investments in natural resources that support the industrial sector development plans in the country.

The report pointed to the importance and feasibility of the construction materials industry in Saudi Arabia and its direct link to the implementation and achievement of the Saudi Vision 2030, which depends on the performance of this sector to contribute more effectively to the country's economic growth.

The Saudi construction sector has been able to achieve a boom on account of the increasing number of developmental projects. According to the report, the comprehensive application of the Saudi Vision 2030 will lead to improved performance on the financial and economic levels, which should create efficient performance on the construction sector in the Kingdom, given the fact that the construction materials industry is becoming increasingly attractive despite the immediate pressures surrounding it, and it is expected that the coming period will witness continuous growth in this sector in line with the noticeable population growth.

The report says that the legislation and regulations associated with the Saudi Vision 2030 will facilitate the establishment of new real estate units, hospitals, schools, universities and new parks, which will revitalise the sector and create growing demand for all construction products, which means new investments and higher GDP.

The report pointed out that the industrial base of the countries of the region has witnessed a state of expansion during the past ten years, with the number of factories growing by 5.7%. This comes due to increasing public and private interest in the development of the industrial sector through providing all forms of support for the provision of necessary infrastructure and the establishment of industrial cities in addition to the launch of industrial development funds and industrial incentives.

On the other hand, the cumulative growth rate of the capital invested reached 14%; such investments include new industrial projects which in turn have led to an 8% increase in the number of employees, given that the sector accounts for 18% of the total number of factories operating in the countries of the region with a growth rate of over 7% per annum. In the meantime, Saudi Arabia still comes on top of GCC states in terms of the number of factories, followed by the United Arab Emirates, then come Oman and Bahrain in the 3rd and 4th positions, respectively.

The report pointed out that the significant improvement in trade relations between the countries of the region and China will positively reflect in many fields and activities, and lead to win-win partnerships for all parties concerned. The report indicates that the trade exchange between China and GCC region amounted to more than $165 billion, with China-UAE trade exchange hitting AED196 billion by the end of 2016. The trade exchange between Saudi Arabia and China reached SAR 1.73 trillion in 12 years, with the volume of trade between China and the Kingdom of Bahrain standing at $2 billion, with additional plans still in the pipeline to augment the volume of trade between China and the countries of the region over the coming period. It is noteworthy that key Chinese investments in the region target wholesale and retail trade, auto trade, real estate activities, construction, transport, and telecom.

The report highlighted the need to take advantage of the development of trade relations with China to evolve the industrial sector and raise the value of exports, especially with regards to the construction materials industry.

The report also underlined the importance of the region's countries developing their own building materials as is the case in advanced industrial countries, noting that it has become growingly necessary for the GCC states to develop tools and means conducive to avoiding the excessive import of construction material and to rather give the opportunity to form large national productive industrial entities as an alternative through the current investments, which are still classified as a small and medium one and did not reach the advanced stages of mega capital investments. It is worth mentioning here that the volume of activities and the rate of demand over the past period were likely to push the industrial sector in the region forward to higher levels of development, but the ease of importing and obtaining materials quickly, due  to time constraints,  wasted the opportunity to develop a sophisticated and competitive industrial sector.

The report concluded that worthwhile investment opportunities are still up for grabs, should an appropriate assessment of the situation be conducted in harmony with the ongoing developmental plans.