Construction challenges in the Sultanate of Oman
After decades of heavy investment in infrastructure and sustained growth in construction, the economic climate in the Sultanate of Oman has changed, presenting the construction industry with new challenges.
Low oil prices and government budget adjustments have had a considerable effect. There are fewer projects awarded and more delays and cancellations. This has led to increased competition in the market and very low margins. Making matters worse are payment delays and deferments which have constrained cash flow within the industry.
Faced with these challenges some contractors have gone into liquidation while others have left the country in recent years. The trend has developed of very low tender prices with contractors buying work to support cash flow and retain staff. Clients and their project delivery teams are advised to make thorough checks on all contractors and key sub-contractors to ensure their potential contractors are financially robust with the resource to see the project through successfully.
There are positives. A government driven economic diversification programme focused on moving the country away from its dependency on oil-based revenues is leading to tourism and industrial projects across the country. Large hotel and industrial projects have started or are about to start. In 2018 the Ministry of Oil and Gas proposes to invest USD11bn in various upstream and downstream oil and gas projects. Natural gas production in the new Khazzan gas field will also help with government income and support the proposed infrastructure and diversification programme.
However, there are also negatives which are impacting growth in 2018. This January, in a bid to stimulate employment and drive the Omanisation initiative in the private sector the Ministry of Manpower issued a six-month visa freeze on 87 job roles, which included some in the construction sector. This has led to skill shortages in some trades and professions.
The work-visa ban is already starting to impact on real estate with falling rents in expat neighbourhoods across the country. Many local estate agents are reporting an oversupply of housing in the city of Muscat, leading to falling rents which are already at historic lows.
From a construction perspective, more consideration should be given to ensuring that the appropriate trades and personnel are available to deliver projects.
The trend of budget cutbacks is expected to slow growth in 2018, although there are hopes that oil prices will continue to recover and that the work-visa ban will be lifted by mid-year to ease skill shortages.
Looking further ahead, while Oman has not formally declared the date for the roll-out of VAT, indications are that it will be implemented in early 2019. The new tax is likely to produce a spike in inflation, denting consumer confidence and spending in late 2018, which may have a knock-on effect on the construction sector.
This content is part of the International construction market survey 2018