Mixed results for Oman’s construction sector

Published in MEED, 21 March 2018

Like other regional markets, Oman’s construction sector was affected by the global financial crisis in 2008/09. Contract awards fell in 2009 and several large schemes were put on hold.

The construction industry hit a high in 2015, when $9.6bn-worth of awards were made. It was only the second time it had risen above $5bn in one year, the previous time being 2014, when $6.5bn of projects were awarded. Since then, the amount has fallen again, with the average from 2012-17 being $4.4bn.

The largest contract awarded over this period was for the $6bn Oman Oasis project in the northern port of Shinas, which involved the construction of five luxury hotels, a hospital, a health club, water sports facilities and a yacht facility, among other elements.

The local Athar Building & Development was awarded the main contract in May 2015, but by August 2016 the scheme had been cancelled.

However, other large schemes have been moving ahead. They include the $555m deal to build a new hospital at Airport Heights, which was awarded by the Royal Oman Police at the end of 2014, and a $571m contract to develop the Mall of Oman, which was awarded by the UAE’s Majid al-Futtaim in February 2017 to a joint venture of India’s Shapoorji Pallonji and Lebanon’s Consolidated Contractors Company.

In terms of sub-sectors, the most active has been commercial schemes, which accounted for 29 per cent of total awards in 2012-17. Mixed-use projects were the next most significant, with 16 per cent of the total, followed by residential schemes (12 per cent), public sector projects (10 per cent) and hospitality projects (9 per cent).

Just under a third (30 per cent) of all construction projects by value in Oman that are tracked by MEED Projects are currently under execution. A further 22 per cent have yet to be awarded, while the remainder are either completed, on hold or cancelled.

There are $32.2bn-worth of major construction projects under way in the sultanate. The largest by far is the $20bn scheme to develop the town of Duqm and its surrounding infrastructure. This includes a port and airport, along with a free zone and industrial area, housing, offices, hotels, hospitals and shopping malls.

The next-largest projects under execution are two valued at $3bn each. The longer-running of the two is the Al-Mouj scheme to develop the coastal area between Muscat and Seeb. Previously known as The Wave, this includes residential, commercial and retail elements, along with a marina, golf course and hotels.

The other is the Madinat al-Irfan Urban Development planned by Oman Tourism Development Company (Omran), which will create a new downtown area for the Muscat capital district, covering an area of more than 4.5 million square metres.

There were $5.2bn-worth of construction projects on hold in Oman at the start of 2018. Many are residential and tourism developments conceived during the 2003-08 construction boom. These projects were often aimed at developing Oman as a tourism destination, capitalising on its extensive and under-developed coastline, and were led by the $3bn Mirbat Beach development planned by Dhofar Tourism Company.

Developing the sultanate’s travel and tourism sector is a major element of the government’s economic diversification strategy. Tourism directly contributes 3.2 per cent of Oman’s GDP, according to the World Travel & Tourism Council. The sector directly supports 75,000 jobs and indirectly supports a further 82,500 jobs.

However, the tourism industry’s contribution to the economy is forecast to rise to 3.9 per cent of GDP by 2027; by then, it is expected to directly support 106,000 jobs and indirectly support another 110,000 positions. At present, Oman receives a little over 3 million visitors a year.

There are just $1.1bn-worth of contracts currently being procured in the sultanate, equivalent to 1 per cent of the total. They include $329m of projects at the bid evaluation stage, $600m at the main contract bidding stage and $161m at the main contract prequalification stage. The largest of these is the $647m Ras al-Hadd resort being planned in Sharqiyah South governorate by the Omran/Qatari Diar Real Estate Investment Company.

An award for the $161m first phase was expected in January 2018, but remains under evaluation. Other major tenders include the $420m fourth phase of the Botanical Gardens being developed by Oman Royal Court Affairs.

A further $22bn-worth of construction projects are at the design and study stages. The largest of these is the Northern & Central Industrial Zone project planned by the Duqm Special Economic Zone Authority. This scheme has a budget of some $10bn and acts as the umbrella for 35 smaller projects, ranging from a series of heavy industry schemes to schools, offices, hospitals and hotels.

The most active construction market segment by far is the mixed-use sector, which accounts for the vast majority of construction projects by value. This is in large part due to the $20bn development of Duqm New Town by Duqm Development Company, which includes a wide-ranging plan to transform the area into a commercial, industrial and tourism centre by 2020.

Whether all the planned schemes will go ahead is questionable, given the fiscal position the government now finds itself in. There is also a long-standing concern among contractors in Oman that decision-making is too slow, with some tenders taking up to a year to be awarded.