Construction in Middle East and Africa region continues to grow despite rising costs

A report by Jones Lang LaSalle shows that the MEA region’s construction industry is forging ahead despite price pressure.

Real estate service provider Jones Lang LaSalle’s (JLL) latest reports have indicated that construction in the Middle East and Africa (MEA) region continues to grow despite increasing price pressure. In the company’s latest quarterly Market Intelligence Update for the MEA, JLL said that 2022–2030’s construction output is forecast to grow at an annual average growth rate of 2.3 percent.

International and regional growth

“Last year, global construction output rose by 4.1%, driven by economic uncertainty stemming from the COVID-19 pandemic. In the MEA region, this trend has continued into 2022, driven by government vision programs and a busy projects market, with the forecast 2022 tender price indices for KSA and the UAE at 6-8% and 4-6% respectively,” said Gary Tracey, Head of Cost Management, Project & Development Services at JLL MEA.

According to JLL, MEED Projects, a project tracking firm for the MEA, has estimated that USD 156 billion of new construction projects were awarded across the region in 2021 and MEED expect this figure to rise over 2022. Accounting for around 37% of all spending in 2021 and driven by ‘giga projects’ such as NEOM, Amaala, Diriyah Gate, Qiddiya, ROSHN, SPARK and Al Ula, Saudi Arabia is by far the largest driver of activity in the region, according to MEED.

Rising construction costs

This growth has continued despite material costs rising. Increases in the price of oil and metals, along with high demand for, and a shortage of, various building materials have all resulted in increased costs. In an earlier report, JLL stated that, “Broadly, rising global demand as economies bounce back following the COVID-19 pandemic, supply chain disruptions, constraints in the labor market and soaring energy prices (in March, the price of WTI oil crossed $100 per barrel for the first time since 2014) are resulting in shortages and pushing up prices.”

Oil prices have jumped to USD 98/barrel over the course of 2022, up from a yearly average of USD 70/barrel in 2021. Increased oil prices have a knock-on effect on the cost of many processed materials including, for example, steel rebar, the UAE saw the average price of rebar jump by 27% over the period. Other materials including copper, aluminum and plastic have also seen price increases.

Egypt seen as vulnerable

JLL saw Egypt as being particularly vulnerable to increasing prices due to Egypt’s Central Bank requiring letters of credit in order to import goods, along with the devaluation of the Egyptian pound.

In April, Egypt’s Central Organisation for Import and Export Control barred 814 local and foreign firms from importing goods into the country due to licensing issues.

Fitch recently set Egypt’s credit rating at B+, expressing confidence that the government could overcome its financial struggles.