Dubai – MENA Herald: According to a new survey released by PwC Middle East, capital projects and infrastructure has been greatly impacted by slowdowns and deferrals of government spending as a result of ‘lower for longer’ oil prices.
PwC Middle East’s survey titled “Delivering during change” includes responses from over 130 owners and developers across the region from a range of sectors including transport, cities and urban development, social infrastructure, mega events, and energy utilities and mining.
“The capital projects and infrastructure sector finds itself bearing the full impact of ‘lower for longer’ oil prices, and we think this will continue for another 12 months. This is a significant contrast from our last survey – 2 years ago the industry grappled with capacity constraints driven by high volumes of spending and projects, now, it’s the opposite,” said Chris Scudamore, PwC Capital Projects Services Leader Middle East Region.
Lower for longer oil prices are creating a squeeze on Government funding, and PwC’s report suggests that new methods of financing and delivery, such as PPPs, will be required in order to deal with these changes. However, respondents to the survey say that introducing new sources of finance could improve the efficiency of the delivery of projects, with 44 percent and 38 percent saying they think more projects would run on time and to budget respectively.
“After the frantic pace of spending in the past few years, a slowdown in activity will give organisations the opportunity to prioritise projects and address internal issues,” adds Chris Scudamore. “But given the increase in cancellations and delays, we also believe it creates an environment where we will see disagreements and disputes continue to rise.”
The PwC survey indicates an increasing number of disputes owing to shrinking budgets and payment delays; 62 percent of respondents had been involved in a dispute recently or expect to be involved in one in the next year.
With this PwC has recently announced the acquisition of HLP Consulting, a specialist Construction Claims and Delay Analysis team – to supplement our regional Capital Projects and Forensics teams to better serve and equip our clients navigate some of these challenges.
Some of the key insights in the survey include:
‘Lower for longer’ oil prices create a new set of challenges: Lower government revenue as a result of the drop in oil prices is making budgets tighter. The survey found that more than 60 percent of respondents think spending will fall this year, while 75 percent have already been impacted by funding constraints.
PPPs – the way forward?: Nine out of ten respondents said private sector funding of capital projects would be of critical or growing importance over the next year. 58 percent of respondents expect a collaboration of private sector and government to fund infrastructure projects over the next year. However, weakening fiscal positions of Middle East governments may affect private sector appetite for investing in the region.
Mega events seem relatively unaffected: Survey respondents are optimistic that spending associated with Mega Events, like the Dubai Expo 2020 and the Qatar 2022 World Cup, will go ahead, and one-third of entities involved in delivering Mega Projects expect spending to be the same or greater in coming year..
Importance of retaining talent: Attracting and retaining skilled resources is now one of the top three improvement priorities, up to 33 percent from 26 percent in 2014.
Market expectations are that the oil price will remain low throughout much of this year, and although there are some forecasts of a recovery towards the end of 2016 or early 2017, it cannot be guaranteed. What can be guaranteed, however, is a greater emphasis on achieving previously stated outcomes, with an increased focus on efficient spending.