Upbeat Tender Cost Update for Middle East and India from Mace

Mace has published its Tender Cost Update for the Middle East and Indian markets, which this quarter has seen oil prices drop back to below $50 per barrel and India cut interest rates three times in the first half of 2015 to 7.5%.

In this month's update, Mace's Cost Consultancy team has found that with oil prices remaining depressed in the first half of 2015, the importance of a diversified economy for Middle East countries has grown.

The stronger economies, like Saudi Arabia, have maintained spending programmes at the expense of running budget deficits using their large reserves, but these are finite and curbs in spending will become necessary if the price of oil remains weak.

For non-oil producers, the drop in prices has been welcome and will help their economies to grow. The potential end to the Iran nuclear dispute will reduce risks in the area and improve trade, but other risks relating to the ISIL insurgency, the Syria and Libyan conflicts, and the associated refugee crisis are making the northern parts of the region unattractive for investors and growth outlooks remain uncertain.

In the UAE, the economy is expected to show further growth this year after expanding by 4.6% in 2014, with the non-oil sector now contributing over 68% of GDP and government investment focusing on financial and tourism sectors, as well as industrial facilities and air and maritime transport. With the construction industry back to near capacity in the major cities, the expectation is for tender price inflation to edge higher in the short term, driven by robust demand and also rising cost pressures. Mace's forecast for 2015 and 2016 has therefore been increased to 4%, with the rate expected to edge up to 4.5% in 2017 on the back of increased government revenues as oil prices return to growth.

In Saudi Arabia, the decline in growth seen during 2014 was halted in Q1 as activity in the oil sector strengthened and the non-oil sector continued its pace of growth. However, with the return of growth in other countries, the availability of resources may become a factor for the largest construction market in the Middle East and Mace has therefore maintained its forecast for tender price inflation of 4% in 2015 and 5% in 2016, but now expect a rise by around 6% in 2017 due to growing resources constraints and increased input costs.

In India, the investment friendly policies introduced by the government have helped to keep the economy on a buoyant path over the last year, and this trend has continued in the latest growth figures for Q1 with GDP increasing by 7.3% year on year. However, Mace's forecast for tender price inflation in 2015 remains at 2.5% due to uncertainty regarding the growth in the economy, but expect prices to accelerate in 2016 and 2017 to 5% and 6% respectively as demand in the economy is expected to strengthen.

Managing Director for Mace Cost Consultancy MENA, Mark Taylor, said: "The trend for Middle East economies to diversify beyond oil is continuing to strengthen and this is set to continue as governments invest greater resources into tourism, infrastructure projects and other sectors.

"We're now also seeing a stable growth in the construction sector in both the Middle East and India, which in turn is driving up tender cost prices, with 2016 and 2017 expected to see the biggest rises."

Mace's Cost Consultancy business produces a bi-annual MENA Tender Cost Update as a snapshot of construction market conditions and movements to help businesses spot and understand trends across the industry and plan accordingly.

To read the full report, please click here.