Giant Step

The construction sector in Oman is predicted to grow at a rate of 6%, by an excess of $5 billion per year between 2014 and 2017, according to predictions by the Central Bank of Oman (CBO). From 2008 to 2012, the sector posted an average annual growth rate of 4.54%. By 2013, construction contributed 5.1% to the nominal GDP, and according to Deloitte’s 2014 forecast, the sector should contribute 4.8% in 2014. Oman awarded $2.38 billion worth of projects in the first three quarters of 2014, down from $3.9 billion in 2013. While major construction firms tend to dominate the headlines by winning tenders and undertaking massive construction projects, SMEs have cashed in on the boom as well. A survey of the seven largest banks in the country, conducted by the CBO, found that after retail, construction was the second largest recipient of SME financing.

From a qualitative standpoint, the construction sector is one of the primary beneficiaries of a state level pivot away from primary resources. Another facet of this strategy, boosting tourism, conveys secondary benefits through the construction of hotels, restaurants, and other related facilities. For Oman’s transition to succeed, the government’s plan acknowledges the importance of the private sector, and policy is being enacted to facilitate this. FDI is responding—between 2010 and 2012, FDI stock rose from $14.9 billion to $17.2 billion. This growth is timely, as government infrastructure spending was slightly down in 2014, meaning that private sector investment will be necessary to sustain growth in the construction sector.

Strong investment will not be enough to sustain sector growth however, and a 2014 report by Deloitte identified a number of weaknesses. Foremost is the country’s lack of a viable railway system. However, plans to break ground on a $15 billion, 2,244 km railway system in late 2014 should offset this risk, but completion is still four years off—the railway network should be operational in 2018. By 2020, this rail system is expected to handle 42 million tons of freight annually. The report also identified prioritization of power plants and demographic changes as potential impediments to growth.

The Middle East Economic Digest estimated that $116 billion worth of construction projects are currently under way in Oman (based on 2013 data). Of this, transportation projects account for 66% of spending, and energy infrastructure a further 25%. New road projects lead with allocated spending of $4.4 billion in 2013, but Oman is also embarking on some ambitious alternatives. In addition to six new airports, the existing ones in Muscat and Salalah are under expansion. Development of the Muscat International Airport runs to a price tag of $1.8 billion, and in Salalah, the cost is around $765 million. Meanwhile, the Port of Sohar developments have a $12 billion price tag, making them some of the largest such construction projects in the world. As of 2013, Oman has invested $2 billion into renewable energy projects. Notable undertakings in this regard include a solar panel production facility, a 400MW solar power plant, and extensive research into renewable energy at the university level.

In 2013, rail construction projects accounted for 45% of sector value, according to the Business Monitor International. In second place, industrial construction made up 15% of value, with roads and bridges accounting for a further 9%. Power related construction and ports accounted for 7% and 6%, respectively.

Already, numerous major construction projects are changing the skylines of urban areas from Muscat to Salalah, where notable projects include the Oman Centre for Conferences and Exhibitions, with a 3,000-seat capacity, and the expansion of the port of Salalah in the Dhofar region. Meanwhile, increases in government spending will bring new projects onto the radar screen, such as the construction of 4,000 housing units, 28 schools, and a hospital in South Al Sharqiya. Authorities have also announced a massive project to build a medical complex costing $ 1.48 billion in North Batinah, with the tendering process taking place in 2014. The Ministry of Agriculture and Fisheries has unveiled plans to establish a fishing port at Al Mussanaa. The estimated total value of the construction of the Al Mussanaa port is expected to be around OMR1.9 million, and should be operational in 2018. Another nine ports are currently under study, at a cost of approximately OMR63 million.

Oman has a network of roads that measures more than 45,000 kilometers in length. Much of this network is not paved, and correcting the situation guarantees strong sales of asphalt and cement, as well as government spending. In response, the Sultanate has allocated approximately OMR1.7 billion towards new road projects making roads the fastest growing part of the construction sector. The second phase of Al Batinah coastal road, at 240 kilometers, is one of the largest road projects in the country. Last year, Oman awarded a number of contracts for major infrastructure construction, raising the overall value of tenders. Among these were packages three and six of the Al Batinah coastal road project, with a combined value of $1.34 billion.

The tender for Phase-Two of Bidbid-Sur Road linking Muscat and South Al Sharqiyah governorates was also finalized in 2014, while in July 2014, tenders amounting to $371.1 million were awarded for the second package of the South Al Batinah Expressway. Other significant deals included a $109.1 million tender for the rehabilitation of Khasab-Taibat coastal road in the Musandam Governorate and a $104.9 million contract for construction of the Mirbat-Taqa road in Dhofar. Galfar was awarded the tender for construction of the Taqa-Mirbat road dualization project, for a total sum of OMR40.5 million.

Concrete consumption is the bellwether of the construction sector and fixture of any related report. Recent data corroborates the overall growth of the sector. Two companies, Oman Cement Company and Raysut Cement Company, dominate the Omani cement production market. The two companies have a combined annual cement production capacity of 7.2 million tons and a clinker production capacity of 6 million tons. The remainder of domestic demand—around two million tons—is met by sales of imported cement. According to a report by Al Maha Financial Services, the two companies are operating at 80% of their potential 7.2 million mmt annual capacity, producing 5.8 million tons in 2013. Between 2008 and 2010, production and capacity fluctuated within a few percentage points of each other but high demand, acquisitions, and new facilities have increased potential since 2011, when capacity reached 7.2 million MT. By 2013, combined sales for the two companies reached 5.8 million metric tons at an average realization of OMR24.99 per metric ton. Looking to the future, both companies are expanding their operations. Raysut Cement is expanding its domestic and international operations with two cement terminals in Duqm port, as well as the Berbera Port, in Somalia. Oman Cement is improving its kilns, a project that should wrap up by the end of 2014. The company is also adding a new cement grinding mill with a 150 ton per hour capacity, also expected to be completed by the end of 2014.