Oman's construction industry will ride a wave of an infrastructure boom to remain positive over the foreseeable future, said a top analyst.

Despite falling government revenues, the industry is expected to remain promising, underpinned by ongoing investments in infrastructure, hotels and resorts, retail and commercial developments, and residential schemes, Siraj Bhavnagarwalla, senior executive officer at Alpen Capital (Oman), said in comments to the Oman Oberver.

He said an economic diversification programme under way in the sultanate has opened up investment opportunities in the real estate, retail, healthcare, tourism and hospital sectors - a trend that translates into concrete benefits for the construction industry.

However, he warned that the continued volatility in oil markets could potentially impact the economies of the GCC states, including the sultanate.

“Such a situation may push the Omani government to restrict state spending, hampering the growth of the construction industry, which is materially dependent on government funding. The opportunities in the construction industry could be affected due to lower investments from the private sector, and declining disposable income levels. Furthermore, lower tourist inflow from oil-dependent nations may also indirectly hamper the growth of the construction industry,” he said.

“However, considering the importance placed by the Oman government on infrastructure and job creation, it is expected that the government will continue with these measures probably at a slower pace given the emerging economic situation,” Bhavnagarwalla added.

According to him, Oman’s construction sector is a $6-billion industry that has been recording a compound annual growth rate (CAGR) of seven per cent since 2013.

“The sector remains one of the country’s major non-oil contributors, accounting for close to six per cent to the country’s GDP (gross domestic product) and a significant employer of local workforce. A robust construction sector helps sustain growth of basic industries such as steel and cement, which in turn feed ancillary manufacturing units. Other key constituents of the economy such as services and trading sectors also benefit from a growing construction sector,” he added.

However, given the importance of continuing infrastructure development to employment generation and economic growth, the government could come up with innovative ways to finance infrastructure schemes if public funds are squeezed by the downturn, said Bhavnagarwalla.

“We (envision) new and innovative financing structures (such as build operate transfer (BOT), build own operate transfer (BOOT), and other forms of public-private partnerships being employed for some of these projects. The external debt position of Oman is comfortable and there is adequate headroom for innovative borrowing solutions to fund important infrastructure projects,” he said.

Significantly, any economic slowdown could also heat up competition in the industry, he added.

According to him, the GCC construction market has been facing intense competition over the past few years due to the entry of new players.

"This includes the merger of large developers, leading to the formation of larger organisations with enormous negotiating power. Such developments add to the woes of small and medium contractors in the region. Also, an increasing number of contractors vying for a project have considerably reduced the margins of firms in recent times," stated Bhavnagarwalla.

"To counter this, we could see larger companies resorting to consolidation, geographical diversification and focusing on high margin business segments in order to protect market share and margins," he observed.

"Still, the overall outlook for the industry continues to be bright, thanks in large part to a pledge by the Omani government to proceed with the implementation of committed infrastructure projects. Tourism and hotel projects continue to remain on stream as well," he added.