7 Key Challenges in the Construction Industry in the Middle East (and how to overcome them)

The Middle East is a thriving market for construction. With many investments in the real estate and industrial sectors, the construction industry in the Middle East continues to see significant growth. In fact, studies show a projected growth rate of about 3% from 2022 to 2027.

The region has great potential for new development and innovation. However, it is not without challenges. Let’s dive deep into the key challenges that act as roadblocks to success for construction firms in the Middle East.

7 Challenges Impacting the Construction Industry in the Middle East

1. Highly Competitive Landscape

The construction market in the Middle East is highly competitive. The number of players is always on the rise, with both local and international companies bidding for projects. Furthermore, the government’s focus on infrastructure development and modernization is also attracting a growing number of players, making the UAE a bustling hub for construction activity.

2. Shortage of Skilled Labor

A PwC study shows that 75% of employees in Kuwait, 60% in Qatar, 58% in Saudi Arabia, and 46% in the UAE think their countries lack people with specialized skills. This is due to an aging workforce, lack of investment in apprenticeship programs, and competition from other sectors. There is a high demand for skills like budget control, tech proficiency, project management, and relationship building.

3. Cost Overruns and Delays

Cost overruns are a major challenge, with projects exceeding budgets due to unexpected issues like design changes, delays, and material shortages. The complex regulations and intricate nature of construction in the region can also lead to longer timelines. These delays mean higher costs for extra labor and materials. Furthermore, failing to meet project deadlines can lead to penalties and contractual consequences.

4. Poor Procurement Strategy

Poor procurement strategies create significant challenges in the Middle East construction industry. Without dedicated project management software, planning, risk management, and supply monitoring become more complex, leading to delays, work disruptions, and cost overruns. Inefficient procurement can result in late deliveries, subpar materials, and poor supplier coordination, further complicating project timelines and budgets.

5. Complex Regulatory Framework

The Middle East’s construction industry comes with complex regulatory requirements and compliance frameworks. In fact, Middle Eastern construction companies spend about 17% of project costs on regulatory compliance. Frequent changes in regulations, particularly regarding taxes, create uncertainty. Strict building codes that are enforced to ensure safety, quality, and sustainability, add to the complexity. Navigating bureaucratic procedures and strict environmental regulations often causes setbacks. Furthermore, the new labor laws coming into force in 2024 will add another layer of complexity to the regulatory landscape.

6. Technology Adoption

The construction industry in the Middle East region has been slow to adopt technology, lagging behind other sectors in digitalization and automation. Gartner experts estimate that the region lags 6 to 7 years behind the U.S. in cloud spending. This has led to inefficiencies in project management, communication, and collaboration, causing delays and cost overruns.

7. Financial Management

Managing costs in the Middle East’s high-turnover construction industry is challenging. Fluctuating oil prices and economic instability create financial uncertainties, impacting project funding and profitability. Without a dedicated construction accounting software, tracking expenses and budgets becomes difficult, leading to inefficiencies and errors. This can result in cost overruns, delayed payments, and strained cash flow, further complicating financial planning and potentially jeopardizing project success.

Overcoming Obstacles with Construction Accounting Software

In order to truly be a leader in the global construction market, the Middle East construction industry must invest in the right construction accounting software to overcome these challenges.

Cloud-based construction software, like Microsoft Dynamics Business Central and Construction 365, are acting as game changers in transforming the Middle East construction industry.

• Real-time financial reporting allows companies to instantly monitor their finances, enabling informed decisions.
• Project costing features precisely track project expenses, helping to prevent cost overruns.
• Change order management capabilities streamline tracking changes, optimizing project timelines and budgets.
• Payroll management tools minimize errors and delays, boosting operational efficiency.

Together, these features empower construction firms in the Middle East, enhancing efficiency, accuracy, and profitability in their construction projects.

Advantages of Leveraging Construction Accounting Software

• Improved access and collaboration
• Enhanced security and data protection
• Improved financial management
• Increased efficiency and productivity
• Scalability and flexibility

To Sum Up

The dynamic landscape of the Middle East construction industry is bustling with opportunities and challenges alike. And these numerous challenges can impede progress and success. However, with the right tools and technologies, construction firms in the Middle East can overcome these challenges and emerge as leaders in the industry. Leveraging construction accounting software is essential for staying ahead in the competitive Middle East construction market. Get in touch with our construction experts to learn more about how DynamicsSmartz can help you navigate these challenges and unlock your construction firm’s full potential.