The economic crisis may mean big losses for the land of big projects. The United Arab Emirates is known for lavish megaprojects such as Masdar City and Yas Island. But the current economic storm has slammed into the region, halting some projects and delaying others. Now the question is: Just how bad is it?

A report from Dubai, United Arab Emirates-based research company Proleads, says nearly 52 percent of the emirates’ construction sector development portfolio has been suspended—slicing a US$1.3 trillion industry down to almost US$698 billion.

“When the oil bubble burst, confidence in the Middle East vanished,” says Bryan Plamodon, manager of Middle East and North Africa economics for IHS Global Insight, a global economic forecasting firm in Lexington, Massachusetts, USA. “During the boom, a lot of megaprojects were announced, money was rolling in, and there was a shortage of workers. But it all crashed when oil prices collapsed.”

United Arab Emirates Facts & Figures 2007 Population: 5.6 million GDP (purchasing power parity): US$161.1 billion Average annual GDP growth rate between 2004-2008: 8.5 percent

Source: Economist Intelligence Unit

The United Arab Emirates faced the greatest challenges because the economy was in project overdrive right up until the crash. Many of the opulent megaprojects, such as Dubai’s luxury residential island project, have been delayed, and project financing has dried up. 

“Long-term contracts will stay, but smaller subsidiary projects are being cancelled,” says Joss Marsh, a Doha, Qatar-based project manager for Sovereign Business Integration. “It's more likely to be due to international companies pulling expenditure than local government or companies cancelling the work.”

And project problems have spread well beyond the United Arab Emirate’s construction industry. The cuts extend into projects across all other sectors, as well, says Simon Rawling, Ph.D., group managing director at London, England-based project management consultancy PIPC, which often operates in the region.

As work and cash dry up, horror stories quickly emerged of foreign workers stranded in the region, without the proper funds to return home. Eunice Maytorena, a lecturer in construction project management at Manchester Business School Worldwide in the United Kingdom and Dubai, contends that some of the reports about the current state of affairs may be overstated.

“I don't know if it's fear-mongering, but some of the projects reported as cancelled are still ongoing,” she says, adding that “in the past month more redundancies have been announced by international firms, and Dubai more than Abu Dhabi is feeling the pain now.” Despite the gloomy outlook, Ms. Maytorena says most project managers are trying to keep a positive attitude about the region’s ability to survive the economic crisis.

Hamad Buamim, director-general of Dubai's Chamber of Commerce and Industry, reports the United Arab Emirates’ real GDP will grow between 2 percent and 4 percent in 2009—though those estimates seem slim compared with 2008’s 7.2 percent boon. Still, Mr. Buamim told UAE Interact that the government's planned project spending would proceed unencumbered.

The uncertainty is creating an “all-or-nothing” situation for many project managers in the region, says Ms. Maytorena. She expects increased demand for sophisticated project managers with the skills to get projects done on time and on budget.  

 “In today’s market, there are more disputes and there is a greater requirement for value engineering to save time and costs. Developers nowadays want to minimize risks, ” Firas Abouzaki, head of the projects controls and operation departments at International Project Management, Dubai, told Business Today in March.

Mr. Rawling predicts the region’s economic situation will improve within the next 18 months, commencing in mid-2010 and attracting back many of its foreign project investments.