Construction: Boom time

07 February 2003
The price of rebar has jumped by 50 per cent over the past six months. Readymix cement prices rose by 10 per cent in January alone. And labour costs are climbing as agencies are increasingly called on to meet the growing requirements for extra manpower. In the supply and demand-driven world of construction, the recent experience of the UAE contractor points to only one thing: business is booming. An explosion in real estate and infrastructure projects, especially in Dubai, is creating unprecedented opportunity - and placing an unprecedented strain on the resources of the local construction industry.

The UAE is not alone in displaying the signs of a construction bonanza. In Qatar, a recently launched $5,000 million civil construction programme is attracting strong interest. Although less dramatic, construction activity is on the rise in Oman, Kuwait and Saudi Arabia; in Egypt, a three-year recession appears to be nearing an end. Even in Iran, where foreign civil contractors have been virtually non-existent since the 1979 revolution, major building opportunities are starting to emerge.

The strength of the recovery is striking, not least because it is taking place against the backdrop of the march towards war in Iraq. In the past, political instability has had a debilitating effect on regional construction activity and decision making. In the aftermath of Iraqi tanks rolling into Kuwait City in August 1990, construction ground to a halt across much of the Middle East, bidding for new work was suspended and plans for new projects placed on the top shelf. In the end, it took 18 months for even a semblance of normality to return.

This time around, the omens are much better. Iraq is isolated and largely contained: its ability to strike out is considerably reduced. The shock factor, so evident in 1990, has disappeared: the possibility of a large-scale military attack on Baghdad has been in the air for more than a decade. And unlike the run-up to the Kuwaiti invasion, Gulf states have enjoyed a prolonged period of robust oil prices, providing sufficient revenues not only to pay off debts but also to underwrite much-needed capital investment programmes.

Tangible evidence of the military build-up in the Gulf having a detrimental effect on the sector has been scant so far, even in the frontline states. Admittedly, in Kuwait, the pace of contract awards has been slow. However, whether this is a reflection of the US showdown with Baghdad or Kuwait's tortuous decision-making process is a matter of debate. Similarly, government plans in Jordan to introduce private-sector participation into infrastructure projects have encountered delays. Again, though, it is questionable whether this is a direct result of the Iraqi factor, or a consequence of the global downturn among power and water developers.

Further afield, the political uncertainty is barely figuring in contractors' thoughts. 'For us, it is not political, but commercial risk that is our main concern at the moment,' says a leading international contractor in Dubai. 'Yes, there is a huge amount of new work around in the UAE. But contractors are having to be cautious about pricing tenders at a time when order books are healthy and material and labour costs are rising so fast.' Indeed, the biggest concern among many contractors is pricing contracts, which take nine to 12 months to be awarded by clients. In such cases, low bidders face potentially crippling losses on contracts that had been priced according to the costs prevailing at the time of submission.

Dubai's $8,000 million building boom is having other repercussions on the market. Leading local contractors are beginning to make deep inroads into projects that used to be the sole domain of their international counterparts. Whereas in the late 1990s, the biggest contracts won by local firms were in the $30 million-40 million bracket, awards of up to $125 million are not uncommon today. Only time will tell whether those companies will be able to manage the leap forward and complete work on schedule and to specification.

The emergence of serious local competition has pushed international civil contractors even further up the project chain. For the time being there are plenty of opportunities, with tendering under way on major packages at Abu Dhabi and Dubai international airports, the Abu Dhabi convention centre and Dubai Marina.

While the UAE figures high on the international contractor's list of priorities, Qatar is also coming into focus. Having spent much of the 1990s concentrating on developing its gas handling capacity, Doha is turning its attention to upgrading its infrastructure. Underpinned by rising government revenues, a major road-building programme has been launched and designs are nearing completion on a handful of landmark buildings in the capital.

Factor in the $1,800 million 2006 Asian games building programme and the $1,000 million new Doha International Airport project, and Qatar could deliver up to $6,000 million of work to market over the next five years. That is not even taking into account the much-discussed Qatar-Bahrain causeway, which for the moment appears to be on the back-burner, due to a cooling in relations between Doha and Manama.

The promise of Qatar, coupled with the ongoing UAE boom, has allowed foreign civil contractors to be selective in bidding projects elsewhere in the Middle East. In Kuwait, the main focus of attention is the Jaber al-Ahmed stadium project and the Messilah hotel development. Plans to build a new financial district in Bahrain are attracting attention, as is a planned $200 million oil ministry complex in Tehran. In Egypt, bids have been invited for the first major building contract in two years - the Sheraton Heliopolis extension - while in Oman new industries in Sohar are generating the most interest.

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