Given its elevated status, Jumeirah Beach Residence should be a project that any major contractor would like to be associated with. That was certainly the impression given in early 2003 when companies fought tooth and nail to get on the 15-strong prequalification list. However, by the time bids were submitted on 20 October for the first batch of towers, interest had waned considerably. Only four groups ended up pricing the contract, with the lowest bid for the estimated $180 million contract coming in way over the client’s budget.
The Jumeirah Beach Residence tendering experience is by no means unique in the building capital of the Gulf. In mid-October, bidding closed for the estimated $300 million main package on the Emirates New Engineering Centre at Dubai airport with half of the 14 prequalifiers declining to bid. In both cases, the main excuse given for their non-appearance was: ‘We are too busy.’
Dubai’s building explosion is placing unprecedented strain on the local construction sector. Over the past 18 months, the price of cement, and to a lesser extent, reinforced steel bar, has shot up, forcing up bid prices. More recently, a growing manpower shortage has exacerbated the situation and led to delays on a handful of major projects. ‘If you have a pool of labour, you are very lucky,’ says an international contractor. ‘But if you are like the majority of main contractors and you rely on subcontractor labour, then it is becoming a real issue.’
Leading contractors in the market are becoming increasingly concerned at the size of the subcontractor pool. ‘There are sufficient numbers of main contractors already here and coming in to support the amount of work now on offer. But what everyone relies on is subcontractors and there are simply not enough of them,’ says another foreign contractor. ‘Nearly everyone can build a tower, but nearly all don’t have the capability to do the finishes, joinery or the MEP [mechanical, electrical and plumbing]. And with very few newcomers coming into those specialist areas, there is a major problem coming.’
With an ever-expanding list of project opportunities – at the latest count, some $18,000 million of work was planned or under implementation in Dubai – contractors can now afford to be selective. But they also argue that they need to be, given the uncertain outlook for both materials and labour. Says a Dubai-based contractor: ‘If we have any concerns about the contract schedule – and most clients are wanting their buildings finished tomorrow – we are staying well clear.’
The ramifications of the Dubai construction boom are being felt far and wide. One of the problems is that the emirate is the regional base for many of the leading international contractors. ‘We are so busy in Dubai that we are no longer looking to go anywhere else,’ says the representative of a major foreign contractor. ‘Even if we were, I doubt whether we would be able to convince any of our regular subcontractors to come with us.’ That has certainly been the case for an international rival based in the emirate, which, having decided to pursue a project in Bahrain, sent out over 60 inquiries to subcontractors and got positive responses from just four.
In Qatar, the most active market after Dubai, the authorities have had some success in pulling in newcomers. Attracted by a $5,000 million civil infrastructure programme, a handful of companies, including France’s Thinet International and United Engineers (Berhad) Malaysia, have been making their mark for the first time. The influx has meant that competition for new work remains intense, despite the rapidly expanding list of project opportunities.
Worries about cement availability and manpower are surfacing right across the Gulf. In Doha’s case, an unofficial ban on visas is in place on labour from the Indian subcontinent, forcing contractors to look at less traditional markets for manpower. Kuwaiti contractors also report difficulty in hiring staff and blame the Dubai effect for inflating wages. In Saudi Arabia and Oman, government attempts to raise the percentage of nationals working in the sector are causing contractors headaches.
There is no quick-fix solution to the cement situation. A new wave of cement plant expansions is under way in Saudi Arabia and Qatar, but it will be at least two years before the additional output comes on stream. In the meantime, the only option will be to import, a move that is expected to lead to higher prices.
The tight cement situation in Saudi Arabia reflects the changing face of the Gulf construction market. Public-funded infrastructure opportunities in the kingdom may have increased over the past two years, but compared with a decade ago they are still modest. Instead, it is residential, leisure and commercial developments, normally backed by private developers, that are driving cement demand upwards.
Residential projects are now at the forefront of the Gulf construction sector, in a reflection of the changing rules on property ownership. Oman and Qatar are looking to follow in the footsteps of Dubai and Bahrain by allowing expatriates the right to own property.
The relaxation in property ownership has at a stroke created an entirely new market. Developers are increasingly looking to replicate the Palm islands model in Dubai, where the developer, in this case the government, takes care of the infrastructure and sells plots to expatriates. Similar schemes are under way in Bahrain and are planned in Qatar and Ajman.
In spite of the temporary interruption caused by the war in Iraq, 2003 will go down as one of the busiest years for Gulf construction. And with oil prices set to remain above $20 a barrel for a fifth consecutive year, the outlook for 2004 is even brighter. The one genuine concern is that the promise could be unfulfilled if capacity constraints are not addressed in the regional construction industry.