David Richter, President and COO, Hill International

08 January 2014

The US-based construction firm has shifted focus from real estate schemes to infrastructure projects, a move it says is for the better

Two years of winning work on major projects across the Middle East has reinstated the region as an important growth market for US-based construction company Hill International.

In 2013, the project management and claims consultant enjoyed another strong year as it capitalised on continued government spending on major infrastructure projects across the region.

“It was a tremendous growth year for us. We grew our Middle East business [turnover] 66 per cent in the first nine months of the year and it was all organic growth. No acquisitions,” says David Richter, the firm’s president and chief operating officer. “For our kind of business, that is fantastic. And we see 2014 as another year of strong growth.”

Tough times

Like every other construction company working in the Middle East, Hill experienced tough times in 2008 and 2009 as a slew of projects, mostly backed by private-sector clients, were put on hold. After lean years in 2010 and 2011, the market began to show renewed signs of growth in 2012.

“It pretty much bottomed out in 2011. For us, 2012 was a rebuilding year and a growing year,” says Richter. “We won significant work in 2012, including Muscat International airport, Doha Metro Green Line, the Midfield Terminal Building in Abu Dhabi, we also won a programme to manage the construction of 12 hospitals in Saudi Arabia, and those contracts drove our backlog. They were our biggest [project wins] in the year and they were all in the Middle East.”

Commercial [work] comes and goes with the economy. Infrastructure work rides out recessions

The momentum gained in 2012 carried into 2013, with more work on major state-backed infrastructure schemes. “[Last] year, we had two major wins. In joint venture with [US engineering and contract management firm] Louis Berger we won Riyadh Metro lines 4, 5, and 6, which is a $255m contract for the joint venture in which we hold 45 per cent. And just a few weeks ago we won a $54m contract from Basra governorate in Iraq, [which is] going to be spending heavily on infrastructure in the future.”

The growth in infrastructure spending means it is now a major source of company revenue. “It has been our fastest-growing market segment,” says Richter. “It went from 10 per cent of our business five years ago to more than 30 per cent of our business today.”

Change in focus

Government-backed infrastructure schemes offer more profitable business for Hill, as they are complex longer-term projects that require more staff to manage them. “Infrastructure is much better for us,” says Richter. “It doesn’t take that much time or staff to put up a skyscraper; it is a short job time-wise. You can put up a skyscraper in two years in the Middle East. Infrastructure takes five to 10 years and requires a lot more planning and oversight.”

We follow the projects… go where there is construction and Oman is making major investments

As infrastructure has become the focus for Hill, the clients it works for has also changed. “The biggest change is, heading into 2008, most of our work was for private developers, skyscrapers, commercial or residential, and hotels and resorts,” says Richter. “Today, our biggest projects are public-sector infrastructure schemes, public buildings, airports, railways, hospitals and schools, and I don’t see any change in that [strategy in future]. I think we will see a little more private-sector development, but governments will continue to spend significant amounts of money on infrastructure for their people.”

Government spending is also more immune to economic cycles. “Commercial development comes and goes with the economy,” says Richter. “Infrastructure work tends to ride out the recession. This time around, they spent more money on infrastructure in the recession, and that is so much better for us as a public company. We would much rather win an airport than a skyscraper, without question.”

The geographical make-up of Hill’s Middle East work has also transformed over the past five years. “What we faced 10 years ago was a Middle East wholly dependent on Dubai, and today Dubai is a very small part of our business. It is certainly much bigger in Saudi Arabia, Qatar, Oman, Abu Dhabi, Iraq and Afghanistan, as well,” says Richter.

Dubai is expected to regain some prominence as its real estate market returns to growth and the emirate prepares to host the World Expo in 2020.

“We certainly see Dubai coming back, although I think slowly. The Expo is not the cause, it is just a by-product. It will help contribute to a resurgence, but it is not the reason. Dubai’s goal 15 years ago was create the Hong Kong of the Middle East, and unfortunately a lot of that was built on a real estate bubble,” says Richter. “They have now dealt with a lot of the challenges they faced coming out of 2008. The market has adjusted and Dubai is poised to be even bigger and stronger than it was in 2007, especially with the Expo.”

In recent years, the Dubai market has been eclipsed by Abu Dhabi, where Hill has worked on several major real estate projects, and has long-term work in the oil and gas sector.

“Abu Dhabi continues to be a very strong market,” says Richter. “We have had a couple of big projects we were managing there [that are now] complete: the Shams Gateway Tower and Etihad Towers. Meanwhile, we continue to do work for Adnoc [Abu Dhabi National Oil Company], which continues to be one of our biggest clients in the world.”

Exploring opportunities

Following a state review of major projects in Abu Dhabi during 2011, the emirate is now moving forwards with key infrastructure projects again. The first to move into construction was the Midfield Terminal Building at Abu Dhabi International airport – a project Hill is managing. Further schemes, notably, the Abu Dhabi Metro and light rail projects, are expected to move into construction in late 2014 or early 2015.

“There will continue to be opportunities for us in Abu Dhabi,” says Richter. “The Midfield Terminal Building has become a very large project for us. We expect Abu Dhabi to be a strong base of operations, but given the spending elsewhere, we will see more growth outside of the UAE.”

Beyond the UAE, the big market for Hill is Saudi Arabia. With a population of 27 million, it offers opportunities for construction companies across a broad range of market segments. Hill is currently working on the Riyadh Metro, as well as the King Abdullah Financial District, also in Riyadh, the Jebel Omar development in Mecca, and is managing two medical cities and 10 other hospitals for the Health Ministry.

A more surprising source of work for Hill is Oman. The sultanate is investing heavily in new infrastructure projects and the market has become increasingly active in recent years, and is home to Hill’s largest project worldwide.

“We follow the projects. We go where there is construction and Oman is making major investments in airports, rail, tourism, and we see a lot more working coming,” says Richter. “We are currently chasing the Oman rail programme management, for which we are finalists. We are waiting to hear about that project in early 2014, and the airport still has a couple of years to go. Right now, the Muscat airport project is our biggest project in the world by numbers of staff.”

Outside the GCC, Iraq remains a major market for Hill, which was one of the first construction companies to enter the country following the US-led invasion in 2003. It initially worked as part of a consortium for the US Army Corps of Engineers managing the reconstruction efforts leading up to the US troop withdrawal in 2010. Since then, Hill has maintained a presence in the country and is working extensively for Iraqi clients.

“Our experience on the ground in Iraq working with the US government was very useful after 2010 and I think we have won eight or nine major contracts in the past two years. The Basra contract being the biggest,” says Richter. “So we see Iraq becoming a fairly big market.”

Working in Iraq remains difficult, especially when it comes to security, but so far this is something Hill has been able to manage successfully. “It is challenging, but not as challenging as most headlines will make you believe and the bulk of our staff are locals,” says Richter. “We were in Iraq during the US occupation and rebuilding. The Stanley-Baker-Hill tri-venture had more than 400 people on the ground and in six years did not have one fatality or serious injury. As far as I know, we have not had a fatality because of a security or terrorist type of event anywhere ever, so we have been very careful, but have also been fortunate. Putting people on-field in remote locations, you have to be prepared for the worst.”

Security issues

Other markets where security has been a concern are Egypt and Libya. Hill has developed a sizeable business in Egypt in recent years, and the expectation is that as the political situation stabilises there should be strong growth in the future. “Egypt is a big market for us, despite recent unrest,” says Richter. “Our biggest project there is the Grand Egyptian Museum. That is driving our business in Egypt and we have a dozen projects in addition to that. It has certainly been slower over the past couple of years, but I think it will get better. It is definitely heading in the right direction.”

Growth is also expected in Libya. “In 2014, we expect Libya to come back. They are in the process of beginning to pay contractors that were owed money before the civil war and many of those contractors are prepared to go back to work once they have been paid, us included,” says Richter. “Libya is an oil-rich country with a small population and I think they are going to do great things over the coming years.”

As more work comes from Egypt and Libya, and Gulf countries continue their infrastructure investment, the challenge for Hill and other firms in the region will shift from searching for opportunities to finding good-quality people to manage and build projects.

“There is always a problem: in good economic times it is finding people, in bad economic times it is finding work,” says Richter. “There is always a challenge as a business, and we are getting back to that phase where finding people is becoming a bigger challenge.”

Career highlights

1995-99 Vice-president of Hill

1998 Joins Hill’s board of directors

1999-2001 Senior vice-president and general counsel of Hill

2001-04 President of Hill’s project management group

2004 President and chief operating officer of Hill

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