Euro weakness will make eurozone-based construction companies more competitive
- Euro has fallen against the dollar since May 2014
- Eurozone is home to 11 of the worlds top 20 biggest contractors
- European companies have already enjoyed successes in the GCC
European construction companies are expected to become even more competitive and hungry for work in the dollar-linked GCC markets as the euro weakens against the dollar.
Since May 2014 the value of 1 has fallen from $1.387 to $1.059 on 12 March. The decline was gradual throughout the second half of 2014 and the fall began to accelerate at the start of this year.
The decline means that costs of hiring staff and purchasing materials and equipment from home markets will become cheaper for eurozone-based firms, and any margin made in the GCC will result in an even greater profit when repatriated back to Europe.
European firms are already showing signs that the decline in the value of the euro is giving them an edge when bidding for new work.
On 9 March, a consortium of Spains Tecnicas Reunidas submitted a low bid for the first package on the Al-Zour New Refinery Project in Kuwait with a price of $1.3bn. One the same day in Kuwait, the firm submitted a low bid of $1.45bn for engineering procurement and construction (EPC) contract to build the fifth gas fractionation train at the Mina al-Ahmadi Refinery.
The growing appetite of European firms is not a new trend as lacklustre economic growth and few new projects in the eurozone have created few opportunities for construction companies to win work on.
As a result, overseas expansion has become a key priority for European firms, particularly those looking for work on large-scale projects.
According to the ENR International contractor ranking for 2014, 11 of the world 20 biggest contractors are based in the eurozone, including the worlds top-ranking contractor Grupo ACS, with total revenues in 2013 of $51bn.
The other 10 eurozone-based firms in the top 20 are:
- Strabag (Austria)
- Bouygues (France)
- Technip (France)
- Vinci (France)
- Bilfinger (Germany)
- Hochtief (Germany)
- Saipem (Italy)
- Bam (The Netherlands)
- Abeinsa (Spain)
- Ferrovial (Spain)
The difference for eurozone-based firms now is with a lower euro they are more able to fulfil international growth targets.
Some significant gains have already been made. In recent years, major European construction companies have been successful in securing orders in the GCC, notably on the Riyadh and Doha Metro schemes.
For example, Spains FCC led a consortium that signed the contract to build lines 4, 5 and 6 of the Riyadh Metro scheme in July 2013. The $7.8bn deal is said to be the largest international construction contract ever secured by a Spanish company.
FCC focuses on international growth
The Spanish conglomerate is targeting expansion outside its home country through the development of local partnerships and a focus on specialised projects. MEED Interviews Miguel Jurado, managing director of FCC Construccion. Read More
Together with FCC, other firms from Italy, Greece, France and Germany won work on Riyadh and Doha metro projects, and that trend is expected to continue on upcoming rail projects. Salini Impregilo is expected to win work on the second phase of the UAEs Etihad Railscheme, and six of the 11 bidding consortiums for the first phase of the Oman rail scheme contain European firms.
A MEED Subscription...
Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.