CONTRACTORS can no longer rely on major state projects in the Kuwaiti construction market. Facing a budget deficit in 1995/96 of KD 1,088 million ($3,674 million), the government is targeting the non-oil projects budget rather than face the political cost of introducing taxation.
The knife has already cut deep. In November 1994, Finance & Planning Minister Nasser al-Rodhan announced that the 1994/95 non-oil projects budget would be reduced by 25 per cent to pay for the military response to the Iraqi military build-up the previous month. In February, he announced a cut of 5 per cent in the projects budget for 1995/96.
As the government sector shrinks, more and more companies are fighting for a share of what remains. Some are looking to a more buoyant private sector for work, but many prefer government contracts, complaining of a poor payment record from private clients. Flexibility is the key, however. Those who cannot adapt to new realities will find it difficult to survive in a leaner market.
Mohamed Abdulmohsin Kharafi & Sons is a company well equipped to deal with the new realities. Over the past 100 years, Kharafi has grown from a small trading company into Kuwait’s premier contractor. Kharafi grew up with the Kuwaiti oil industry in the period after 1945 and has since expanded across three continents. It opened a factories division in 1956, and became a dominant force in the local construction market during the oil boom of the 1970s. This month, Kharafi spent $6.5 million to acquire a 7.5 per cent stake in the UK construction company Costain. Kharafi now has 300 engineers and 7,500 other staff.
It also survived the Iraqi invasion, managing to keep its overseas operations running normally during the crisis. When the country was liberated in 1991, Kharafi was the only Kuwaiti contractor in good enough shape to be prequalified by the US Army Corps of Engineers (USACE), which was co- ordinating the emergency reconstruction of the country.
The company is still doing good business, despite the difficult market conditions. ‘We are in a better position than most,’ says Hussain Azmi, Kharafi’s marketing manager. ‘We have a healthy backlog both here and abroad. But we are feeling the squeeze along with everyone else.’
Kharafi’s domestic record is a substantial one. It has carried out contracts for hospitals, office buildings, roads and infrastructure, water and sewage plants and networks, oil and gas pipelines, and maintenance work. Major contracts under its belt in Kuwait include:
The South Rabia housing project – $48 million; completed in 1988.
The new Alahli Bank of Kuwait headquarters – $62 million; completed in 1987.
New runway and buildings for Kuwait international airport – $68 million; completed in 1986.
The Al-Muthanna commercial and residential complex – $90.4 million; completed in 1985.
Kuwait university staff and student accommodation – $67.6 million; completed in 1981.
The Al-Adan hospital – $84.2 million; completed in 1979.
As competition increases in the local market, the company is looking to promising foreign markets, although it is no stranger to overseas work. Kharafi opened its Saudi Arabian office, the first outside Kuwait, in 1965; expansion has since seen offices opening in the UAE, Yemen, Egypt, Oman, Botswana, Kenya, the Maldives, Niger and Albania. Two new offices were opened in 1994 in Pretoria and Dar es-Salaam, Tanzania. In South Africa Kharafi is hoping to win work in the country’s ambitious post-apartheid housing programme. In Tanzania it has its eye on Kuwaiti-financed infrastructure projects. Major projects already carried out abroad include:
Municipal services in Gaborone West, Botswana – $80 million; completed 1994.
Sanaa University Faculty of Medicine & Health Sciences, Yemen – $35.8 million; completed in 1983.
The new airport and Al-Ain interchange, UAE – $65.6 million; completed in 1985.
Riyadh sanitary and stormwater drainage network, Saudi Arabia – $91.5 million; completed 1983.
Kharafi is more than holding its own in the domestic market, despite the squeeze. ‘We are directing our efforts to maintenance work, such as managing the Kuwait sewerage system through our subsidiary the National Company for Electrical & Mechanical Works,’ says Azmi.
The company is also looking towards liberalisation of the local healthcare market as a potential growth area. Kharafi built three of the 10 big government hospitals commissioned during the 1970s boom, and is ready, through its subsidiary Kharafi Medical Services, to move into a newly liberalised private healthcare market.
The company has already drawn up plans for a private hospital. ‘But we cannot go ahead while the government continues to set the tariff for all areas of hospital care,’ says Kharafi’s Abdel Khalek Mohamed.
Since the 1970s, the government has set the level of charges which can be levied for consultations, treatment and accommodation in hospitals. The effect is to undermine private healthcare. ‘Private health providers need to be able to charge higher tariffs in order to be able to pay for the best staff and treatment. But we expect the national assembly to approve the lifting of these restrictions within a year,’ says Mohamed. ‘We can then look forward to building our first private hospital.’
Kharafi signed contracts worth some $310 million in 1994. Sixty per cent of the work is in Kuwait. The range of projects is eclectic and testifies to the varied nature of the company’s capabilities. ‘Like everyone else, we see the big construction and infrastructural projects declining in the Gulf area,’ says Azmi. ‘But we do not see ourselves shrinking in the same way. The hospital venture shows how we see ourselves going forward – turning the skills we have developed in contracting and manufacturing towards services and maintenance work. We are exploring these avenues not only in Kuwait, but also in other parts of the world.’
The largest contracts signed in Kuwait by the company during 1994 were:
Infrastructure works for Kuwait university’s Shuwaikh campus (Package A). This KD 7.1 million ($24 million) contract involves the installation and renewal of all water and wastewater services, gas, high and low-tension electricity, street lighting, traffic control and telephone services. The client is the Ministry of Public Works (MPW). The work is scheduled for completion in October 1996.
Design and construction of the Al-Khafji hospital. A joint venture with Thinet International of France, this KD 9.5 million ($32.2 million) contract involves the design and construction of a 100-bed hospital in Al-Khafji on the Kuwait-Saudi Arabia border. The work, covering an area of 16,500 square metres, includes a cast-in-situ substructure, precast superstructure, ancillary buildings, landscaping, and external works including roads. The client is the Arabian Oil Company. The work is scheduled for completion in February 1996.
Construction and maintenance of a new lecture hall at Khaldiyeh campus for Kuwait university. The project involves construction of a single concrete- framed building incorporating four tiered amphitheatres and installation of audio/visual equipment. The client for the KD 2.3 million ($7.8 million) contract is the MPW. The work is scheduled for completion in September 1995.
Sewerage renovation and stormwater drainage at Jahra (Phase five, part B). This scheme involves construction, installation, testing, commissioning and maintenance of a water pipeline with branches, a sewage pumping station, closed-circuit television, microtunnelling and stormwater pipelines. The KD 18.6 million ($63 million) contract was awarded by the MPW. It is due for completion in September 1997.
Reconstruction of the western section of the fifth ring road at Ardiya East. The work involves the reconstruction of a 5.4-kilometre stretch of the fifth ring road around Kuwait City. It includes installing girders under bridges at interchanges 37 and 38, building six pedestrian bridges, relocating and installing utilities, traffic control and stormwater infrastructure. The client for this KD 16.9 million ($57.3 million) contract is the MPW. Completion is scheduled for March 1998.