Sector outlook 2008: Construction

04 January 2008

As the market overheats, developers face challengers in securing labour and keeping down costs.

Construction costs in the Gulf have risen by about 30 per cent over the past 12 months and new companies are entering regional markets, making the sector more competitive. But with a project mountain that keeps on growing, controlling costs and securing work will not be the main problem in 2008 - it will be finding manpower.

As the most active market in the region, the UAE was the first to experience the problem. The volume of workers entering the emirates is enormous. The Labour Ministry expects to have issued more than 1 million labour cards by the end of 2007.

Consequently, as the existing resource pools are exhausted, contractors have found it increasingly difficult to find competent labour over the past two years. Many have been forced to look beyond their traditional South Asian recruiting grounds.

“We hope that new sources of labour solve the problem,” says a Dubai-based contractor. “We are looking to hire a lot of Chinese labour. But the problem is they do not speak English and they will not follow instructions given by our engineers.”

Dubai's construction market may have reached its peak, but others, such as Doha, Abu Dhabi and the regional giant Saudi Arabia, are at much earlier stages of the development cycle. They are also competing for the same workers to enter their economies over the next two years.

In addition, there is competition from the labourers' home countries. The Indian government is expected to spend $500bn on infrastructure over the next five years, and all these projects will need labour. Realising the demand, Indian developers have expressed interest in recruiting workers from Dubai to bring home their workers' experience of mega-projects.

Illegal workers

For contractors working in the UAE, the situation is exasperated by the fact that more than 300,000 labourers came forward to declare their illegal status during a three-month amnesty that ended in November. The grace period had an impact on the whole industry as even companies that did not employ illegal workers often relied on subcontractors that did. “Some of the subcontractors we used to use simply cannot operate,” says the contractor. “In some cases, they have lost 60 per cent of their men.”

The result is that the shortfall of competent workers is met by men with no experience of even the most basic construction work, which has a dramatic impact on productivity. “I recently had a worker on site who did not even know how to hammer a nail into a piece of wood,” says a site foreman in Dubai.

For the governments of the region, the labour issue has another side effect. Dubai has learned that as it raises its international profile, it is open to criticism for the way it treats migrant workers. Over the past 18 months, the emirate, together with neighbouring Abu Dhabi, has been hit by widely publicised strikes. The two emirates have also been the subject of hard-hitting reports by international human rights charities, which have propelled the labour issue onto the international stage.

Stricter enforcement of legislation, training programmes and bringing in labour from new markets in Southeast Asia may alleviate the problem in the short term. But as long as the region relies on low-cost labour to build its projects, problems will remain.

Construction in numbers

  • 1 million - The number of labour cards issued in the UAE in 2007

  • 30 per cent - The estimated rise in construction costs over 2007

Source: MEED

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