At the end of September 2003, Horst Koehler, then managing director of the Washington-headquartered International Monetary Fund (IMF), was asked what he thought about the huge volume of construction work taking place in Dubai – venue of the IMF and World Bank meetings that year.
He said he was impressed, but wondered whether it was all sustainable. President of Germany since 2004, Koehler is probably still wondering. But the region shrugged off the doubts and completed in the subsequent six years what has been one of history’s largest peacetime construction programmes.
About $250bn-worth of major projects have been finished across the GCC since the autumn of 2003. That is more than 60 per cent of the region’s gross domestic product (GDP) that year. For more than five years, the GCC construction boom made the region the best place in the world to be a project professional. It also contributed to the building materials bubble that lifted the price of steel rebar to more than $1,500 a tonne in the summer of 2008. At one point, it was said that almost 25 per cent of all the world’s cranes were being used in the GCC.
- $250bn: Value of major projects completed in GCC since autumn 2003
The cash passing through the construction industry stimulated unprecedented growth in GCC economies. In 2008, the combined GDP of its six member states rose to more than
$1 trillion – three times the figure recorded in 2002 – and the region became the world’s most buoyant export market for building materials and equipment.
These trends could well be overshadowed by what is to come. According to regional projects tracker MEED Projects, about $2.5 trillion-worth of projects are under way or planned in the GCC. They include some of the world’s largest projects: King Abdullah Economic City and Sudair Industrial City in Saudi Arabia; Silk City in Kuwait; Bahrain Bay in Manama; Lusail in Qatar; the Bahrain Qatar Causeway and the Capital District in Abu Dhabi.
Plans by UAE-based Emirates Nuclear Energy Corporation (Enec) to build 5,600MW of generating capacity is the largest active nuclear programme in the world at present. And Qatar has said it will invest $43bn in infrastructure and buildings if it wins the mandate to hold the 2022 Fifa World Cup finals.
The impact of the GCC projects industry extends well beyond the region. At least 5 million migrants work in the GCC construction sector. Parts of Pakistan, India, Sri Lanka and the Philippines have been transformed by remittances from Gulf building workers.
US-based Lehman Brothers’ collapse in September 2008 and the subsequent global downturn brought the Dubai construction industry to a halt. The rest of the region was also affected, but only modestly. In 2009, Qatar completed 11 large energy projects. Other huge projects finished during the year include most of the Dubai Metro Red line and the Yas Island F1 circuit in Abu Dhabi.
There could also be no halting critical infrastructure. More than 40,000MW of electricity generating capacity has been completed in the GCC since the end of 2002. This is not much less than the amount that was already installed in the region at that time. A similar pattern has been recorded in desalination capacity. Enormous projects have been completed in 2010. They include the 700,000 tonne-a-year Emirates Aluminium (Emal) smelter at Taweelah in Abu Dhabi. Emal is a joint venture between Abu Dhabi’s Mubadala Development Company and Dubai Aluminium (Dubal). Finishing touches are now being put to UK/Dutch Shell’s $20bn Pearl gas-to-liquids plant in Qatar, possibly the most expensive single project ever attempted. Meanwhile, the world’s tallest artificial structure, Burj Khalifa, was declared open in January this year.
The GCC, therefore, is now being seen not simply as an opportunity or a building site. It is also the place where some of the world’s most ambitious, largest and most complex projects have been completed and opened.
The question put by Koehler in 2003 can now be answered. Are the projects delivered since then sustainable? Do they work? In fact, are they any good at all?
There is no doubt that there has been a radical change in the methods employed by the GCC construction industry to deliver huge projects. In some instances, particularly in the oil and gas sector, the standards are clearly world-class. But too many projects, and how they were built, still are not.
Construction industry observers say that action is needed in two key areas. The first is in human resource management including recruitment, training, worker accommodation and health and safety, on and off site. The second encompasses the technical elements of the construction supply-chain from conceptual planning to operations and maintenance. The two areas are, of course, connected. World-class project execution is not possible without world-class human resources.
But the construction industry in general is vertically disintegrated. Few companies have the skills required to deliver a complete project. This might explain why project delivery often looks confused. There is also a tendency for problems to be forced down the supply-chain from client to engineer and from there to the contractor and, finally, the subcontractor. Problems can eventually finish up being the responsibility of parts of the supply chain that can least handle them.
A similar trend can be seen in the labour supply-chain. Construction companies can require up to 10,000 workers and many invariably use independent labour recruiters to hire and transport expatriate employees. That the GCC projects market has had a comparatively limited number of serious human resource issues is evidence that problems are mainly contained. The view from the building site, nevertheless, is that construction companies and subcontractors are often reacting rather than managing the human element of the industry.
Construction industry specialists say the codes are sound, but were designed to address an earlier era
The GCC construction sector needs to consider its project plans within a broader context. An individual project employing 5,000 people can afford to behave parochially. A country with 50 projects employing 5,000 people each will probably have to think regionally as well.
But how can this concept be applied to the GCC projects community, which comprises thousands of clients, hundreds of individual architectural practices, engineering firms and construction companies and innumerable supporting service providers?
Balance in regulation
The answer is to develop an optimal balance between self-regulation involving those engaged in project delivery and government and its regulatory agencies. The obstacles are formidable. The first is that the GCC construction industry is remarkably complex. It involves a host of cross-border players, as well as domestic firms. An industry association representing all parts of the supply chain exists in none of the six states of the region. Even at the national level, the industry is segmented and divided. GCC chambers of commerce have associations of contractors, but none effectively taps the expertise of leading international service providers.
A huge burden of responsibility therefore falls on the shoulders of the societies of engineers associations in each of the six GCC states. Representing a total of about 200,000 professionals from a range of specialisms, the societies of engineers are now working on effective accreditation systems.
Elsewhere in the supply chain, fragmentation is the rule. Architects, logistics specialists and equipment suppliers typically work in isolation. International professional associations are seeking to help GCC construction sector to reach the standards the region desires.
The UK-based Royal Institution of British Architects (Riba) has established a Gulf chapter with the support of Sharjah’s ruler, Sheikh Sultan bin Mohamed al-Qassimi. The London-headquartered Royal Institute of Chartered Surveyors (RICS) has also established a permanent presence in the region. The London-based Institution of Civil Engineers, which probably has the largest portion of the GCC’s international professional engineering community, is seeking to engage with its counterparts in the region. America’s Project Management Institution (PMI) enjoys the strong backing of Saudi Aramco, and is probably the most effective of the international bodies working in the GCC construction industry, though its remit goes well beyond construction.
Government also has a role. This is mainly exercised through building codes, compulsory standards managed by municipal authorities across the GCC. Construction industry specialists say the codes are sound, but were designed to address an earlier era in the region’s development. They also tend to be a synthesis of more than one foreign code. And there are complaints that codes are not effectively enforced.
But across the GCC, building codes are under review. In January, Abu Dhabi announced a new law that also incorporates strong sustainability requirements. To get authorisation, projects now need to come close to the standards required in the single pearl rating of the voluntary Estidama green building methodology. This was devised by the Urban Planning Council of Abu Dhabi, an executive agency empowered to approve or disallow all new projects in the emirate. Both Dubai and Qatar are revising their codes to incorporate higher sustainability standards.
Yet, building codes, even when they are updated, will not make great projects appear automatically.
The subjective dimension, which comes from experienced professionals sensitive to each GCC market remains critical. Which brings the discussion back to where it started. Is construction in the Gulf sustainable? The answer is: it depends.
Other questions are more easily addressed. Is the Gulf construction industry living up to the promises it has made to its clients and the GCC? To a greater extent than ever before and more than any other region outside the Organisation for Economic Co-operation and Development (OECD) has.
Can the GCC do better? Without doubt, but how and at what cost? And what is the best way of creating great projects, ones that are completed on time and within budget, that look great, function well and conserve electricity and water? How can there be consistently high quality in construction in the GCC? These are questions that MEED, with your help, will attempt to address in the months to come.