After a bad year for the Gulf construction industry, AWCS participants were surprisingly positive about prospects for the year ahead. Outside of core infrastructure, there are few opportunities in Dubai. But Abu Dhabi’s capital investment programme is expected to quicken as the year unfolds. Business in Qatar is buoyant, and the largest economy in the Middle East, Saudi Arabia, is now Gulf construction’s top target market.
Most companies represented at the event said they expected turnover this year at least to be stable. Many are hiring in anticipation of extra work. But problems persist.
The first is payment delays. These are pervasive in Dubai and, despite signs that Dubai World is close to a comprehensive agreement with its creditors, are expected to continue. There are also slow or delayed payments in Abu Dhabi and in Doha, though bureaucracy is blamed for most of them.
The second big issue is an intense squeeze on margins in construction and procurement. In one of the liveliest exchanges at the AWCS, chairman of Arabtec Riad Kamal said that his company would not bid for contracts, nor accept any, where the returns were below the level required by his shareholders. He said that Arabtec is now bidding for projects outside the UAE where prices, and risks, were higher.
Chief executive officer of Construction Products Holding Company (CPC) Mutaz Sawwaf, in contrast, said that his company, part of the Saudi Binladin Group, placed the highest importance on long-term relationships with its customers. If that meant accepting low or no margins, it was a price worth paying. Arabtec and CPC formed an alliance last year to bid for projects in Saudi Arabia. We shall see how they reconcile their conflicting philosophies.
For companies that survive on fees, the environment is more benign. Many architectural, engineering and project management firms are owed money in the Gulf. But their liabilities are usually contained and manageable. Representatives from these sectors were among the most buoyant of the speakers at the AWCS.
Nevertheless, some construction companies continue to flourish. Chief executive of Abu Dhabi’s Al-Jaber Group, Fatima al-Jaber, said that she was optimistic about the year ahead and cited the Mafraq-Ghweifat highway, a public-private partnership now under evaluation, as an exciting prospect. Al-Jaber is in one of the three consortiums competing for the $2.7 billion scheme.
Middle East construction has produced many extraordinary stories. They include the business and family of Mohammed Binladin and Rafik Hariri, Lebanon’s late prime minister and founder of Saudi Oger. But for lasting resilience and success, there is little to compare with Consolidated Contractors Company (CCC), which will celebrate its golden jubilee in two years’ time. It employs 140,000 people across the Middle East and beyond, and the company is the only contractor in the Middle East capable of executing turnkey engineering, procurement and construction (EPC) contractors on a massive scale. Projects it has worked on include Qatargas II and Pearl GTL, possibly the largest energy project ever undertaken.
CCC’s achievements are built on simple principles: Have a sound strategy that involves a sensible degree of geographical diversification; pick the right clients; and have a management culture rooted in long-term thinking.
So there are models for others working in the GCC supply chain to emulate. But getting back to basics is the priority in 2010. Too many construction companies have deficient internal processes and it is shocking to learn that some start work on a project without a formal contract. This makes it impossible to assess the risks they are accepting, one of the principal reasons why construction firms in the region are in trouble. And without proper risk assessment, it is impossible to define how much capital they will need to deal with contingencies during construction.
One of the most compelling questions came at the end of the event when a delegate asked what the GCC construction sector would look like in 2015. The right answer is, of course, that it depends. If the industry works like it should, the region will have a growing number of viable and beautiful projects. If it does not, the GCC could become the world’s greatest showcase for bad, ugly and incomplete ones.
Whether the region takes the right or wrong road depends upon the decisions and actions being taken now by the leaders of the GCC project delivery supply chain. Nowhere on earth has placed a greater burden of responsibility on those who work in it. The challenge is formidable, but the opportunity is even larger. MEED will help you with both.