Often described as the Middle East’s architectural playground, the UAE construction market witnessed a marked slowdown from 2008-11 within the grips of a bumpy global economy. There were many sore points in the industry, from trimmed funding to aborted projects, cautious developers to costly raw materials and downsized contracts. The plague became so widespread that, according to MEED Projects, 2011 saw the cancellation of $188.7 billion worth of real estate projects.
But 2012 witnessed a gradual uptick in construction buy-in underpinned by a revival of government spending into non-oil sectors, improvement in investor sentiment and the UAE’s growing reputation as a safe haven. A study by DMG Events confirmed this, stating that the value of completed construction projects in the GCC likely rose by 71 per cent to $79.8 billion in 2012, as compared to $46.5 billion in 2011.
Shaken And Stirred
Despite these green shoots, Khaldoun Tabari, CEO of Drake & Scull International (DSI), is cautious on the outlook for the MENA construction sector in 2013.
“It is a market that will remain challenging,” he says.
He should know. Spearheading a 130-year-old company that’s credited with sculpting the region’s best landmarks, Tabari has moulded DSI into a leader in design, engineering and construction across the GCC, North Africa and South Asia.
Instead, the CEO sides with industry experts who say that construction growth is impeded due to the availability of capital funding.
As liquidity is constricted, companies are often severely undercutting their expansion and growth.
Even DSI – despite its mammoth market size and order book – faces a similar issue.
“Collection of payments is, in fact, one of our biggest problems,” Tabari confesses. “Although liquidity is improving – since real estate developers and contractors can now get financing from less stringent banks – the risk is from clients: can you get back your money?”
In order to successfully reduce receivables, the company has improved collections during the last quarter of 2012, and has also extended contract provisioning to the second half of the year.
So how can construction companies protect themselves until capital and growth returns?
The behemoth Drake & Scull has found a way. By increasing exposure to new fast-growing markets, entering joint ventures and partnerships with foreign companies, and developing capabilities to act as a one-stop shop handling large and complex projects, DSI is successfully mitigating business risk.
This is a reaction to an industry-wide phenomenon where competition is at an all-time high, margins are tight and new projects remain scarce. This has nudged many contractors into shifting focus to infrastructure projects where margins are higher and opportunities greater.
Similarly, developers are increasingly moving away from small and medium projects to multifaceted multi-billion dollar ones requisitioning civil, mechanical, electrical and infrastructure facilities, among others.
Evidently, only specialised contractors with sophisticated technical skills can meet these requirements.
No wonder then that DSI has gone from being a pure mechanical, electrical and plumbing (MEP) contractor to a multi-disciplinary one with business units in water and power, oil and gas, civil contracting and rail.