Above the competition

CEO Middle East asks Arabtec CEO Riad Kamal, the man at the helm of one of the Middle East’s biggest construction companies, about the future of the region’s construction sector.
Above the competition
CEO Riad Kamal is proud of the firm’s quality projects.
By CEO Middle East
Sat 19 Sep 2009 04:00 AM


CEO Middle East asks
Arabtec

CEO Riad Kamal, the man at the helm of one of the Middle East’s biggest construction companies, about the future of the region’s construction sector.

What sets
Arabtec

apart from its competitors in the Middle East?

There are a few good regional construction companies in the Middle East and Arabtec is one of them.
Arabtec

has been consistent in delivering quality of the highest standard on all the projects the company has completed, or is still involved in, a strategy essential to our success. Most of our senior and middle management staff have been with the company for many years, demonstrating loyalty, professionalism and dedication.

From the date
Arabtec

became a public company our strategy was to expand geographically and to diversify the types of services that we provide. This has been evidenced through our acquisition strategy which commenced in 2007. Our vision is still on track, although the circumstances in Dubai are causing us to look at new markets earlier then we might otherwise have done.

Do you believe that the value of real estate will continue to drop in the region or do you foresee prices stabilising soon? If so, when?

Prices have dropped already and are expected to stabilise in the near future. There will continue to be a significant market for real estate in the region because of the large size and needs of the population across the GCC countries. Currently, there are not many affordable units available and there will be a growing need to change the mix of products/units on offer to cater for these needs. In Dubai, plans for future real estate development will start to be more realistic, with robust feasibility studies being undertaken to support the decision for any new construction.

In Abu Dhabi, construction activity has recently started to increase. In the UAE capital, the supply of real estate currently does not meet existing demand and we believe that the prospects for the real estate industry in the emirate are good.

The Kingdom of Saudi Arabia has a much larger population, with a significant shortage in facilities and a high demand for housing and infrastructure. In Saudi, studies show that there is a requirement for an additional two million housing units, in order to meet expected demand, in the near future. It is there that we see a wealth of opportunities for the construction industry in the region.

The GCC will still experience positive growth in the future because the demand is there. The growth however will not return to the same levels that were enjoyed prior to the final quarter of 2008.

Do you believe there is still potential for investment in real estate in the Middle East region? If so, where is the best place to invest?

As I said the growth will be more in Abu Dhabi, Qatar and Saudi Arabia and that the GCC countries will experience positive growth in the future because the demand is there. The growth however, will not return to the same levels that were enjoyed prior to 2008.

Do you believe ambitious projects — such as the Burj Dubai — will ever again take place in the emirate or do you believe it is the end of an era for this type of architecture?

The emirate of Dubai has always been very forward-looking and service-oriented. Dubai was the first city in the region to make it possible for expatriates to own property, thereby attracting expats to the region for the long-term.

These initiatives as well as an aggressive marketing plan for Dubai, all saw the emirate’s social infrastructure develop, growing at unprecedented levels which helped to fuel the boom we experienced in the construction industry. Plans for future real estate development will start to be more realistic, with robust feasibility studies being undertaken to support the decision for any new construction project.

You are said to be chasing $6bn worth of deals across the Gulf. What is your strategy behind pursuing so many projects at this time? Is there any risk attached to this?

We are currently exploring opportunities in India, Egypt, Libya, Algeria and Russia, as these countries have the demand and the liquidity to push through the development initiatives that their governments are driving. Nevertheless, we continue to proceed with caution when considering our options in countries outside the UAE as there are numerous barriers to entry such as language, culture, resource availability and legal requirements — all of which require large investment, in both time and money from Arabtec.

What are your greatest challenges in 2009 and how do you intend to overcome them?

The challenges are to deal with the impact of the economic downturn, which has seen some clients taking the opportunity to slow down the pace of work on certain projects. On some projects that have not yet commenced, clients have taken the opportunity to delay the start of these projects.

The economic downturn has also triggered the renegotiation and re-specification of contracts. Clients are focusing on obtaining more value in achieving the end product. We are also building efficiencies into the services we provide and we are focused on looking for value engineering opportunities for our clients. We have seen this trend occurring predominantly on the smaller projects, while large-scale prestigious developments are still proceeding on the same terms.

There are two important factors that are paramount in facing the challenges; leadership and protecting the basic financial fundamentals of companies.

Leaders obviously have to do what is necessary to get costs under control. But leadership in a downturn is not just about cutting cost. You need to talk to your staff about your own concerns. Show that you have both a heart and a head. When you have bad news to deliver, do it directly.

You need to bring in your broader leadership group to understand the challenges, participate in the planning, and cascade changes throughout the organisation. The members of a broader team will provide complementary skills and multiply the available manpower and brain power. You can identify your strong performers and treat them accordingly. Talk to them, seek their advice, and listen to their concerns.

Regarding protecting the fundamentals of the business, I just want to say that the world is facing a severe prolonged recession that is affecting our local markets, combined with exceptional stress in the financial system.

Even as funding opportunities begin to re-emerge in the region, it will still be essential to maintain financial strength and independence.

Executives need to remain in tight control of the company’s finances and more importantly keep its cash flowing in regularly. They should assess their cash positions in absolute terms, in relation to cash needs. Determine structural drivers of future cash generation and understand how cash generation develops.

They must understand how refinancing needs evolve, and develop contingency plans to prepare for any funding gap or near-term requirements to refinance existing credit. In all likelihood, companies will have to accept higher financing costs, and take those costs into account in their financial planning. Companies must implement strict spending controls and, if necessary postpone, spending altogether. Clearly, the mid-and long-term implications of these measures need to be evaluated-especially because the current climate offers the chance to pursue capital investment opportunities, at lower-than-normal cost.

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