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Mon 2 Feb 2009 04:00 AM

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Dubai's construction dominance slows

Some big changes are expected in the Middle East construction sector in 2009: Dubai's dominance is under threat from other thriving Gulf nations plus foreign talent is arriving to add to the competition.

Some big changes are expected in the Middle East construction sector in 2009: Dubai's dominance is under threat from other thriving Gulf nations plus foreign talent is arriving to add to the competition.

Data from Proleads Global, a Dubai-based market research company, shows that construction activity, once predominantly focused in Dubai over the last number of years, is now shifting to other Middle East countries.

In 2007, six of the top 10 most expensive projects began in the UAE, with four located in Dubai. In 2008, this grew to seven and Dubai claimed the top three.

We have not HAD any customers pull projects. If our customers slow down we will react but there is no indication of anything slowing.

Forecasts for 2009 show that while Dubai still claims the most expensive project due to start in 2009 - The Mohammed Bin Rashid Gardens City - it is the only Dubai project in the top 10.

There are currently only three UAE projects topping the league table. The remainder represent a broad geographical spread of Arab nations, with Iraq, Libya, Qatar, Kuwait and Saudi Arabia replacing the UAE's previous dominance.

This perhaps indicates that while Dubai's prominence is slowing down, it gives room for other Arabian markets to emerge.

"While construction may retract due to the global climate, the fact remains that the Arabian Gulf is still one of the few regions of the world where growth is forecast to continue," says Simon Mellor, vice president Construction of dmg World Media Dubai, who organise The Big 5 Exhibition in Dubai annually.

"There is still in excess of 5,200 individual projects worth more than US$4 trillion underway across the Middle East," adds Bernard Walsh, managing director of dmg World Media Dubai.

The Big 5 project owners

Identified by project value:

1. Nakheel US$98 billion 2. Meraas US$95 billion 3. Dubai Department of Civil Aviation US$64 billion 4. Tatweer US$61 billion 5. Aldar US$46 billion

With markets around the world reeling from the downturn, construction firms in Dubai and the Middle East are seeing increased competition from foreign firms flocking to the region hoping to steal a slice of the Arabian market.

Numbers at The Big 5 exhibition in Dubai increased by 70% in 2008 and 85% of these were international companies. The number of countries attending also increased to 53 and Italy and Germany sent the two biggest contingents.

Crane profits rise

A lot of companies in Dubai tried to scalp their customers, we managed to protect ourselves by being honest with people.

Demag Cranes and Components GmbH is a subsidiary of German company Demag Cranes and last year celebrated its tenth year in the Middle East. The group, which has been in existence since 1819, announced that for the 2007/08 financial year profits were up 13.5% and orders were up 9.8%.

Demag supply cranes to the processing and manufacturing industries and the company say that, while its customers may be seeing a downturn, so far they haven't seen a major impact from the global slowdown.

Tarik Alkhalil, managing director and CEO of DEMAG Cranes and Components in the Middle East says that while they supply the aviation, construction, automotive and shipping sectors, which all face increasingly difficult trading conditions, their customers have had projects on the drawing boards for years and these will go ahead as planned.

"We have not had any customers yet who have decided to pull projects. If our customers slow down we will have to react but there is no indication of anything slowing as the factories and instillations we are part of have had long gestation periods so for them to suddenly stop is a massive decision," says Alkhalil.

Reflecting the trend for diversification, Alkhalil believes that in future the company, which already has offices in Dubai, Abu Dhabi and Saudi Arabia, needs to branch out further in the Middle East.

The Big 5 principal contractors

Identified with projects valued at:

1. Jan de Nul, Belguim US$10 billion 2. Arabtec, Dubai, UAE US$7 billion 3. Nagarjuna Construction, India - US$5 billion 4. Al Habtoor, Dubai, UAE - US$4.5 billion 5. Van Oord, The Netherlands - US$4.5 billion

New launches

Brian Davies, president and CEO of X-Calibur International, also reports that his company has not seen any immediate impact from the downturn.

He says that this is mainly due to the fact they are working on projects that are already out of the ground and, like Demag, they are a niche player and work on high-end projects that require a high degree of skill and specialisation.

Davies believes, however, that the key to continued success is that they did not take advantage during the boom years by drastically increasing prices. As a result their client base has remained loyal.

"We are very cost effective and aim to provide the lowest price for the highest standards. We have not taken advantage of the upturn and we have always managed for a downturn. That has been the mistake of a lot of companies in Dubai who tried to scalp their customers. We managed to protect ourselves by being honest with people," says Davies.

Defying the current market, the company has set up a new business unit called X-Calibur Structural Systems, which focuses on four main product groups, including resin anchors and structural adhesives, rebar couplers, mechanical joints and structural strengthening systems.

X-Calibur International has always emphasised its green credentials and is currently working on eco-friendly products, such as carbon negative cement admixtures.

The company supplied special environmentally-friendly sealers for the Burj Dubai and is currently working on the US Green Building Council's new headquarters, two miles from The White House in Washington DC.

The top construction countries operating in the Gulf:

1. The UAE2. Belgium3. The Netherlands4. The United States5. The United Kingdom6. India7. Australia

Another new niche addition to the Dubai market is US based Crane Co. A manufacturer of highly engineered industrial products, its new Dubai office will cater to the whole of the Middle East and Africa and will focus on Crane Co.'s fluid handling business.

"There is a lot of uncertainty," says Sean Hearn, sales manager at Proleads Global, which monitors projects across the Middle East and North Africa valued in excess of US$10 million.

"In terms of the construction industry you have projects being put on hold or cancelled but I think it is a bit of slowdown that was needed, especially in places like Dubai where there was an obscene amount of business going on previously," adds Hearn.

Looking at the figures, Hearn reports that the residential and building sectors in general have been hit the hardest but his research teams report that government plans, infrastructural developments and oil and gas projects do not appear to have been impacted as much by the downturn.

Regulators

When there is a slowdown in the market it is often time for regulators to take a closer look at how the industry can be improved and those working in it often look at diversifying and increasing their skill range in order to appear more attractive in an increasingly more competitive environment.

It is therefore no coincidence that The Chartered Institute of Building (CIOB) has now chosen to announce plans for the development and establishment of a presence in the Middle East.

"We are the key institute for construction professionals around the world with 42,000 members worldwide and 20% are based outside the UK. The Middle East is one of the largest construction markets in the world and the reason we decided to go there is because we already have a large proportion of our members already working in the Middle East," says Fabio Casula, head of international of CIOB.

"Clearly because of the size of the market industry professionals and academics have been telling us that they need us to support the industry. We've conducted research and what we have seen is the need for us to support the industry in areas such as sustainability and health and safety," he adds.

The Big 5 project managers

Identified with projects valued at:

1. Hill International, USA US$11 billion 2. CH2M Hill, USA US$9.5 billion 3. Parsons Brinckerhoff, USA US$6 billion 4. Kellogg, Brown & Root, USA US$4 billion 5. Emirates Sunland, Dubai, UAE US$3 billion

Although it has not carried out a full report, Casula observes that the Institute has also noticed issues with procurement and logistics which the Dubai market needs to address.

"In the Middle East there has been a focus on quantity not quality, building fast to produce a wide range of buildings but not necessarily with the quality of attention given, and from our point of view we strongly believe that with the Dubai market slowing down what will happen is that construction companies will start paying attention to the quality of building and looking at the big issues such as best practices and health and safety," he states.

Casula believes there are often concerns over the integration of projects into the general community, in terms of traffic and general disruption. Looking at the Dubai Metro project, for example, he says it is not clear how passengers will be able to get to the station once complete.

Green building

With regard to storage he believes there needs to be improvements and the issue of worker health and safety is an ongoing debate which the CIOB says will have to be addressed.

As we have seen, some companies now focus on environmental products but the UAE has one of the worst ecological footprints in the world.

Adi Afaneh, senior environmental planner at the Dubai Municipality says that in Dubai buildings are responsible for most energy use. Afaneh reports that in Dubai 75% of all electricity and 85% of water is consumed by buildings.

Casula believes this is another issue that the UAE will have to address and states the UAE has not yet caught up with the idea of constructing sustainable buildings, which is now a major consideration in Europe and the US.

The Big 5 project architects

Identified with projects valued at:

1. Crema Bahramis Giordano, - Australia US$29 billion 2. Burt Hill, USA US$23 billion 3. Foster & Partners, UK -US$23 billion 4. Adrian Smith & Gordon Gill, UK - US$22 billion 5. Gruzen Samton, USA US$17 billion

Source:The Big 5 Exhibition 2008, based on data supplied by Projectsandleads.com

Organisers of the 2009 Big 5 Exhibition are optimistic as construction professionals still flock to the region hoping to replace work that has dried up back home.

"We had even more requests this year from governments around the world for more space at the 2009 event," says Mellor.

Rising competition

Dubai construction firm Al Shafar General Contracting is reported to be letting go of up to 1,000 staff and Dubai developers Nakheel and Damac has already reduced staff numbers, so this an influx of overseas talent could make the Gulf market even more competitive.

Even though ‘Business Sustainability in a Challenging Market' was this year's theme, the mood at the conference for the Arabian World Construction Summit (AWCS) was surprisingly upbeat.

Abdul Majeed Ismail Al Fahim, chairman of the Dubai Pearl development, confirmed the project is on schedule to be completed in 2011.

"In Abu Dhabi we have a unique case where market fundamentals are strong, high demand and limited supply. I am  confident of our prosperity over the long term, in spite of the global challenges," observes Samer Abu-Hijleh, COO of Sorouh Real Estate PJSC. He adds that the company plans to deliver 10,000 homes in Abu Dhabi over the next three to five years.

Edmund O'Sullivan, chairman of MEED Events, organisers of AWCS, believes the Middle East market will recover in 2010 because of an expected increase in oil prices and the resurgence of the American economy.

O'Sullivan predicts that Saudi Arabia, Kuwait, Qatar and Abu Dhabi will be main markets with power, water, transport, education and healthcare being buoyant sectors.

As Dubai's construction market matures, other emerging Middle Eastern markets prosper. Dubai's dominance is being challenged, perhaps a relief to construction professionals, looking for prospects in an ever-more competitive environment.

The Big 5 project financiers

Identified with projects valued at:

1. Abu Dhabi Commercial Bank US$22 billion 2. Tamweel US$19 billion 3. National Bank of Abu Dhabi US$18.6 billion 4. Dubai Islamic Bank US$18.2 billion 5. First Gulf Bank US$14 billion