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Sat 5 Feb 2011 12:00 AM

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Egypt highlights risk-reward balance

Regional expansion remains a key theme for contractors, despite global upheaval.

Egypt highlights risk-reward balance
Egypt highlights risk-reward balance

Certain areas of the GCC and the wider Middle
East are likely to have seemed particularly profitable over the last
12 months, as government spending replaces the ready money available from private
developers and infrastructure projects take centre stage.

Though almost half of readers, in an online poll, said their
key priority for the start of this year was securing payment from work already completed
– higher than the urge to branch into new markets the issue of money nevertheless
connects these two options.

To retain the cash flow, you have to retain the clients and grow
your project book in different countries, therefore resulting in more income to
chase and hopefully secure.

Gulf contractors almost inevitably looked West to the modest
but steady flow of projects to be found in the Levant region, as well as further
across the northern coast of Africa – including some particularly tall towers to
whet the appetite of those with this specialism looking beyond Dubai.

With the drive for expansion comes the appropriate research and
risk assessment of each new market. This has been a critical area of a contractor’s
operation in the last few years, and has played out almost naturally in some of
Construction Week’s detailed interviews.

Libya,
for example, presents for any engineering company keen and able in the oil and gas
market a huge opportunity. There are not many Gulf contractors in the country as
in other areas, meaning the competition is reduced – at least when it comes from
the GCC.

But it remains a precarious country in terms of business infrastructure,
and a good set of contacts is a prerequisite, according to consultants carefully
looking to capitalise. Potential revenues must be matched with potential liabilities.

With this we come to the incredible social unrest in Egypt, one of the
most unprecedented events in that country’s modern history.

The whole world has been gripped by an uprising that has stopped
dead the normal workings of the government as well as its economy.

Up until the final week of January, the country of Egypt had represented
one of the brightest beacons in the region of projects and revenues.

Residential mandates, a shared power-grid deal with Saudi Arabia, a
burgeoning nuclear plan that would see the eventual development of its first plant,
and a list of infrastructure tasks that would end in an investment of around $17.3billion,
showed a muscular, ambitious desire for new developments.

Certainly, new things are the order of the day in that country
now. But Egypt
has now become a difficult area for contractors to assess the risks and requirements
needed to continue to operate – at least in the short term.

Contractors tell Construction Week it is still too early to assess
the effect of the social uprising on the status of the projects they had started.

They said they were relying on regular intelligence reports from
the ground in Egypt
in order to obtain a balanced perspective on events that could influence future
decision-making.

With phone and internet communications coming out of the country
down for much of last week, it is unlikely that they were withholding much information
beyond what they had been told initially.

Hopefully those current projects in the country will continue
to thrive in a degree of normalcy, and indeed, it is an occurrence once in a generation.

But it is an important point: how extensive and developed is
your risk-management team?

What are your company’s boundaries, and what do you know about
the legal, social and professional context existing in each new market in which
you are looking to enter to keep busy and capture those essential returns?

Benjamin Roberts is a senior reporter for Construction Week.

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