Egypt rising

Egypt is a thriving construction market for Gulf contractors. How will the country’s recent turmoil affect their outlook?
Egypt rising
PEOPLE POWER: Demands for social change likely to boost infrastructure development.
By Benjamin Roberts
Sun 06 Feb 2011 12:00 AM

The social and political turmoil in Egypt is likely to have a
substantial impact on the contractors and service providers operating in the
country. After successive years as a growing market, with many bold and new
plans to develop across many sectors and a swell of international interest, the
sudden and comprehensive instability as a result of the people’s uprising against
the government raises important issues for projects and their respective
builders.

Egypt had
previously represented one of the biggest growth markets for construction in
the Middle East due to a wide range of
projects across many sectors.

Last year, for example, the government said it planned to
spend $17.25 billion on infrastructure projects. It also announced it was open
to receive tenders from consultants for the country’s first nuclear power
plant. The $770million Mall of Egypt, a 160,000m2 development that would be one
of the biggest shopping centres in North Africa
when complete, had also raised eyebrows across the region, not least as it
hinted at the growing disposable income of its people.

Construction companies such as Orascom Construction Industries
had posted three- to six-month profits last year, and looked to strengthen its
portfolio in regional markets. Public-private partnerships were also becoming
more plentiful, with government spending in abundance – some  $764million had been spent on diverse
projects along the route of the 414km Upper Egypt-Red Sea Road project, from
Sohag to Safaga Port, that will ultimately link central Egypt to the coast,
according to Osama Saleh, chairman of Egypt’s General Authority for Investment.

But an unprecedented last two weeks has put the brakes on
the juggernaut. The country’s stock exchange froze in the midst of the street
protests that started on 24 January, though share markets in almost every
corner of the world were affected – including the shares of construction-linked
firms in the GCC.

Other markets shaken by the last two weeks may have an
important role to play in the future of current projects. Research by Societe
Generale, the French investment bank, has highlighted the potential disruption
to the flow of crude oil up and down the Suez Canal and the Suez-Mediterranean
(Sumed) pipeline – forcing up March delivery of Brent in London to flirt just shy of the $100 mark.
Should oil and gas be disrupted, so too might the innumerable engineering work
on refineries and rigs, not to mention the industrial impact of higher oil
prices.

Zamil Industrial Investment Company, the manufacturing
conglomerate whose subsidiaries include Zamil Steel, attempted to assure
shareholders in a statement that “Egypt’s operations represents almost 7.6% of
Zamil Industrial overall revenues and that the facilities have not been
affected”.

But the unprecedented events have reduced international
contractors that had looked to tap the market to cautious fence-sitters.
Executives at Arabtec Construction and Six Construct told Construction Week
that it was too early to make an assessment of the situation in the country or
how it would affect current projects.

At the start of this year, Arabtec Egypt  received a construction letter of award from
Emaar Misr,  a subsidiary of property
developer Emaar Properties, to build 74 residential villas and 30 town houses
as part of the Al Marassi project at Sidi Abdul Rahman on the country’s north
coast.

Six Construct has one project in the country through Besix,
a joint venture with Orascom Construction Industries (OCI), the Egyptian
contractor, to build a new Ain El Sokhna oil and gas-powered 1,300MW power
plant – a  $60million contract signed
last August.

“This is in a remote area,” said Phillippe Dessoy, general
manager of Six Construct. “You will have to wait and see after these events.”

Peyman Mohajer, managing director of engineering consultancy
Ramboll Middle East, said the company was relying on regular intelligence
reports from the country and endeavoured to get a balanced view of the
situation. He added that one potential positive result from the country’s calls
for social change is the added momentum for socially-beneficial projects.

“The private developers might move faster,” he said of the decision-making
process. “But the impact in Tunisia
and Egypt
psychologically will cause a lot of companies to wait and see. In that respect,
it will have an effect in the short term.”

He added that Ramboll Middle East was likely to be “more
prudent now with the clients and the projects”, which would see it prioritise
areas such as healthcare and education, as demanded by the people. “People want
to see governments doing something for them,” he added. “But at the moment all
plans are on hold and wait and see how the dust settles.”

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