We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Sun 12 Jul 2009 04:00 AM

Font Size

- Aa +

Flourishing in adversity

Arabtec CFO Ziad Makhzoumi talks to Damian Reilly about the economic forecasts and adverse publicity at the hands of the BBC.

Flourishing in adversity
Flourishing in adversity
The BBC has devoted an entire episode of its flagship documentary programme Panorama to an undercover investigation of an Arabtec labour camp.
Flourishing in adversity
Arabtec is chasing billions worth of projects in Saudi.
Flourishing in adversity
Arabtec Construction Group, the builder of the iconic Burj Dubai, employs around 70,000 people and is the largest construction and engineering company in the Middle East.

Arabtec CFO Ziad Makhzoumi talks to Damian Reilly about the economic forecasts and adverse publicity at the hands of the BBC.

Ziad Makhzoumi, Arabtec’s chief financial officer, is an ordered man in a chaotic industry.

At precisely the agreed time of meeting, nine o’clock on a hot Monday morning, he seems to materialise out of thin air into the reception of Arabtec’s headquarters in Dubai. He is dressed immaculately, and offers stiff handshakes, and stiffer smiles. Makhzoumi carries the old world air of the gentleman about him — unusual in this region — and so when he offers to mug as King Kong atop a scale replica of the Burj Dubai for CEO Middle East’s photographer, it is as disarming as it is funny.

Sitting on the sofa in his office, Makhzoumi is open and unflustered as he politely answers our questions, which is again disarming. After all, senior members of staff at Arabtec would have every right to be as wary of the media as they would be ebola. The company, which employs in the region of 70,000 people and is the largest construction and engineering company in the Middle East, has had a torrid time at the hands of the international media in 2009. The BBC, in particular, has attacked the company for its perceived treatment of labourers, and even devoted an entire episode of its flagship documentary programme Panorama to an undercover investigation of an Arabtec labour camp.

Treated in a bad light

Arabtec maintained throughout the furore they had been treated very badly, that they were shown in the worst possible light by the BBC, and that the so-called investigation into the labour camp — which has since been shut down — was highly misleading. But while the storm of public opinion raged, Arabtec’s share price tracked upwards.

That’s hardly surprising; last year the company delivered AED9.6bn of work, after Makhzoumi had forecast it would deliver AED8.5bn. This year, again, Makhzoumi has forecast AED8.5bn of work, credit crunch be damned.

“I think we are doing well considering the market,” he says with a wry smile. And that market, he thinks, is not as dependent on the fortunes of the rest of the world’s economies as some people would have you believe. For Makhzoumi, it is all about the oil price.“The region is mainly driven by the price of oil, because that is the main source of income. Last year, the price of oil went up to the peak, but before that the average price was about $30. Everybody expected the price of oil to stay down this year, but most likely it will stay above $60, on average. We were previously hoping it would stay above $50. Now, at that level most budgets will be honoured and implemented. That’s a very important point: because if the price of oil stays high this year and next year, not only will they (GCC governments) meet all their budgetary targets, but they will probably have excess funds to implement in other areas. They are doing well at this price,” he says.

In fact, Makhzoumi is confident that should the oil price stay high, then planned projects in the region might not be delayed, as many had expected earlier this year that they would.

It is one thing to say that most GCC states are not too reliant on the economic fortunes of the rest of the world, but surely it is hard to argue that that is the case for Dubai. The dramatic fall in the value of Dubai’s property prices coincided horribly exactly with the collapse of Wall Street. Indeed, many construction firms in the emirate have been moaning very vocally about not being paid, especially in the first quarter of this year.

Makhzoumi says: “Dubai is a different story, because Dubai is not an oil producer. It is relying on its own economy, and they have done fantastic work to build an infrastructure. So any time the economy picks up, I think they will be many years ahead of anybody else in the region. But they are relying on services, and services have suffered badly because of what has happened in the world and the region. But I think the region will pick up faster than other areas. I think Dubai will probably benefit before anywhere else.” Delayed paymentsBut what about the firms who say they haven’t been paid? Only recently a consortium of British construction firms approached senior British government minister Lord Mandelson asking him to represent them to the UAE government as they attempted to recoup the £500m ($829m) they said they were owed in outstanding payments. Is Arabtec being paid?

Makhzoumi says: “We are. We are collecting. Not as fast and as well as we did a year ago, but we are collecting. And we have paid a lot of our suppliers in the last quarter. More than we did in the previous quarter. There is collection, but we are not in the same comfortable position that we were a year ago where we had a lot of cash in the bank, but we are doing okay. I think most companies are facing the same situation. This has changed in the last three months. At the beginning of the year, the situation was worse. Collections are better now, and the government and its entities are paying.”It is one thing being paid for work already done, but there is still the small matter of pushing on and finding new work to do. Dubai may be slowing down, but many of the other GCC’s main cities are flowering. Is Arabtec managing to be involved in the construction projects that are happening in these places?

Makhzoumi says Arabtec is in the process of bidding for several projects in Abu Dhabi worth in the region of AED4.6bn. “We think we will get most of them, if not all of them,” he says. In Qatar the company is pursuing fifteen projects “whose value could exceed QR15bn ($4.12bn). It is not only in commercial and residential, but also in oil and gas. Because they have a plan to become one of the biggest producers of liquid gas, and we want to be part of that. We hope that we will get some this year.”

In Saudi, he says, Arabtec is chasing SAR4.5bn to SAR7bn ($1.2bn to $1.9bn) of projects. Moreover, he adds, the company has been looking at potential work in Pakistan, Syria, Jordan, Egypt, and Libya. In all, CEO Middle East makes that about $6bn worth of potential work.

There is also the possibility of Arabtec undertaking lucrative work in Iraq. Makhzoumi says: “We have been asked to go and look at projects in northern Iraq. Which is great, but the question is, which part do you go to, and send your people to? It’s not that we’re not interested. There’s also a question of resources — you can’t take a $2bn project in Saudi Arabia and a $5bn project in Iraq at the same time. Because then you need to double the number of staff you have. We have to be realistic. Now, if the market financially was different, probably we would have taken a more aggressive expansion strategy, but we also have to be very prudent with our resources, and our funding, and make sure we don’t go into areas where it might take longer to materialise any revenue for us.”

No journalist today could sit with the CFO of Arabtec and not ask him for a response to the criticism the company has received this year regarding its treatment of the labourers it employs from the Asian subcontinent. The BBC charged Arabtec with housing its labourers extremely poorly, in squalid conditions, and treating them little better than slaves on very low salaries. Many of the Arabtec labourers, the BBC said, had been saddled with debts that accounted for two or more year’s salary, just for the privilege of being recruited from the Asian subcontinent by corrupt gang masters.

Makhzoumi answers our questions patiently:

“You have to understand the background of Dubai. It was built very quickly. There were shortages of many things. One of them was labour camps. The Municipality would not allow you to build a labour camp on the beachfront. So the choices that we were given were possibly not the best choices, and not the most convenient locations. Some had limitations on water, infrastructure, and sewage and so on. And the camp that was featured in the documentary was the oldest camp that we had. It is being shut down.“The good thing now is that you can get new, fantastic labour camps at possibly half the price, which was not the case two years ago. We were looking but we couldn’t find one. You can’t just take a building and put labourers in it, because their requirements are different to staff. You need to give them facilities, you need to give them cooking space, and you need to give them entertainment. You need an open space, for a football field, or a badminton court, or whatever.

“Now that has changed. And we are in the process of moving even some of the good camps to better camps. Because we can get them brand new at much lower prices.”

And what about the problem of labourers being saddled with debts? Would it not be possible for Arabtec to do its own recruiting, cutting out corrupt middlemen? Not so, says Makhzoumi — to do so would be “impossible,” and besides, corruption on the part of recruitment agencies is hardly Arabtec’s problem — it’s the problem of embassies for the respective countries.

He says: “In the UAE alone, we employ 46,000 people. To be able to recruit and interview 46,000 people, you would probably need thousands of people at every location.”

But couldn’t Arabtec employ people that could do that?

“Yes, but it is an expensive way of doing it. Say we employ 5,000 people to do that, and they employ 46,000, then what do you do next? You’re not going to recruit another 46,000. And usually you go with people who are supposedly of reputable background, and these are people who are checked through their own embassies. It doesn’t mean things should not be reviewed, I agree. But we don’t understand the culture. It is very difficult for me personally to go and interview in Sri Lanka. You need to go through an expert.

“To do it on a big scale would be physically, financially, logistically impossible. We have tens of nationalities, and they recruit from different centres in each country. So what do you do? You set up twenty centres in India and everywhere else? We are not qualified to do that,” he says.

And then with a smile: “We in Arabtec are very good at engineering, not recruiting.”

Arabian Business: why we're going behind a paywall

For all the latest construction news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.