It’s a Nass world

Coverage of the financial crisis has been extensive and opinions on its severity varied, but managing director and vice chairman of the Nass Group, Samir Nass, isn’t pulling any punches.

“I think we’re only at the beginning of the downward business cycle and it could continue for the next eight years,” says Nass.

“For the construction industry there’ll be huge price corrections, competition will be fierce and we’ll all be in a much more aggressive market.

“I see a very grim picture coming up in the next five years and a lot of people are going to be hurting very soon.”

It’s an ominous warning from a man with his finger firmly on the pulse of Bahrain’s construction sector.

Nass is not only the managing director of Bahrain’s largest contracting firm, he’s also a board member of other influential organisations including the Economic Development Board (EDB) and the Bahrain Chamber of Commerce and Industry (BCCI).

So if his predictions are correct, is the Nass Group, which had a 2008 turnover in the range of US $900 million (BHD340 million), going to be able to maintain its stability through the tough times?

“To tell you the truth, I don’t know. At this stage things are not clear and we are monitoring the situation,” he says.

But plans are also in place to minimise the damage and a restructuring programme is on the drawing board, which will involve merging some department’s common areas to make them more competitive.

This will inevitably involve some job cuts, “removing the fat” that goes unnoticed during the good times, as Nass put it.

Just how much the firm will have to downsize its workforce of 12,000 is unclear, but at this stage he says it will be minimal with small trims made here and there, to make the company more efficient.

What Nass is certain of is that the high- end wages will be slashed.

“Every morning I open my email to find many CVs being posted to me from project managers with huge capabilities and experience and asking a lot less than what we’re paying today,” he says.

“At the end of the day I have to compete as a contractor and provide my client with the product they want, at the best price. I can’t afford to employ people at three times the salary of the market, when I can get someone at market price with the same capabilities or better.”

“There will be wage corrections because there will be a huge drop in construction activities in the region, there will also be redundancies and there will be unemployment.”

Amid the doom and gloom Nass says he is thankful that the company stayed out of investing in the property market and simply stuck to building it. He says the firm determined early on that the Gulf’s property boom was largely based on “fictitious demand” which went against the company’s tried and tested growth model.

“I myself don’t like fast growth in construction because, in any business, if you grow fast you can go down fast,” he says.

Since the business started as a civil contracting firm in 1963 it has steadily expanded and diversified into a range of areas, but every division has grown out of a real demand from the construction industry.

Its first venture away from contracting was the establishment of the GCC’s first cement ready mix plant in the mid 1960s, to serve its own needs.

“There was no ready mix in existence and in those days site mixing was common.”

“These mixes were not precise, they often used brackish water and the aggregate was very poor and highly polluted with chlorides and salts.

“That created a host of quality problems and so our solution was to build our own ready mix plant.”

The plant controlled cement quality for the Nass Group’s own construction and soon began to service the needs of others, becoming a profit centre in itself.

Further improvements to quality were made when the company began to import better aggregate and sand from the UAE, to supply the cement plant.

It wasn’t long before other ready mix plants sprung up that needed supplies and there was soon a need to establish a marine transport division, which is now one of the biggest in the region.

In this way the company steadily expanded its operations based on demand and now boasts divisions in marine dredging, sand processing and landscaping, to name a few.

“It was a win win situation for all – we were providing quality to the market, materials for our construction activities and at the same time it was a strategic and profitable move,” says Nass.The group’s strategy was to promote itself as a “one-stop-shop” solution for construction projects, which would allow the client to deal with one company and reduce lost time in claims and disputes.

Another important strategic move made in the 1980s was to target large construction projects to limit the competition.

“If you tender for a 30 storey building you might be competing against 30 contractors or more,” says Nass.

“If you go for a 50 storey building you may only be competing against five contractors, so this was our strategy and really helped us a lot.”

During the early days of expansion Nass says they also learnt a great deal through forming joint ventures with international firms such as Tarmac International, Balfour Betty and more recently Murray & Roberts.

Things like organisational structure, quality control and financial management were unknown to local contractors of the 60s and 70s he says, and over the last 40 years they have studies and adopted the best practice models of these international construction giants.

But what was once a necessity has now become a hindrance as clients, “specifically the government”, still lack faith in the ability of local contractors to handle big projects on their own.

“These days we don’t form joint ventures because we’re not capable on our own, but because it is a requirement,” says Nass.

“Clients feel more comfortable in dealing with international firms, but a lot of the projects that we are in joint venture with we end up doing 99% of the work.

“It’s just to present the face of an international firm. Knowledge and capability in terms of project management are the same now and I don’t see why this isn’t acknowledged.”

Nass says the government needs to lead the way by showing more confidence in the ability of local contractors, thereby encouraging them to become truly international companies in their own right and a source of currency for the nation.

“I look to the Koreans and Japanese and see how they have supported their local construction companies,” he says.

“I have witnessed the evolution of companies like Hyundai of Korea, which since they first came to Bahrain in the 1970s, has grown from a civil contractor to a giant engineering procurement construction (EPC) contractor that provides turnkey solutions for any project.

“Bahrain’s construction firms have not been given those opportunities yet.”

The Nass Group has carried out some large EPC contracts outside of Bahrain within the GCC region and the ultimate goal is to one day grow into an international giant like Hyundai with a truly global presence.

With this in mind the Nass Group established a public entity in 2005, the Nass Corporation, which has the bulk of the company’s core construction divisions under its umbrella.

Nass says they were the first family company to go public in Bahrain and did so to ensure professionalism was maintained.

“Family companies in the private sector sometimes take a speculative approach to decision making, based on personal bias,” he says. “When we make decisions we have to study all the legal angles, all the plans and everything you could imagine because we have shareholders to answer to.”

Looking to the future Nass says they also wanted to ensure the company would not stagnate when passed onto the third generation, who have other interests and less to gain from diluted shareholdings.

It could be a long way off, with the company’s founder, Abdulla Nass, still active in the business and maintaining his role as chairman, but eventually there will be a definite split between ownership and the executive role.

“We will eventually have to hire industry professionals for the running of the company who will be answerable to the board of directors and shareholders.

“This will ensure the continuity and expansion of the business by letting highly experienced professionals run the business, rather than the family.

“We don’t want what Abdulla Nass has established to be lost.”