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Sat 23 Jun 2007 12:00 AM

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The times, they are a changin'

How Dubai's construction landscape has evolved over the last 30 years.

Dubai's progressive nature can be daunting to those more accustomed to Europe or the US, where if any action is required, it is pontificated over, consulted, argued and consulted some more before results can be seen. Dubai simply gets on with it.

Take a look at any archive photograph of the city, and even in 1990, Sheikh Zayed Road resembles little more than a two-lane road, flanked on both sides by desert. Nothing more. But what is it like for those caught up in the whirlwind of Dubai's construction industry? Has anything really changed over the years? Physically, the Dubai of 2007 bears little relation to its earlier guises, but what about working and operating in the emirate now, as opposed to 10 or 20 years ago?

Ahmad Etman, managing partner, Al Sahel Contracting, which has been operating in the region for 30 years, recalls the foresight demonstrated by the city in the late 1970s, when construction began on some of the major infrastructure projects. "When I was here in 1979, people saw the Garhoud Bridge and Jebel Ali Port and were saying: ‘Why do this? Why build a road in a desert? Who will use it?' All the infrastructure was ahead [of itself], but it will not be ahead again - the study of infrastructure comes later now, and Dubai will always be playing catch-up."

Despite some doubting the longevity of the construction boom, Etman sees no reason for a slow down yet. "The boom is not at its peak. If Abu Dhabi opens, it will be tenfold that of Dubai. But Dubai has good decision makers, whereas in Abu Dhabi you have to go through many channels. In Dubai there are more business people, so there is a different mentality."

Yet Etman stresses how the entire sector is going through a period of change - unseen in his lifetime - which is having an impact, both good and bad, on the overall industry. "What is changing is that clients are becoming more confident, more effective and more understanding of the business. At the same time, however, this has led to a decline in quality, with contractors demonstrating less interest in the standard of materials than before."

Rasheed Mikati, director, ACC, is effusive over which was the better period, preferring the time when it was easy to obtain supplies: "Business was much easier. The whole supply chain was less stretched than it is now. In the old days when you wanted to recruit engineers, you could go to the UK, Lebanon or Egypt. It was the normal process of supply and demand - if you were willing to pay a decent salary people were available."

This has all changed, however. With burgeoning economies in India and Pakistan, much of the skills base is less interested in working abroad. "In the old days, when we went to recruit 200 carpenters, we had a pool of 1,000. Now we have a pool of 300 and the best one would rather go to New Delhi and work in the construction there - why should they travel and leave their families," adds Mikati.

Political stability has also played its part in the current boom period which is being enjoyed, not just by Dubai, but across the wider GCC and Middle East. "Between the first Gulf War and the second in 1990, with the invasion of Kuwait, the GCC had big reservations about investing," says Mikati. And with low oil prices of US $15 (AED55), coupled with the ongoing unease between Iran and Iraq, uncertainty predominated.

"If you look at Kuwait, it was only after the US-led coalition went into Iraq in 2003 that its boom started, because Kuwait was also worried that Saddam Hussein might come and re-invade."

Mikati believes that the same transition will apply in Syria and Lebanon, which represent key growth areas. "Syria is still at the stage where you have Gulf investors buying land knowing that things are going to boom but they haven't yet. It's a bit more of a ‘land banking', ‘wait and see' attitude," he adds.

Closer to home, it is easy to forget, with projects being announced on an almost daily basis, how far the industry has come.
As Mikati points out, margins enjoyed now are far removed from the previous boom period of the 1970s and 80s, where a project of $13 million was considered massive, whereas today, $135 million projects would be viewed medium to large in size, and with so many crossing the $250 million mark, smaller deals barely register.

With the supply chain so stretched, however, it has placed greater pressure on the conventional business model, which sees main contractors such as Arabtec, Al Habtoor, Besix, and ACC do 30% of the building work, with the remaining 70% subcontracted out.

In the 1970s, with simple building designs, this wasn't so much of a problem. But nowadays, securing quotes from subcontractors is placing a huge strain and uncertainty on the main contractor. "When we bid for a project, a lot of the time we don't get quotes from subcontractors. Previously, when a client sent us a bid document, we would get prices from the curtain wall subcontractor, the piling subcontractor, aggregate them, compile them and send it back to the client," says Mikati.

"That was in the old days. Nowadays when you send an enquiry to a subcontractor, some of them don't bother replying, and those that do are very busy and don't have the estimation manpower. But once you get the contract, and call these people back, they don't have the capacity as they may have been awarded a large contract in the meantime. And those that do show up usually come up with a price higher than you have accounted for - it isn't a bad attitude; if they can get a better price elsewhere then that is their right," adds Mikati.

As the industry evolves, the role of the consultant is diminishing. Across Dubai at the moment contractors are getting invitations direct from the client. This is because developers are becoming more confident, effective and understanding of the market. At the same time, they are selling units direct to tenants, necessitating the need to build quicker, which is having an adverse affect on quality.

"I don't think you can safeguard the quality, it is a by-product of this boom over the last five years," says Mikati. And with land prices rising on an almost daily basis, Mikati reveals that there is a growing use of design and build contracts in Dubai - which can save the client three to four months and guarantee the cost will not go above a certain limit.

There has also been a subtle but distinct shift in emphasis from international companies coming into the market towards local companies, who, through a decade or more of exposure to international firms, can hold their own on the larger projects without having to rely on international expertise.

"In the last 10 years, with so many impressive and architecturally complicated buildings coming up, the local construction sector has learnt so much, that nowadays an international company does not bring in as much added value as it used to," says Mikati.

This has evened up the balance in joint ventures as well. In the past, international firms would bring the expertise, local companies supplied the bulk of the resources required, but only shared half the profits. The increasing sophistication of buildings has also ensured that companies with limited skillsets, which appeared in the 1970s, have had little chance of survival in the fiercely competitive and experienced market.

Nowadays, both local and international contractors enjoy significant annual growth - ACC operates a controlled annual billing growth of 30%. But with poaching still rife, overstretched resources, subcontractors turning down work and poorly defined health and safety codes, being a contractor in the UAE and wider region is difficult. Certainly, money is there to be had, and the growth of design and build contracts will continue to change how the construction industry operates. But the fact remains that current successes must be tempered by a realistic outlook for a sector that will not always see such phenomenal amount of work on offer. Mikati concludes: "It is worth remembering that in a recession a contractor can pick and choose. Things are busy now but life is long."

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