With only an estimated US$ 98 billion of contract work in 2018, there is a general concern about the future of the construction industry in the GCC. There are, however, many positive factors that are enabling growth in the region. It is against this backdrop that the region’s top industry leaders gathered at the inaugural CEO Forum at The Big 5 to discuss the key trends, processes and strategies that businesses should utilise to adapt to the changing market.
Despite sluggish projections for 2020, the strong performance of the construction industry in Egypt and Saudi Arabia brings cause for optimism, and the adoption of new technologies offers ways to find room for growth in a challenging environment.
Edward James, Director of Content & Analysis, MEED Projects
1. The GCC construction market is at a critical juncture
2. Cause of optimism in Egypt and Saudi Arabia
3. New technologies to offer room for growth
The discussion taking place at the CEO Forum comes at a critical time as the GCC construction market, which reached US$ 177 billion in contract work in 2015, slumped to just US$ 98 billion in 2018. As regional governments have less money to fund infrastructure, it is unlikely that the industry will hit the same number in 2019.
In Dubai, in particular, real estate prices have fallen for four years in a row, and there seems to be a little let-up in the supply of new properties into the market. Due to these factors, combined with the fall in project opportunities, the rising number of disputes and the number of project companies leaving the market, the situation remains tough.
However, there remains a cause for hope and optimism. Egypt is booming with a growing population, a significant number of infrastructure projects and a new capital city. Saudi Arabia, too, under the framework of the Vision 2030, is on the verge of a major capital investment programme that will last 10-20 years.
There is also a new committee being established in Dubai to stabilise the market by monitoring the amount of new supply. Another positive driving force is that new technologies such as 3D printing, drones for construction, and BIM will offer room for growth.
For the industry can succeed in this challenging environment, ultimately, discussion must be turned into cohesive action.
The first Voice of the Construction Industry Report - the most extensive research conducted in the construction sector based on the responses of nearly 6,000 industry stakeholders from 136 countries - was launched during the inaugural CEO Forum to drive informed decision making.
Andrea Piccin, Partner & Managing Director, GRS Research & Strategy.
1. Exhibitions play a role in sharing the voice of the global construction industry
2. The report highlights the top trends impacting all aspects of the construction industry
3. Economic growth is seen as a key factor in generating business opportunities in the GCC
Even in the era of technology, where we have access to information anytime, anywhere, exhibitions still play an important role in bringing together the global construction industry for an opportunity to meet face-to-face, and to understand the needs of the industry.
The Voice of Construction Industry report was produced because exhibitions need to play a role in collecting information so that we can speak to a broad audience.
The responses came from professionals in sectors including manufacturing and distribution through to developers, contractors, engineers, architects and consultants. Each sector was segmented by business type, seniority, geographic location, and company turnover, allowing for a detailed analysis of the issues influencing each sector and how they are shaping the industry.
When considering where businesses may look for opportunities in the future, the research revealed that the GCC and the wider Middle East were the standout opportunities recognised by respondents who were not already active in those regions.
Of the GCC countries, respondents felt that most opportunities were to be found in the UAE (56%) followed by Saudi Arabia (44.4%). In line with these findings, 36% of those interviewed said their business would enter the UAE within the next 12 months, either directly, or via a joint venture.
The findings represent good news for the UAE and the wider Middle East. Economic growth is seen as a key factor in generating business opportunities in the GCC. It is piquing the interest of international companies, which are now looking to expand into the Middle East for the first time. Also, the increase in tourism, particularly in the UAE, is a major driver for business growth and one that many construction companies have already capitalised upon.
As part of the research, the top trends impacting all aspects of the construction industry were addressed with respondents stating that prefabrication and modular construction, energy efficiency, and sustainability, are the most important. These trends reflect the UAE and Saudi governments’ recent focus on the development of smart and sustainable cities.
The results suggest that, during the next 12 months, governments from these two countries will place even greater emphasis in these key areas providing an additional boost for the industry.
A closer look at the latest developments in MENA construction industry reveals that national development strategies, design innovations, and changing the perception of architecture enable growth in the current market slowdown.
Eng. Thabet Mubarek Al–Sawyeed, Governor, Saudi Contractors Authority
Eng. Mohamed ElDahshoury, Chief Executive Officer (CEO), Hassan Allam Construction
Hamed Zaghw, Chief Executive for the Middle East & Africa, AECOM
Ammar Al Assam, CEO, Dewan Architects & Engineers
Richard Fenne, who is a Principal at Woods Bagot
1. Sustainability, technology adoption and localisation are highlighted as the key trends for Saudi Arabia
2. Although there remain a lot of opportunities for growth in Egypt, the pace of the market is not sustainable.
3. The construction landscape in the GCC is an evolving picture
4. This as an opportunity to develop strategic long terms plans for the business and look at new market opportunities
5. Companies now need to use innovation to adapt to the market and realise its opportunities
The strategy of the newly established Saudi Contractors Authority was developed by looking at the challenges, benchmarks and aspirations of the people working in the sector, with the Saudi Vision 2030 as the main driving force.
A critical aspect for transforming the country is tourism, which will require massive infrastructure development, noting that more than 600 projects worth SAR 400 billion (US$ 120 billion) are in progress in the Kingdom.
The authority can help bridge the gaps by providing clear information on local entities and assisting those new contractors willing to step into the country. Typically, contracting has been one of the more challenging sectors to work with because it is project-based. However, a new law for Tenders & Procurement – a result of three years of hard work with multilateral talks – has shown significant progress in ensuring that we provide fair contracts to preserve all the rights of all the stakeholders.
In Saudi Arabia, sustainability, technology adoption and localisation are highlighted as the key trends for the country. And to achieve these targets, the government is willing to provide substantial stimulus programmes to help take these projects forward.
Another key concern for the authority has been to tackle the issue of liquidity and financing and, as a result, a new procurement system now clearly states the payment terms for contractors. The platform will show the upcoming flow of cash, and the new contract dictates the terms & conditions and your opportunity to claim. Also, there will be no government projects launched unless they are budgeted.
Meanwhile, Egypt continues to experience vast opportunities in the country’s construction market. For those willing to take a chance, the hard work pays off. Regulatory and tax reforms and huge investment in the country’s infrastructure are key drivers for improving the country’s financial indicators, such as inflation and unemployment.
While companies who were ready to adapt and to capitalise on this opportunity in Egypt have done well, we must recognise that although there remain a lot of opportunities for growth, the pace of the market is not sustainable.
As for the wider GCC, the construction landscape in the region is an evolving picture. Three significant decision have propelled the GCC’s construction industry over the past five years: the Expo 2020 in the UAE, the FIFA World Cup 2022 in Qatar, and the Saudi Vision 2030. However, the volume of work that has been put out over the last five years is coming to an end.
While the market remains challenging, it is not one without hope. In the UAE, we see signs of activities in Abu Dhabi and the construction landscape in Saudi Arabia has changed dramatically with new players coming into the market. In Dubai, after the completion of activities related to Expo 2020, other activities have the potential will re-energise the market. We are on the threshold of getting into a period where activities will pick up.
So while we cannot deny that these are challenging times, we can see this as an opportunity to develop strategic long terms plans for the business and look at new market opportunities. At times like this, clients are looking for good service and value, not just reduced fees. And what becomes more important is the ability to build good relationships with the entire cycle – from developers to contractors – and the ability to adapt and provide a high level of service that meets expectations.
Companies now need to focus very much on the future and how to use innovation to adapt to the market and realise its opportunities. And to be adaptable, this may mean bringing in global expertise and expanding your service offerings as a business. Also, building owners should adopt a more human-centric approach to their assets as, ultimately, assets have to work harder as clients are nervous about trying to predict the market.
As regulators, developers and contractors seek to find synergies in a challenging market, pre-project conversations and stakeholder engagement emerge as a key driver for positive change.
Francis Alfred, CEO, Sobha Realty
Kez Taylor, CEO, ALEC
Eng. Mohammad BinGhatti, CEO & Head of Architecture for Binghatti Developers
Rajesh Kumar Krishna, CEO, Beaver Gulf
1. Companies that have design-and-build capabilities can remain competitive in the market
2. More pre-project conversations needed for a balanced and healthy construction ecosystem
3. The introduction of new laws and regulatory controls for both developers and contractors are required to correct the market
Public sector and government initiatives are widely seen to support the construction and real estate sectors in the UAE and wider GCC markets. So far, there have already been some positive results from the new Real Estate Committee set up to regulate the market in the UAE and that there has been a correction and levelling of the playing field.
However, there is going to be more pressure on everyone in the real estate and construction ecosystem as customers now expect more value than they received previously. Businesses with in-house design teams are expected to be able to stay ahead of the competition by offering more value to the client.
There is widespread agreement that a much more collaborative and integrated approach from all stakeholders is required and that stakeholders need to initiate more pre project conversations. As project frontrunners, developers need to take more responsibility for putting the right product onto the market and backing themselves financially.
Although the UAE’s real estate market is experiencing many challenges, especially in terms of cost of sales with margins taking a little bit more pressure, if a developer can adapt to market trends and offer the right product with the right ticket size, and with more end-users coming into the market, you can still have a product that moves quite quickly.
When it comes to selecting contractors, in today’s market, some developers are looking for a contractor that can bear the burden in liquidity and offers timely delivery. This way, it becomes more of a partnership when a contractor can alleviate this pain, or partially alleviate it, with flexible terms. Based on the current market situation, many are forced to do this, and it is a formula that you work out between all parties.
From a contractor’s perspective, these pre project conversations are happening, but only in pockets. Developers are seen to be doing well, but other parties, like contractors and subcontractors, are suffering. There is a collective need for all parties to understand each other better to create a scenario where everyone succeeds. To have a great project, you need an ecosystem where everything is in balance and is healthy.
The introduction of new laws and regulatory controls for both developers and contractors are required to correct the market. In addition, the capability and resources of contractors should be checked before a project starts, and more regulation is needed for the developers to avoid delayed payments for suppliers and contractors in the market.
Inefficiencies exist across the entire construction value chain and by adopting products that are fit for purpose or digital technologies that offer game-changing savings, stakeholders in the region are able to move forward with optimism.
Bishoy Azmy, CEO & Executive Director, ASGC
Mark Andrews, Managing Director, Laing O’Rourke Middle East
Olivier Crasson, General Manager, BESIX Contracting Middle East, Six Construct
Dr Jens Huckfeldt, Chief Executive of Larsen & Toubro Limited
Ash Bhardwaj, who is the President for Middle East & Asia for Katerra
1. Examining the entire value chain allows us to realise the inefficiencies in real estate
2. Understanding the lifetime cost of a building will encourage help adoption of efficiencies in the build process
3. Preparation and planning stages are even more critical to the success of a project
4. Digitisation is changing the way things are done in the construction industry
With most players involved in the construction lifecycle having to cut costs and make savings across the board, there is a greater need to understand that real estate is inefficient as, globally, the product is too expensive for the ultimate end user.
By looking at the entire value chain to see how to make sure that a product is fit for purpose, modular construction and design & build are seen as obvious ways to challenge the stereotypical way of construction where every product is a prototype. However, when these models are not acceptable, there is a need to spend more time to re-engineering a project to give the client the target price they want to achieve. Although waste is a massive challenge for the industry, the good news is that there is a so much inefficiency that, wherever you look, there are savings to be made.
Clients need to understand the lifetime cost of their building; there are a lot of things that can be done to make a building cheaper to maintain and run. This needs to be brought onto the agenda if we are to move forward in the region. However, getting this investment case across requires a leap of faith as the low cost of labour in the Middle East means that the incentive to be more productive is reduced.
Similarly, in harsh market conditions, companies need to use technology to its maximum potential in the short term to optimise resources and improve productivity on a project.
Pre-project planning and preparation is also a key indicator of project success and is often a process of education between the contractors and the clients. Out of the total time given to complete a project, project participants will probably need 40%-50% of that time to prepare, if the execution is going to happen correctly.
Technology is at the forefront of changing the way things are done in the construction industry. Data collection and analytics is a complete step-change in the business model. This is a new business environment being created in the traditional construction industry, and there are a few simple rules to give it an extra boost: BIM is a must, whether or not the client demands this, and the implementation of geospatial analytics at tender stage.
Also, by bringing software and design technology to construction, we can change things that are not working in the construction industry. Every industry is going to change because of digitisation, not just construction. Not only is technology changing, but generations change every five years, and the industry needs to change to cater to their tastes.
While predictions for 2020 undoubtedly accentuate another challenging 12 months ahead for the Middle East’s construction industry, it is clear that businesses from across the real estate spectrum are finding ways to continue to adapt to the current market climate. For every challenge that lies ahead, there is also an opportunity to optimise resources, improve productivity through technology adoption, and make cost savings. Governments are also forced to find more robust solutions to tackle issues such as financing and liquidity, and encourage new players to enter the market, while there is widespread agreement that a more collaborative and integrated approach is required from all stakeholders.