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Downturn fears as north Africa unrest gathers pace

While protests and unrest spread across the Middle East, even affecting traditionally perceived ‘safe’ countries like Oman, inevitably, questions are being asked around the exposure of engineering firms in the region.

Consultants who have been uprooted from places such as Libya have a stressful wait to discover what their legal obligations are and how both UK and Libyan authorities may interpret their contracts.

A prime example of the turmoil consultancies face is the plight of Montreal-based firm SNC-Lavalin.

NCEwas told that its $500M airport project near the heart of fighting at Benghazi has had its runway destroyed by bombing while the company can only monitor the situation helplessly from abroad.

It is hard to comprehend the severity of the situation when just months ago Libya was aggressively targeting foreign expertise to help deliver billions of pounds worth of infrastructure programmes.

In an interview with NCE in August 2010, Aecom’s chief executive for international government services James Thompson spoke of a project management contract of a $50bn urban development project awarded to the company by Libya’s Housing and Infrastructure Board (HIB).

“It is vast, and it is expanding, and includes all disciplines of civils,” he said. “It is a restarting of the infrastructure of most urban areas and includes a strong focus on quality of life – water, waste water, utilities and transport.”

As programme manager, Aecom led the HIB programme management department and had more than 200 employees deployed to help in the coordination of many projects along with a role of developing and training staff of the HIB.

At that time, Thompson assuredly spoke of the “maturing” Libyan economy: one that was becoming more predictable and “stable”.

“The country is also becoming more stable in pay and delivery,” he said. “The client is demanding, but they have a right to be. Problems are in processes, systems, including bank processes and government transactions. The transaction processes we take for granted are non-existent, but this is changing rapidly. The rewards are there.”

However, since violence erupted in Libya last month Aecom, along with many other international firms in the country, has pulled out all their staff as the security situation across the country worsens.

And political risks are translating into economic risks.

Investors are scared; almost all equity markets across the region are falling, while international ratings agencies have put Bahrain, Egypt and Jordan on negative outlooks.

Whether countries like Libya return to normality is still a big ‘if’ and law firms are warning that the reality of the situation means that construction companies might have to write off the entirety of their investments.

Beale and Company senior partner Antony Smith says that companies withdrawing should take both local and UK advice on clauses in their contracts, particularly on the interpretation of force majeure and termination.

“The situation in Libya could not come at a worse time for the UK construction and engineering sector,” he says. “After hard times in the UK and the Middle East, Libya was seen as an attractive export market. The key now is to minimise further exposure to risk.”

Despite the negative feelings from protestors and investors alike, British Expertise CEO Graham Hand says infrastructure still needs to be delivered in countries with unrest, regardless of the timeframe.

“I would stick my neck and out say by and large, the infrastructure needs in Libya and other countries in the region need to be satisfied at some point,” he says.

“Obviously with changes of government, I would expect a slowdown in decision making, but projects like housing need to be carried out. Where you might see an effect are on the prestige projects, which in some way represent the dignity of the ruler. Obviously an example in Libya is the Great Man-Made River. That sort of thing is very much tied to one person, to Colonel Gadaffi.”

Perhaps one place that feels like a safe haven among the chaos is the UAE.

One consultant in Dubai told NCE that while most of the world was watching the protests continue in the Middle East, “people in Dubai are thinking about shopping”.

Abu Dhabi-based Tristar Transport and contracting executive manager Sabah Khattar says he feels none of the effects of the ongoing crises in surrounding nations.

“Well, today we’ve been awarded a huge project in Abu Dhabi…from our perspective, we don’t see a slowdown in the market,” he says.

“From my personal view, I don’t see any threat to this country.”

He says large international consultants would not be too worried by operations in countries with unrest, as the UAE would always bolster their figures.

“If you look at the share of their projects in the region, the UAE has the majority share in general and the opportunities there outweigh all other countries, except perhaps Saudi Arabia.”

If predictions are correct, even projects in countries such as Egypt will stall as new governments are formed and bureaucracy catches up with plans.

Evidently, there is still a long road to travel in the Middle East and many fires to fight before a host of the massive, flagship infrastructure projects can be resumed.

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