Middle East construction costs are rapidly rising due to the plummeting value of the dirham and the global credit crunch, engineers and analysts claimed this week.
The bulk of Middle Eastern currencies, including the United Arab Emirates' dirham, are pegged to the US dollar, which has fallen by 15% against the UK pound this year, and by more against the euro.
Hyder Qatar director Alan Lord said this was creating a decline in profit margins in some parts of the region.
"There is a decline in margins for current projects where work in carried out in locations where currency is appreciating versus the US dollar, and where contracts do not include a high enough inflation clause," said Lord.
Dubai-based Halcrow development strategist Radhika Venkhat said the global credit crunch was also having an impact.
"Officially, the credit crunch has not affected the Middle East, but it will impact," said Venkhat.
"This is primarily because construction developments are borrowing, and will have to use bonds rather than bank borrowing, which means paying back at a higher rate of interest."
"These increases in borrowing costs for developers will inevitably be passed to the buyers," she said. Both these factors will drive inflation.
In Dubai, inflation stands at 12% and according to Hilti marketing director Hoang Tranthanh this hits workers – both skilled and unskilled – the most.
"In construction, 90% of workers are expats [in Dubai]," he said.
"With the cost of living increasing, and the value of the currency decreasing, people, especially from India where the economy is booming, are not interested in coming to work here, or are going home."
Lord said he agreed: "There is increasing difficulty in attracting resources from the UK [and] Australia etc where, currencies have significantly appreciated versus the US dollar."
A strike by construction workers at Jebel Ali, Dubai last month was organised by disgruntled workers wanting more pay to compensate for the falling value of the dirham.
Lord said some companies had managed to negotiate contracts in strong currencies – particularly the euro. This is good for consultants and contractors, but bad for the client, who will experience inflation proportional to the fall in value of the currency.