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Abu Dhabi prompts margins squeeze

Firms exiting the collapsed Dubai construction market have prompted a squeeze on margins in neighbouring Abu Dhabi, where levels of construction activity remain high.

Last year’s collapse of the property market in Dubai saw $500bn (£350bn) of projects put on hold. The bulk of the £1.33 trillion still in planning or construction across the GCC region is now expected to be spent in either Abu Dhabi or Saudi Arabia.

As a consequence Abu Dhabi, a significantly easy market to break into compared to Saudi, is flooded with firms from around the world trying to win infrastructure and commercial work.

Fierce competition

“We are witnessing increasingly fierce competition as companies try to get a foothold in Abu Dhabi,” contractor Arabtec chairman Riad Kamal told the Arabian World Construction Summit this week. “We cannot afford to just take on work for the sake of continuity. There has to be a concerted effort [by clients] to say enough is enough - please ensure that you have a price to sustain a healthy industry.”

He added that he was now looking outside Abu Dhabi to more difficult regions such as Saudi Arabia, where Arabtec has been working in partnership with local firm CPC, to win work at higher margins.

“We cannot afford to just take on work for the sake of continuity”

Riad Kamal

This point was echoed by Drake and Skull International chief executive Khaldoun Tabari who said that alongside Saudi, he was also looking at Libya and all “pastures outside Abu Dhabi” to seek out better margins for its activites.

According to research by conference organiser and NCE sister title MEED, infrastructure work across the GCC region has largely held up throughout the downturn. Publicly funded power, water, transportation and hospital and school projects in Abu Dhabi, Saudi Arabia and Kuwait are expected to provide the bulk of work in the next five years.

Abu Dhabi has just signed a £14bn deal with a Korean contractor to construct four nuclear power stations.It is pressing ahead with projects such as the £28bn Capital District project, the £26bn Yas Island development, the £4.9bn metro project and the £1.9bn Mafraq to Ghuweifat PPP highway project.

Abu Dhabi has seen just £35bn worth of projects put on hold compared to Dubai’s £206bn. Contractors have flooded into the area to try to pick up work and fill the void and are prepared to bid low to win work.

Concerns

Hill International senior vice president Tim Judge highlighted his concerns over some contractors’ willingness to buy work.

“We are all in business to make money but it worries me a lot when people talk about the need to buy work for the sake of continuity,” he said.

Saudi Arabia saw the value of construction contracts let last year double to over £14bn. This year public infrastructure spending budgets have been increased by 14% to £100bn.

However, MEED head of Insight Ed James said the region remains inaccessible to many, with just 17% of contracts last year won by foreign contractors.

“Since the Dubai real estate collapse, regional contractors have all been targeting Saudi Arabia, but in reality it is hard to compete against local firms,” he told delegates.

“Contractors who want to win work will have to team up with a local partner or look for subcontracting work.”

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