Construction

Project democracy

The first quarter of 2011 has seen pro-democracy protests drastically change the region’s political and social landscape. With millions of people demanding better houses, education and jobs Melanie Mingas finds out what a change at the top will mean for the construction industry on the ground

The first quarter of 2011 has seen pro-democracy protests drastically change the region’s political and social landscape. With millions of people demanding better houses, education and jobs Melanie Mingas finds out what a change at the top will mean for the construction industry on the ground

In December 2010, a Tunisian graduate selling vegetables on the streets of Sidi Bouzid, set himself alight in protest of “inhumane treatment” at the hands of the authorities. Since that day, what has been described as a “tsunami” of protest and unrest has swept the region.

The largest contractors, developers and even banks have been forced to close their doors; workers were evacuated; stocks suspended, exhibitions cancelled and as a result trading prices fluctuated wildly.

Some estimates suggest only 10% of the sector was active during the worst of the unrest.

“During the revolution our operations office was impacted due to security threats, suspended telecommunications, the closure of banks and the imposed state curfew,” recalls Mohamed Shehata, acting contracts manager for American International Contractors’, based in Cairo.

“Amid these factors, day to day business activities were not possible. Also a lot of the construction materials that we used in our projects abroad are ordered from Egypt, and there was a temporary slow down in the supplies.”

Gulf News reported estimated economic losses of US$1 billion, with Shehata reporting unemployment in the sector reached 90% during the height of Egypt’s unrest.

While Egypt is now beginning to rebuild, problems elsewhere persist. Coalition airstrikes in Libya; continued instability in Yemen, clashes in Jordan, Syria and Bahrain and smaller demonstrations in Oman and even Dubai.

Listing the suspension of banking facilities as his primary concern, director of the Malaysian Timber Council, Khairul Anwar, says concern is now focussed on Bahrain and that while Malaysian exporters can survive on trade from other markets in the short term, trade must resume soon.

“We follow the situation locally and report back to our members, who are exporters in Malaysia. We have many concerns as our exporters were doing well across the region but we are now struggling to contact some of our importers. We thought the situation had calmed in Bahrain but now it’s a problem again.

“In Yemen the situation is different — we can make contact with our importers but the banking facilities that allow our members to receive payments are not working. Business is about trust of payments but without that infrastructure we cannot conduct business,” Anwar explains.

Roots of unrest

These people want a decent quality of life, homes for their families, good education, good healthcare and a decent job with the ability to dream of a better life”

In a briefing published in March, risk assessors Maplecroft cited unemployment, living costs, corruption, restricted freedom and violent security forces as the primary roots of unrest.

Among a list of 11 key risks to businesses, Maplecroft detailed HR issues, association with autocratic regimes, and the impact of price rises in basic commodities, oil and gas.

The document also said those countries not mired by corruption could be susceptible to “the influence of powerful tribes”, and that those companies who will be exposed as associated with corrupt regimes could irreparably damage their reputation, even beyond the region.

A second report, also published by Maplecroft, commentated on the fragility of Saudi Arabia, despite the multi-billion dollar social package announced by HH King Abdullah and a relative lack of significant protests.
In a bid to further protect the kingdom’s interests, it is rumoured the king offered to pay $20,000 to the owners of the ‘Day of Rage’ Facebook page, largely considered to be a key source of social unrest.

In addition, the official line from the interior ministry is that it will take “all necessary steps to prevent attempts to disrupt public order”. And similarly to the security forces deployed to Bahrain, Saudi troops patrol the kingdom’s Shi’ite areas.

Yet Maplecroft’s report indicates there is still a risk of further problems due to a near 40% unemployment rate in the 14-24 age bracket; in a country where 70% of the population is less than 20 years old. As in other countries, the situation is compounded by inequality between those in power and the greater population.

Reinforcing the socialist theme, in an interview with Sky News, Emaar Properties chair, Mohamed Ali Alabbar said people were more interested in their quality of life than politics.

“These people want a decent quality of life, homes for their families, good education, good healthcare and a decent job with the ability to dream of a better life,” he said.

Ongoing troubles in Libya and Egypt, and further threats of protest in as yet unaffected countries continue
to cause turbulence.

Yet as power shifts, many in the construction industry expect the emerging powers, when they do emerge and stabilise, to present great opportunities.

The official line

Commentary on how the situation is affecting the construction industry is forthcoming from both the legal and banking professions.

Lawyers Clyde & Co say that “from a health, safety, security and environmental (HSSE) perspective, the political unrest poses potentially catastrophic problems”.

In terms of a direct legal impact on the industry, their MENA bulletin dated March 2011 says effects will depend upon the contractual rights and obligations of corporations, project terms and the applicable local laws.

“Project participants need to look carefully at their project contracts,” says Clyde and Co spokesperson David McElveney.

“Apart from usual time and money claims which may arise, contracts will often have a specific provisions deadline for situations of social and political disruption. For example contracts influenced by the FIDIC suite may excuse parties from their obligations during a period of ‘force majeure’ and give rise to entitlements to extra time and perhaps also money,” McElveney continues, with the firm further advising international corporations to consider both the legal and practical realities arising from regime change when executing government contracts.

In terms of project finance, Clyde and Co say investors and developers should obtain advice on their exposure to legal action and that lenders should ensure their advisors are briefed.

Despite the closure of banks in every area during the worst of the violence, the financial outlook depends on confidence.

Chief executive of Bahrain Islamic Bank Abdulkarim Bucheery told Reuters newswire that banks may cut financing lines to those Bahraini lenders facing debt restructuring, but have not to date.

“There might be some banks that have taken quick action, unnecessarily, to suspend lines. I have not heard of any particular bank that has, but this is something that could come up quite quickly,” Bucheery is quoted as saying.

An underlying principle should be that local people should be engaged wherever possible to help restore their own country to a functional state”

Commenting that the investment situation varies as much as the reasons for the unrest, editor of Banker Middle East magazine, Michael Gallagher, says the legacy of the financial crisis of 2008; i.e. a strong regulatory framework, has protected the sector recently.

“The regional regulatory framework is much stronger so the measures enacted since the crisis days of 2008 have gone some way towards adding confidence. I expect bankers are questioning the possibility of capital flight, but that is probably unlikely, on a major scale, any time soon,” Gallagher says, predicting the turmoil could even increase chances of consolidation between regional banks, speeding up the formation of an “EU-type single market”.

Democracy equals opportunity

Consensus in the industry is that new democratic governments, expected to take power over the coming year, will have a stronger socialist agenda and a focus on initiating the necessary infrastructure programmes to improve citizen’s daily quality of life, while also creating jobs.

As a result of these changes industry insiders predict significant opportunities in civil infrastructure projects, including affordable housing and transport networks.

“People in these countries have been kept under control for so long and the situation will have to stabilise first but when it does these markets will be attractive to investors,” says Stefano Fuson, sales area manager of construction equipment suppliers Faresin.

“When the people are happy it will generate interest and this will lead to new projects, contracts, tenders and so on but it will take time — history teaches you about that.

“You cannot predict one day from the next,” Fuson adds.

Maybe the changes can open up new markets for construction technology that hasn’t been sought in the past for a number of reasons”

In December, The Big Project heard from a number of industry leaders that this year’s emerging markets would include Libya and Egypt; markets previously over looked in favour of the high profile deals in Saudi Arabia, and more recently, Qatar.

Speaking about the potential of a new Libyan market, UKbased project and change optimisation manager for MBF, Michael Fisher, lists the primary areas of opportunity as housing, roads, utilities, telecoms, retail distribution and oil and gas networks.

“The first task should be to establish a national PMO that establishes and prioritises the needs and then coordinates all the necessary projects to ensure that conflicts and expenditure are minimised while deliverables are maximised,” Fisher advises.

[facts]

US$1 b

Estimated economic losses, as reported by Gulf News in February 2011

[/facts]

“An underlying principle should be that local people should be engaged wherever possible to help restore their own country to a functional state,” he continues, adding: “Leadership, management and technologies from outside agencies should only be used where local alternatives cannot provide the required outputs to the right quality at the right price or in the right timeframe,” he adds.

In early March, paint manufacturer Jotun initiated a programme to help the local community restore landmarks damaged in the protests. Sites included Tahrir Square and its surrounding streets; the shooting club in Doki, and areas in Heliopolis, Al Khanka and Al Kaliobia.

Social media has been used to interact with local communities and identify other key areas for regeneration.

In addition to the tender opportunities expected to arise, those working on existing projects could also expect a breakthrough in commodity prices, which have been in constant flux since the global economic downturn.

“Governments are expected to review the current prices for all the strategic materials and supplies used in construction, such as steel and cement,” says Shehata.

“Since those materials have been monopolised for a long time by greed and foreign interests, we expect the new powers to intervene to re-evaluate and regulate such prices. This will regulate the market and bring the price of residential units to what they should be,” he adds.

But the opportunities are not set in stone and still subject to a number of determining factors including short and long term developments, which have proven impossible to isolate.

“The changes that can be implemented depend on who will govern and what they will be allowed to do. Maybe they can open up new markets for construction technology that haven’t been sought in the past,” Fuson adds.

People power

[facts]

MAIN AREAS OF OPPORTUNITY

Housing

Roads

Utilities

Telecoms

Retail distribution

Oil and gas networks.

Education

TRAVEL ADVICE FROM WESTERN GOVERNMENTS

Do not travel to:

Libya

Yemen

Lebanon

Syria

Only travel when essential to:

Bahrain

Egypt

[/facts]

In addition to the contracts and projects, the job market within the industry could see change.

The unrest has and continues to cause a myriad of HR issues, mostly resulting from workers being evacuated from sites in a number of locations. Yet the legacy of the current situation could be a huge shift, across the region, as to where firms choose to deploy their human resources – and where those resources are willing to be deployed to.

Yemen, Algeria, Oman and Bahrain have been categorised as a “cause for concern” by The Philippines’ Department of Foreign Affairs. A further 11 countries are on a list for “careful monitoring”, including Egypt, Jordan, Syria the UAE and Saudi Arabia.

Most recently, British workers have been instructed to leave Yemen by the UK’s Foreign Commonwealth Office, with a spokesperson saying it is “very difficult for the British Government to provide consular assistance”, in the country as it has for expats in Bahrain.

[facts]

90%

Estimated unemployment in the construction industry during the worst of the political unrest

[/facts]

“I think the recent unrest may put the brakes on some expansion plans and board level decisions in the US and UK and companies may adopt a ‘wait and see’ approach at the moment in terms of opening offices in the countries where there have been problems,” says Ben Waddilove, director for recruitment consultants MacDonald and Co.

Speaking of the residual impact on neighbouring job markets, he adds: “Other issues include the repatriation of workers to the UAE, as it’s perceived as a safe haven. I don’t envisage any political problems within Dubai, and that could have a positive effect for employers who are looking to recruit, although the job market in the UAE could become more competitive.”

Another major factor contributing to the shifting landscape is the involvement of some large companies in the regimes which have toppled.

The focus now will be on Dubai, Abu Dhabi and Qatar, as political unrest in these locations is unlikely”

Talk of corruption within the industry has grown from a murmur to a sweep stake on which firms will still be operating in 12 months and from where.

“Many rumours and legal investigation are in place with the owners of some of the largest developers being questioned about the methodology of getting their properties,” says Tamer Kassem project controls manager with Hill International, Egypt.

“Yet government authorities are starting to take steps to maintain the positions and the stability of these firms and their stockholders, this is also for the benefit of the tenants whom make reservation in these firms’ various projects,” Kassem says.

“There may be some high profile executives, for example Egyptian real estate developers, who were involved with the Mubarak regime and benefitted from land deals, and so on,” Waddilove observes.

“At a senior level, CEOs in Egypt may be potentially looking for work around the Gulf at the moment but how things will pan out is still a little uncertain. The focus now will be on Dubai, Abu Dhabi and Qatar, as political unrest in these locations is unlikely,” Waddilove says.

The new Middle East

From recovery to corporate social responsibility initiatives, in the countries where the dust is beginning to settle, albeit slowly and possibly even temporarily, some in the industry are already seizing the opportunities this brings and taking their own lead.

“I believe the people who will make money out of this kind of situation are the sharp-eyed emerging and frontier market wildcatters – in a romantic sense,” predicts Gallagher.

“This group has little or no interest in developed markets and will constantly be looking over the investment horizon for the kinds of opportunities that developed market investors never consider.

“That is why the current situation is not necessarily negative,” he adds.

That’s not to say initial impact has not been felt far and wide and will reverberate for some time to come.

An annual list by Saneou Al Hadath magazine, ranks the top 19 Arab cities to live in. While this year’s report does not account for current political situations, managing editor Yousef Rafaya says that it will have an effect on next year’s rankings.

“Many of the indicators adopted in the study depend on the economic and social development in the Arab cities and there is no doubt the rankings will change next year,” Rafaya says.

This year’s list named Doha as number one for education, Kuwait City as best for business and economy and Dubai as the top city to live.

“Cities in countries which witnessed revolutions and protests also witnessed the exodus of businessmen, foreigners and local residents as well, as was the case in Tunisia, Libya, Egypt, and more recently Bahrain.

“We expect that the impact will be clearly seen through several indicators used to generate the study, and these indicators include tourism attraction, business climate, corruption and transparency, civil and human rights, and other indicators,” Rafaya concludes.

THE PEOPLE SPEAK

Tamer Kassem, Project Controls Manager, Hill International, Egypt: “The Egyptian position regarding existing and on-going projects is still firm. Although, Egypt is running through a foggy political and economical atmosphere, the presence of the army is giving stability to large developers and stabilising the stock exchange market.”

Erhan Altan, Projects Logistics and Purchasing Manager, Construction and Real Estate Investment Co: “I think that the authorities should regenerate contacts with companies that fled from troubled areas and security and social requirements must be established immediately. There is no reason to lose time with this and there are so many things to be done.”

Abdur Mian, Managing Director and Head of Engineering, International Consulting Associates, Pakistan: “I predict the main opportunities to arise in the new Middle East will predominantly lie in civil infrastructure; that is roads, buildings and bridges, as these are the backbone of infrastructure developments.”

Chokri Maatouk, Civil Engineering Consultant, Consulting Engineer Services (CES): “In ever case construction in these countries will continue, but with more accelerated pace. This is due to the strong will of the people for change, the reduction of the corruption and speculation in the industry, the incarnation of a real social justice and the condition of the existing constructions.”

0 0 votes
Article Rating

Comments

Most Popular

To Top
0
Would love your thoughts, please comment.x
()
x