Construction Intelligence Report 2017 by Big Project Middle East

onstruction Intelligence Report In-depth analysis of the Middle Eastâ&#x20AC;&#x2122;s construction markets in 2017 3rd edition

The awards are a great platform to share knowledge and the achievements of the industry. We enjoy the opportunity to network and collaborate at the event, as it is very well organised with a great turn out from all players in Construction. The Big Project ME awards highlights the best projects, people and innovations in the region.

KEZ TAYLOR

CHIEF EXECUTIVE OFFICER ALEC

27 November 2017 19:00 - 23:00 Habtoor Grand Dubai Al Andalus Ballroom United Arab Emirates bigprojectmeawards.com

A changing industry

elcome to the 2017 Construction Intelligence Report (CiR), an annual report designed to be an authoritative source of information for construction professionals and associated entities. The vision for the CiR is to provide construction professionals with easy access to regional and industry metrics that can help them hone their business strategies, to make their own forecasts for construction sector growth, as well as to identify areas of risk for their business. When we set out to create our first Report in 2014, we recognised that there was a need in the market for a report that provided construction professionals an overview of the GCC’s construction markets while also handing them a tool-kit of information and insight designed to enhance their understanding of how their industry and the technology they use is changing. Like the industry it encompasses, the CiR is a highly collaborative effort drawing together the expertise of publishing house CPI Trade, which produces Big Project Middle East, Middle East Consultant and many other titles, with a huge array of knowledge partners and industry analysts, such as Arcadia, RICS, CIOB, Frost and Sullivan. We also handpicked some of the best insights and reports produced for the market for this year’s edition. Perhaps the most important contributor is the construction industry itself. Throughout the CiR you will read the views and receive insight of the people tasked with driving projects forwards in the region. This year’s CiR survey also polled

hundreds of construction professionals to hear what they think are the major challenges and opportunities presented to the industry in the year ahead. The survey was initially considered as a typical salary survey when we introduced it for the 2015 edition of the CiR but it has become so much more in the intervening period. We are now able to look back and compare with previous years. Trends are emerging and we can now chart the impact the depressed oil price of recent years has had and how the construction industry has compensated by moving into other sectors and markets. As such, we look at a number of markets beyond the GCC in this edition following the industry’s progress and prospects in countries like Egypt and Iraq. It is also fascinating to see how the leisure and hospitality sector has grown in importance for the industry as the region pushes on with its diversification and non-oil related strategy. New regulations and codes are driving advances but so are new technology and techniques being introduced from within the industry – and we look at many in this book. BIM has enjoyed a high profile in recent years, but other ways of modelling in combination with technology powered by concepts such as the Internet of Things mean the region now has access to a greater set of tools than ever before. If it chooses to use them. Your industry is changing – read on to find out how.

Stephen White Editor, Construction Intelligence Report 2017

We have been attending the Big Project ME Awards for a number of years now and this is certainly one of the industry’s leading events. The Big Project ME Awards commends the best of the region’s construction and building industry and we truly appreciate being recognised as one of the top performing contractors in the Middle East.

MARCUS TRUSCOTT

MANAGING DIRECTOR – MIDDLE EAST MULTIPLEX CONSTRUCTION

27 November 2017 19:00 - 23:00 Habtoor Grand Dubai Al Andalus Ballroom United Arab Emirates bigprojectmeawards.com

contents

2017 Volume 3 Year in review REVIEW

08 Carpe Annum

CiR survey SURVEY

Salaries in 2016: A freeze on pay rises

SURVEY

An industry under pressure

SURVEY

Public sector retains its importance

Sector focus TRAINING

Raising skills and training in the GCC

CONSTRUCTION DISPUTES

Preventative measures

BUILDING MANAGEMENT SYSTEMS

Using BMS in cost control

STRATEGIC PROCUREMENT

A risky business

SUSTAINABLE DESIGN

Sustainable learning

QUALITY MATTERS

40 Turning the key on gen-sets CONSTRUCTION TECHNOLOGY

The now and future of construction technology 5

contents

TAX REGULATION

Preparing for VAT

STRUCTURAL ENGINEERING

Structured learning

QUALITY MATTERS

From design to delivery

Country focus DATA

The GCC in figures

SAUDI ARABIA

Saudi’s contraction pains

SAUDI ARABIA

60 Building Saudi 2.0 SAUDI ARABIA

Saudi Arabia strategic real estate

UNITED ARAB EMIRATES

The new normal

UNITED ARAB EMIRATES

Dubai gets smart

UNITED ARAB EMIRATES

Beware of the false economy

QATAR

Qatar hits its peak

QATAR

Qatar Stadia progress report

QATAR

80 Powering Qatar’s future KUWAIT

Kuwait market report 2016-2017

BAHRAIN

Bahrain focused on housing

OMAN

Oman looking healthy

IRAQ

90 Iraq remains a challenge IRAN

Iran needs reform

EGYPT

Egypt in flux 7

YEAR IN REVIEW

Economic decline coupled with stagnation in oil prices makes a perfect case for the GCC countries to build recession-proof economies by moving away from oil and gas and diversifying into other areas.

Carpe Annum Construction companies need to seize the innovation and transformational growth opportunities in the GCC, says Frost and Sullivan

he steep fall in oil prices from $140 to its value of $50 in 2016 crippled the construction industry in the GCC. The GCC countries that enjoyed rapid economic growth have curtailed spending due to the widening fiscal deficit brought upon by low oil prices. This has led to a slowdown in investments impacting the construction sector as well, as countries find ways to adjust and prioritise projects based on depressed oil prices. As per MEED’s research, contracts awarded in the GCC contracts in 2016 were expected to be $140 billion as against $164 Construction Sector Snapshot

billion in 2015. While a few countries like the Kingdom of Saudi Arabia (the KSA) have seen drastic cuts in investment spending, other countries like the UAE and Qatar are continuing with big ticket investments in the run up to the Dubai World Expo 2020 and FIFA World Cup 2022. The GCC is still an attractive market for the construction sector with the KSA as a long-term bet. Though a few investments and projects are curtailed in the short- to mediumterms, long term growth in areas like health, social development, education, public safety and economic affairs,

environment protection, culture and infrastructure is expected to continue. Construction – A Disrupted Industry According to the IMF, the real GDP in the GCC was expected to slow down to 1.8% in 2016 from 3.3% in 2015, and gain momentum to grow at 2.3% in 2017. This economic decline coupled with stagnation in oil prices makes a perfect case for the GCC countries to build recession-proof economies by moving away from oil and gas, diversifying into other areas like manufacturing and services, and focusing on balancing economic growth Source: Frost & Sullivan analysis

Region

Analysis

UAE

Construction growth is expected to come from increased infrastructure spending in the run-up to Dubai’s hosting of the 2020 World Expo, and from projects in manufacturing.

Qatar

Offering the strongest regional opportunity with investments in infrastructure in the run up to FIFA world cup in 2022.

KSA

Hardest hit market where new contracts in construction dropped by 20%. Sceptical of its ability to deliver greater economic diversification in the short- to medium-terms.

Kuwait

Its five-year development programme 2015-2020 is expected to be driven by investments in healthcare, educational facilities and new housing projects along with other transport infrastructure projects. 9

YEAR IN REVIEW

The construction sector has witnessed a few important regulatory developments such as installation of thermal insulation systems in buildings, fire and life safety codes.

and environment sustainability. Since low oil prices impact the revenue generation of the GCC countries, and in order not to dig deeper into the fiscal reserves, governments will have to relook at innovative financing models to pursue infrastructure investments, re-prioritising projects, enhancing public private partnerships (PPPs) through optimal risk allocation between public and private sector entities, and reducing operations and maintenance (O&M) expenditure. A case in point is the Dubai PPP law, which has an innovative feature to present unsolicited proposals for PPP projects to the Government with the latter having the flexibility to contract with

Sector growth in next 3-4 years

Source: Frost & Sullivan analysis

12% 11.4% 9%

7.1%

6.5%

6.4%

4.6% 3.2%

KSA

UAE

Qatar

the entity that makes such a proposal without going through the normal tendering process. Kuwait has also introduced a PPP law to address about 30% of its spending requirement of $106 billion in the second five year plan (2015-2019) to come from private sector. The pace of innovation and disruptions happening in

Kuwait

Oman

Bahrain

various allied fields such as the Internet of Things (IoT), smart cities and buildings, connected homes, use of drones, computerised designs such as 3D printing and building information modelling (BIM), advanced building materials, stringent regulations for construction are transforming the construction sector,

globally. The construction sector has been slow in adopting newer technologies due to the fragmented nature of the competitive landscape as well as the â&#x20AC;&#x2DC;L1, L2 syndromeâ&#x20AC;&#x2122; led to conservatism in design and delivery. These ramifications will have a bearing on the construction sector that contributes to roughly 5-10% of the GDP in the GCC countries by increasing productivity, reducing cost overruns, reducing the use of virgin construction materials, and creating environment friendly and sustainable assets. For example, the construction sector globally consumes about 50 million tonnes of steel, about 3 billion tonnes of other raw materials, and the finished

YEAR IN REVIEW

assets (buildings) account for 25-40% of world’s total carbon emission during the O&M stage. Hence, any incremental innovation could have the potential to mitigate climate issues and provide substantial benefits to the public at large. The Cusp of Transformation The construction sector is so crucial to the society and environment that the time is ripe for it to undergo a transformation – from the adoption of new technologies and processes to building regulations and codes. Let us look at the key trends shaping the construction industry. 1. Circular Economy in Building Materials and Prefabricated Components Construction and demolition waste accounts for up to 5055% of the total solid waste generated in the GCC. It is expected to grow at a CAGR of 6.3% from 2015-2020 posing a huge challenge to the municipal authorities. By recycling and reusing the construction and demolition waste, valuable minerals and metals can be recovered through

the creation of a closed loop circular economy. This value recovery from waste can save precious virgin raw materials from over exploitation. The governments’ must proactively welcome such steps by mandating the minimum use of recyclable content in construction projects akin to the regulations developed for soft drinks companies that mandate a certain percentage of recycled PET in bottle making. The use of precast and prefabricated components such as pre-engineered buildings, precast concrete products, AAC blocks and wall panels can bring multiple benefits to the construction industry. It lowers project delivery times, increases efficiency, creates safe working environments for construction staff, and saves construction costs. Ultimately, it will hasten the occupancy of the building so the owner realises monetary benefits sooner than expected. 2. Automation of Construction Equipment Machinery such as cranes, excavators, bulldozers play a significant role in construction.

According to the IMF, the real GDP in the GCC is expected to slow down to 1.8% in 2016 from 3.3% in 2015, and probably gain momentum to grow at 2.3% in 2017. This economic decline coupled with stagnation in oil prices makes a perfect case for the GCC countries to build recession-proof economies by moving away from oil and gas

But the industry is set to witness the use of unmanned aerial vehicles or drones, and 3D scanners to carry out tasks such as gathering terrain data, which is then transmitted to bulldozers, thereby speeding up the prefoundation work at the sites. 3. 3D Printing This is a major disruption incoming with the ability to improve productivity and reduce waste. However, its use in construction industry is still in a developmental phase. Standard 3D printers can print high value parts that are low in volume. Printing of large bulky parts of the scale used in construction of buildings currently poses technological challenges. However, 3D printing of large parts in the aviation industry strikes an optimistic note for the construction industry. For example, China based Winsun had bagged an order with the Egyptian Government to supply 20,000 housing units using 3D printing technology. Such 3D printed homes could address the huge housing shortage in the KSA.

RACI Matrix for the Engineering and Construction (E&C) Value Chain

Project Owner/End user Design & Engineering Consultant

Source: Frost & Sullivan analysis

Planning

Design & Engineering

Construction

Operations

Responsible

Accountable

Informed

Consulted

Responsible

Informed

Consulted

Accountable

Project Management Consultant Construction Consultant

Informed

Consulted

Responsible

Consulted

FM Service Provider

Informed

Responsible 11

YEAR IN REVIEW

The industry is moving from an upfront cost basis to total lifecycle cost and is adopting latest technologies albeit on a smaller scale.

4. Total Life-cycle Cost Optimisation and Big Data, Reduction of O&M Costs The concept of smart buildings is picking up globally. It starts with the linking of all building utility equipment using building management systems (BMS) that not only offers energy savings but also increases comfort and convenience to its occupants. The Intergovernmental Panel on Climate Change (IPCC) estimates that BMS can achieve energy savings up to 40% in a building. By monitoring energy use, it is easy to make changes to lighting and cooling schedules, monitor efficiency of systems, and schedule routine maintenance. Monitoring system efficiency or adjusting settings from anywhere using a smartphone or dedicated tablet and ability to access schematics, while away from command centre will improve efficiency. There is also a need

for dashboards, trend displays, quick analysis such as those that warn operators when systems are losing efficiency and need maintenance. 5. BIM Project owners, contractors, and consultants are now getting familiar with building information modelling (BIM) that integrates design, planning, and modelling on one platform and provide a digital representation of the building. BIM presents a key role post construction or during O&M by providing an accurate as-built status of the assets in a building. If FM software like CAFM and CMMS can achieve interoperability with BIM, then it offers great benefits to the owners not only during construction phase but also in the longer O&M phase of the building. 6. Stakeholder Collaboration It is widely documented that 70-80% of the building

construction value is spent on O&M during the assetâ&#x20AC;&#x2122;s lifetime. Hence, O&M should weigh in during the design and planning stage as well. The role of FM service providers must start when the project is in the planning stage. Reducing O&M costs should be given due consideration during the design and scoping, and construction process by incorporating knowledge from all stakeholders in the value chain â&#x20AC;&#x201C; the owner, contractor, subcontractor, consultant and architect, and asset maintenance firms or FM service providers. Applying the management model of RACI to the stakeholders in the value chain as shown in the exhibit below, substantial improvements in construction productivity and lower O&M costs can be achieved by adopting collaborative approach in the process. 7. Strategic Alliances and Innovative Business Models

Value of the GCC construction industry forecast in US$ billion UAE

KSA

Qatar

Oman

Kuwait

The construction sector is an industry where price wars and wafer thin margins are rampant to simply win the project in order to keep the teams busy and ensure cash flows. In such a scenario, construction companies have to innovate to develop unique value propositions to distinguish themselves from other competitors. Today, tenders for construction in infrastructure assets are combined with a tender for O&M. Hence, construction companies must have greater knowledge and understanding of the functionalities of the systems and technologies incorporated in the asset. Developing the know-how across the value chain might be challenging for a construction company, thus the need for collaborations on project level with various entities, which complement along the value Source: BMI Research

Bahrain

2016

2017

2018

2019

2020

YEAR IN REVIEW

The GCC is still an attractive market for the construction sector with the KSA as a long-term bet. Long-term growth in areas like health, social development, education, public safety and economic affairs, environment protection, culture and infrastructure is expected to continue chain. For example, Tetra Tech has strengthened its capabilities to offer diverse services such as engineering, procurement, construction, and management (EPCM) and in sectors such as mining and waste management. India’s L&T aims to become a lean organisation with more focus on certain verticals rather than low-margin sectors like roads and highways. There are instances where engineering and construction companies have bought out asset management and maintenance companies; for example, Flour’s acquisition of Stork, and a global provider of maintenance, modification, and asset integrity services. The Strategic Imperative There is no gainsaying the fact that construction contributes

immensely to the GDP of the GCC countries. Low oil prices and the contraction in the economies present opportunities to transform the sector/industry and private construction companies. The construction sector has witnessed a few important regulatory developments such as installation of thermal insulation systems in buildings, fire and life safety codes on par with international standards, setting aside 25% of a project’s development area for landscaping. Construction standards are also becoming stringent over time; in the Abu Dhabi, an executive order mandates s all new buildings, community developments, and villas to meet Pearl 1 requirements

(Green building codes), whilst new Government buildings and Emirati villas must meet Pearl 2 requirements. Dubai has launched a programme – Dubai Integrated Energy Strategy (DIES) – to reduce energy requirement by 30% by 2030 from all types of infrastructure assets. Penetration of information technologies in buildings to develop smart assets is a significant departure from the traditional design-and-build approach. The industry is moving from an upfront cost basis to total lifecycle cost and is adopting latest technologies albeit on a smaller scale. This will force construction companies to recreate their business models to stay ahead of competition. Capabilities

must be developed across the value chain – from designing to O&M either in-house or through acquisitions or project-specific partnerships. Construction companies will have to identify and operate in high profitability sectors instead of participating in each and every project and stretching themselves thin thereby impacting the delivery of other projects. Focus on delivering projects efficiently and on time and on budget will provide a competitive advantage. And, for this to happen, companies would have to align internal processes towards delivering a resonating value proposition and devise a long-term business strategy given the changing market scenario. 13

CiR SURVEY

Salaries in 2016: A freeze on pay rises Almost half of construction professionals in the GCC did not see a pay rise in 2016, number of lowest paid has increased since 2014

he construction industry in the GCC enters 2017 with the promise of higher oil prices tempered by a cutting back in production. Furthermore, the rise by almost 20 Cents since the previous edition of the Construction Intelligence Report is not expected to make a significant impact on the construction industry as a whole this year, even as construction activity in Qatar and Dubai hits its stride. Beyond their headlinegrabbing preparations for the 2022 FIFA World Cup and Expo 2020, 2016 saw a continuing drop off in activity in several major markets such as Saudi Arabia, in particular. This yearâ&#x20AC;&#x2122;s Construction 14

Intelligence Reportâ&#x20AC;&#x2122;s survey is a snapshot of an industry that when compared to similar surveys conducted at the end of 2014, reveals fewer people are earning more than $40,000 per year than they were two years ago and twice as many did not see a rise in their salary in the past calendar year. The survey shows how the challenging headwinds witnessed in a number of markets over the past 24 months have had a direct effect on the amount a construction professional is being paid. The percentage of individuals being paid less than $40,000 per year was registered at 32.98% in the 2016â&#x20AC;&#x2122;s survey. In 2014, that figure was 27.9% while at the

upper echelons of the pay scale there was a fall from 15.31% to 13.09% of earners taking home more than $150,000 per year. In the $100,000-$149,000 band there was a rise from 16.54% to 18.85%. That increase is a gain that almost equals the decrease seen in the band above; suggesting that the pay ceiling has fallen over the past two years. The two highest bands collectively continue to enjoy almost a third of the total share of those surveyed and hints at a growing pay gap between those in senior and junior positions. The shrinking number in the middle band $80,00099,000, down from 10.62% to 6.81%, could also demonstrate a decline in the number of senior managers and junior

executives in the industry. Given the uncertainty in many markets in 2016, it would not be unreasonable to suspect this is the result of restructuring within the industry and/ or a change in recruitment and retention strategies but in the context of the survey it is difficult to prove. What is clear is that the overwhelming majority of the industry saw a minimal pay rise in 2016 with almost half of total number of respondents (46.6%) registering no increase. Again a comparison with the 2014 survey is instructive as 24.94% of respondents had no increase in their pay and only 0.25% saw a decrease compared to those whose salaries fell by 3.14% last year.

CIR SURVEY

The Construction Intelligence Report survey demonstrates that companies are feeling the pinch and held back on increasing salaries last year.

What was your base salary? (2014 vs. 2016) 2014

How much did you receive in bonuses/benefits? (2014 vs. 2016)

2016

2014

40%

30%

20%

10%

Under $40,000

$40,00059,999

$60,00079,999

Overall, the survey demonstrates that companies are feeling the pinch and held back on increasing salaries last year. Despite this, the survey also reveals that job security and staff commitment remains largely unchanged over the

$80,00099,999

$100,000149,999

$150,000 plus

past two years. With 32.46% compared to 33.8% two years ago (the most popular response) expecting to stay at their current employer for more than five years and 19.9%, compared to 20.49% in 2014/15,predicting a stay of 12 months or under.

By what percentage has your total salary increased in the last year?

2016

Under $1,000

$1,0004,999

$5,0009,999

The perception of where to find the best salaries has changed with the UAE strengthening its position with an improvement to 69.11% from dead on 60% two years ago. Conversely, Qatar has slipped back from 18.52% to 14.14% but it is in Saudi

How long do you expect to remain working at your current company?

$10,00029,999

$30,00049,999

$50,000 plus

Arabia where there has been the biggest fall â&#x20AC;&#x201C; almost halving from 17.53% in 2014/15 to just 9.42%. The popular perception of a premium on salaries for those working in KSA is, for now at least, not reflected in actual pay packets.

Which GCC country in your opinion offers the most competitive salaries?

46.60%

0-12 months

19.90%

UAE

39.11%

0.1-5%

20.42%

1-3 years

30.37%

Saudi Arabia

9.42%

5-10%

21.47%

3-5 years

17.28%

Qatar

14.14%

10-15%

3.66%

5+ years

32.46%

Oman

1.57%

15-20%

1.57%

Kuwait

2.62%

20%+

3.14%

Bahrain

3.14%

It has decreased

3.14% 15

CiR SURVEY

An industry under pressure The construction industry may be under pressure but the latest CIR survey reveals that it is not overly pessimistic

quarter of respondents may be less positive regarding their career prospects than they were 12 months ago, but 41.37% are more positive. A third consider their circumstances to be unchanged. The top five descriptions of the companies that participated in the survey sees 26.16% identifying themselves as a General Contractor â&#x20AC;&#x201C; a designation that had by far the largest share of responses. In second were Consultants with 14.66%, followed by construction sector Suppliers (14.14%), then Subcontractors (9.42%) with Project Management firms holding the

fifth highest share (7.33%). The remaining categories included: Engineering (4.19%/6th highest); Project Owners (3.66%/joint 7th); Developers (3.66%/joint 7th); Construction Management (2.09/9th highest); and Architecture firms (1.57%/10th). When asked whether they were less or more positive regarding the state of the construction sector as a whole compared to 12 months ago, almost 45% responded that they were feeling positive. 15.71% registered that they were very positive looking forwards. Only 4.19% of those participating were very negative. This yearâ&#x20AC;&#x2122;s survey asked the construction industry

whether economic changes had impacted their business in 2016 and 59.69% answered that it had a negative impact. This is characterised by a series of challenges listed as part of the survey, including the impact of slow or nonpayments facing companies which is the outstanding problem facing the sector in 2017, according to respondents. Retrieving payment for work is the major challenge this year for 31.21% of those surveyed. Prices are also under pressure in many markets and 26.06% rated poor contract margins as the second highest problem with the cost of materials also recorded by 10.61% of respondents.

With 24.61% suggesting that economic changes had no impact at all and 15.71% saying it had a positive impact, other challenges are playing on the minds of the industry. Chief among the (directly) non-economic problems are a series of perennial challenges for the GCC construction industry such as the competence of subcontractors (with 11.21% listing it as a factor), a lack of skills in the workforce (9.39%) and keeping up with regulation (7.58%) also featuring. Other minor factors at play include exchange rate fluctuations, financing and perceived instability in the region.

CIR SURVEY

How do you feel about the industry compared to 12 months ago?

What will be the major challenge for your company in 2017?

How do you feel about the industry compared to 12 months ago?

Very positive

15.71%

Slow client payment

31.21%

Negatively

59.69%

More positive

29.84%

Poor contract margins

26.06%

Positively

15.71%

Same as last year

21.99%

Subcontractor ability

11.21%

No effect

24.61%

Less positive

28.27%

Cost of raw materials

10.61%

Very negative

4.19%

Lack of workforce skills

9.39%

Keeping with regulation

7.58%

Other

3.94% 17

CiR SURVEY

Public sector retains its importance Leisure and retail boon for GCC construction, and two major markets present the best opportunities in 2017

he GCC construction industry is still largely based in the UAE but its clients are more than ever coming from the private sector, reveals the Construction Intelligence Report survey. 2016 was a year when most forecasts failed to predict the fall-off in activity and the negative growth that was experienced in the region. The cuts to Saudi Arabian government spending – the Saudi Government accounts for 70-75% of construction contracts – have hit hard. This is typified in a report published towards the end of 2016 by David Clifton,

regional development director at Faithful + Gould, which shows that up to Q3 2016, there had been only $18 billion of construction awards out of the company’s forecast $29.9 billion for 2016. MEED’s excellent Project Activity Monitor service that tracks the number of awards versus the number of projects completed recently described 2016 as the worst year since it began tracking construction activity in 2004. According to MEED, a net gain of $55 billion in 2015 was reversed last year to a $61 billion loss – with the number of projects completed reaching a value $166 billion with the value of projects awarded just nudging

into billion dollar territory at $105 billion. Effectively there has been a swing in the comparison of the two sets of sector data of $116 billion from one year to the next. Data from this year’s Construction Intelligence Report corroborates that the drop-off in the awards has not been a sector-specific decrease but a market-driven event. Indeed the UAE takes by far the largest share of activity in the GCC according to the survey at 31.25%. Saudi Arabia is second at 18.94%; Qatar third with 16.1%; Oman fourth with 12.31%, Bahrain fifth with 10.8% and Kuwait sixth at 10.61% When asked which markets offer the best opportunities

for new business in 2017, 28.99% of participants agree that the UAE market is the one to be in this year. Qatar is second with 19.38% of responses selecting that as the most exciting market for their business. Reflecting market data and other responses in the Survey, the Kingdom of Saudi Arabia is a distant third with 11.32%. To put that in context, in the 2014/15 survey, 22% of the construction industry listed it as the most promising destination for new business. It would be easy to dwell on the figure but the survey does reveal that going into 2017, fewer people are positive about the UAE (down by almost 5%) and Qatar (again down by

CIR SURVEY

The UAE takes by far the largest share of activity in the GCC according to the survey at 31.25%. Saudi Arabia is second at 18.94% and Qatar is third with 16.1%.

almost 5%) markets despite their continuing dominance of the responses. Kuwait at 3.95% is also down by 1.33%. So where is the new business coming from? One of the biggest factors would appear to be the re-emergence of Iran into international trade (excluding the US). Only two years ago, 1.51% of respondents were viewing it as a potentially important market for new business. It is now at 8.23%. Likewise North Africa, a region that was still recovering from the turbulence of the Arab Spring was of interest to 1.97% of respondents. Fast-forward 24 months and 5.32% view it as a destination for new business. Other areas have emerged too such as the Levant (2.23%), East Africa (3.09%) and Central Asia (6.17%).

Given that the overwhelming majority of respondents are employed by companies with regional headquarters in the UAE at 67.02% (and the entire GCC just under 85%), the survey reveals not only how important the Emirates remains as a regional hub for the construction industry but also how it has spread its wings looking for new opportunities in the intervening period. Another change since the survey conducted in 2014 seems to be who is employing the construction industry. Public Entities (such as Government agencies and departments, Municipalities, Local Authorities, etc) continue to be the biggest employer (at 35.08%) and the largest driver of construction projects

Where is your company active in the GCC?

but the gap has widened with the private sector. The survey does not disseminate between project owners and contractors as it is looking strictly at the flow of contracts for those involved in construction, however it is notable that where once Private Developers had a share of 26.88% it is now down to 22.51%. Effectively, the gap between public and private owners has increased from 7.54% to 12.51%. This widening is understandable and explained in great detail throughout the CiR but it is suffice to say that private development has been scaled back in the region. It is also notable that Large International Contractors retained an 18.85% share of client types in 2016 versus 13.24% in 2014.

Where does your company have its regional headquarters?

They are often tasked with large scale infrastructure projects and there may be a correlation between this figure and the three main sectors respondents expect to see growth in 2017: Leisure & Retail (21.38%), Transportation (Roads, Rail, Airports, etc) infrastructure (19.83%) and Healthcare (18.28%). Taken together Leisure and Retail and Commercial Property take a share of 35% when it comes to their prospects for growth in 2017, which means that the public sector will provide the bulk of new contracts and business whether that is directly or through contracting. Most of the industry will be dependent on the regionâ&#x20AC;&#x2122;s governmentsâ&#x20AC;&#x2122; re-dedication to their spending plans.

Which of the below best describes the majority of your clients?

UAE

31.25%

UAE

67.02%

Government

35.08%

Saudi Arabia

18.94%

Saudi Arabia

8.38%

Private developers

22.51%

Qatar

16.10%

Qatar

3.14%

Int. contractors

18.85%

Oman

12.31%

Oman

1.05%

Local contractors

10.47%

Kuwait

10.61%

Kuwait

2.62%

Mid-size contractors

8.90%

Bahrain

10.80%

Bahrain

2.62%

Other

4.19%

XXXXXXXXXXX

XXXXXXXXXXXXX

Sector focus Raising skills and training in the GCC Disputes – Preventative measures Using BMS in cost control Strategic procurement – A risky business Design – Sustainable learning The future of construction technology Preparing for VAT Engineering – Structured learning 21

SKILLS AND TRAINING

The GCC will continue to attract professionals who want to work on some of the most iconic projects in the world.

Raising skills and training in the GCC The Middle East region needs to develop an adaptable and agile next generation of construction leaders, says the Royal Institute of Chartered Surveyors

ith the construction industry in the region continuing to remain buoyant despite some of the economic challenges, and based on the progressive maturing and evolution of construction practices, the demand for experienced construction professionals is growing. In a marketplace made primarily of an expatriate workforce, with varying levels of knowledge and skills, ensuring staff are competent in their chosen discipline is a growing priority for all organisations and is particularly relevant in driving efficiency and mitigating risk. Workforce of the Future The RICS Futures project recently identified the skills and competencies needed for construction professionals of the future. The way in which people do business is changing, and many of the traditional roles in the construction industry will be unrecognisable in a few years.

The project found that professionals need a broader range of technical and management skills, to make them more adaptable in the developing marketplace. Being an expert in one particular subject is no longer sufficient, with professionals having to keep abreast of industry developments to allow them to compete at the highest level in the marketplace. With the emergence of technologies such as Building Information Modelling (BIM), 3-D printing and ‘smart’ buildings, organisations must keep on top of developments in the market, and industry best practice. The industry is moving towards more of a collaborative approach to project delivery and developers are looking to consultancies and suppliers to ensure their projects have the competitive edge. As such, the incorporation of technology should be an integral part of many construction professionals’ ongoing personal training and development. Equipping employees with key skills and industry best

The industry is moving towards more of a collaborative approach to project delivery and developers are looking to consultancies and suppliers to ensure their projects have the competitive edge. As such, the incorporation of technology should be an integral part of many professionals’ ongoing personal training and development

practice will benefit both the organisation and employees alike. Talent management is at the top of employers’ agendas and it is recognised that a stronger emphasis is needed to develop “soft skills” such as negotiation, influencing, commercial awareness and collaboration. Ensuring that an employer’s workforce is competent will allow teams to work more effectively, productively and ultimately improve profitability. Employees will improve their self-worth and confidence in a competitive workplace which is currently experiencing a renewed focus on multi-skilled employees. One size doesn’t fit all The Middle East market is unique in many ways, and with over $2.6tn worth of projects being planned in the region in the coming years, the GCC will continue to attract professionals who want to work on some of the most iconic projects in the world. Large projects including Expo 2020, Qatar

SKILLS AND TRAINING

Having a highly skilled workforce will undoubtedly drive increased productivity and efficiencies within organisations and on projects.

2022 and other infrastructure projects region wide, all require experienced professionals in a range of disciplines to ensure their success. With this market in mind, a generic approach to training isn’t enough and it is becoming apparent that companies are looking for bespoke training solutions for their staff. Since establishing a Middle East training hub, RICS has seen a dramatic increase in clients looking for bespoke face to face training. Clients are requesting training to address particular issues, with courses being based on industry best practice and delivered by highly

experienced professionals. The market is constantly evolving and maturing and as the number and value of projects increases, the potential for disputes and project delays is also growing. This specific industry trend has historically fallen to qualified lawyers to settle the dispute in court. But with a growing focus on methods of Dispute Avoidance and Alternative Dispute Resolution (ADR), an increasing number of construction professionals are now being used as mediators and expert witnesses in this arena. Specialist training such as this, allows professionals

to develop their skills outwith their current scope of work. Caleb Steiner, RICS Training Manager explains, “Our ability to tailor courses specific to client requirements is invaluable in the current climate. Organisations are no longer looking for generic, off the shelf products and we are working with a number of clients to deliver training that meets their team’s individual needs” In a marketplace currently affected by low oil prices, budget deficits and other ‘knock on’ factors, training and development budgets are often the first to be cut when times

are tough. This may be shortsighted however, as demand for skilled professionals doesn’t appear to be wavering, and employees are keen to continue their personal development. Having a highly skilled workforce will undoubtedly drive increased productivity and efficiencies within organisations and on projects. For some professionals, self funded training allows them to boost their knowledge in their own time and enhances their career prospects in an increasingly competitive job market. A recent Gulf Talent survey indicated that only 18% of respondents prefer to learn

SKILLS AND TRAINING

in a classroom scenario despite many employers preferring this delivery mechanism. Online courses and access to e-learning are fast becoming the preferred mode of learning for selffunded skills development, and provide flexible, cost effective access to training wherever you are in the region. Keeping it local While the region has historically relied upon knowledge and skills migrating to the region, that is no longer the case. In support of the various nationalisation initiatives across the region, it is imperative that training is provided to support nationals moving into both public and private sector of the construction and built environment, and to gain skills to equip them to operate from ‘shop-floor’ to ‘boardroom’. Many locals will seek education overseas, but there is a growing need for high quality tertiary education within the region. The Kingdom of Saudi Arabia has recently launched major initiatives as part of the ambitious 2030 plan which will provide Saudi nationals with training and education to support the growth of the private sector. Events like CERTX, the 1st International Conference and Exhibition for Professional Certification, will introduce international organisations to companies in the field of professional certification and training to introduce a culture of continuous learning and

In support of the various nationalisation initiatives across the region, it is imperative that training is provided to support nationals moving into both public and private sector of the construction and built environment, and to gain skills to equip them to operate from ‘shop-floor’ to ‘boardroom’

professional development. All Saudi nationals will have access to government funded training to support their professional development. Many countries in the region are similarly committed to developing their workforce to the benefit of the public and private sectors. The demand for training courses delivered in both Arabic and English will continue to grow training providers must respond and be agile in this market. This enhanced learning doesn’t apply to just training courses and the region is witnessing a surge in demand for professional qualifications. Increasingly, requirements for chartered professionals such as MRICS, and other professional qualifications, are often a prerequisite for candidates looking to join companies in the region. Professional bodies such as the Royal Institution of Chartered Surveyors map out competencies that cover a diverse scope of professions, including commercial management, design economics, cost planning, contracts, contract pricing, and construction technology, and don’t focus solely on years of experience and age. Robert Jackson (pictured), RICS Regional Director comments “We’re constantly looking at technology being used and changes in global best practices within the built environment sectors, to ensure our chartered surveyors are being kept abreast of emerging technologies,

procurement and tendering, project financial control and reporting, qualification and costing of construction works.” Employers can take comfort in knowing their employees are working at the highest level of professionalism and ethics. The recognition of the high standards and value that chartered professionals can bring to an organisation is growing and can only benefit the industry in increasing standards and driving continuous improvement. Challenges ahead With the high number of projects underway and in the pipeline across the region, a maturing market which demands ethical practices and increased productivity and efficiencies, the demand for skilled professionals will continue to rise. With the current socioeconomic factors affecting the region, corporate training budgets may decline but the growing trend for online accessible courses will ensure the construction sector have access to a variety of personal and professional training and development. “With pressure on organisations to ensure they continue to attract and develop skilled professionals, the demand for competency building training will continue to grow,” says Jackson. “To quote Richard Branson –’Train people well enough so they can leave, treat them well enough so they don’t want to’.” 25

Project management

Programme for success

Halim Boussabaine, professor of project management, Faculty of Engineering and IT, gives an overview of the BUiD’s PM programme

ince its inception the British University in Dubai’s (BUiD) project management (PM) programme has helped hundreds of graduates to advance in their careers in both the private and government sectors. It focus on the practical skills and intellectual critical thinking that will have a direct benefit to professional careers. BUiD established itself as a provider of world-class scholarship, education and research by basing its

programmes on the distinctive British model of the leading Russell Group Universities’ higher education system, which includes the University of Manchester – which the BUiD’s PM programme is largely based on. Professor of project management, Faculty of Engineering and IT at BUiD Halim Boussabaine received his MSc and PhD in project management at Manchester and later served as a lecturer there. He says than in addition to aligning its approach to

some of the world’s best educational institutions, the BUiD benefits from the rigorous accreditation of the UAE’s ministry of higher education and scientific research. “Our PM programmes are the only ones in the MENA region which are accredited by professional bodies,” says Professor Boussabaine. “Also the PM courses cover a broad range of specialisations on par with top global universities. In fact, EPRM and IPM courses are exclusive to BUiD.” Professor Boussabaine says

the university offers five unique master programmes in the region: project management, construction project management, enterprise project risk management, infrastructure project management and information technology project management. “The British university is about empowering to learn and acquire skills and insights that equip professionals become inspiring champions in the project management world,” says Professor Boussabaine. “The aim is to develop talented,

Project management

The discipline of project management has become an important part of the development of the GCC economies.

well-rounded, professional project managers who possesses the ability to manage complex projects and display a mastery of the discipline. Our programmes are flexibly designed to allow you to carry on working while you acquire state-ofart knowledge. We have built local and regional reputation and status for the quality and professional relevance of our master courses.” The professional project management MSc programmes at BUiD are co-ordinated within the Engineering

and IT Faculty but benefit from cross-institutional expertise, says Professor Boussabaine, “by bringing together leading researchers and educators in the field of project management, human resources management, systems engineering and informatics.” He adds: “The programmes provide an opportunity for students to develop and demonstrate knowledge and understanding, intellectual and practical skills, aspects of competence and other attributes in the different MSc programmes within the PPM as prescribed by international professional bodies such as the Project Management Institute (PMI) and the Association of Project Management (APM).” The five pathways of the PM MSc programmes reflect the diversity of the industries that benefit from taking a project management approach. While they cover the generic requirements for accreditation by the PMI and APM, sharing core modules that cover the more generic aspects of project management, they also offer students the chance to develop a higher level of proficiency relates to their specific field of expertise and industry. “Project management skills are relevant to all industries and public sector intuitions,” he comments. “Our courses attract student from all sorts of academic and industrials backgrounds.” Curriculum design and delivery is under continual review at BUiD to ensure that

There is a growing trend for project-intensive industries and graduates with project management degrees are sought by both public and private entities the courses keep pace with the changing skills needed by industry. It also places a great deal of emphasis on ensuring that students are given the support they need. Each student receives guidance and advice from a support group that monitors their progress and performance which includes a personal tutor, a module tutor, a module coordinator, a dissertation/project supervisor as well as a head of programme. “BUiD is committed to ensuring that its students successfully complete their chosen programme of study and wherever possible do not leave prematurely without obtaining an appropriate qualification,” explains Professor Boussabaine.

“To ensure an excellent experience, academic advice and support is available throughout the course of their programmes through a number of channels.” Graduates are trained to be competent in qualitative and quantitative research methods, reporting writing, research ethics, communication and presentation. They also have to take on a research dissertation which reinforces teaching and training with a focus on the specialisation they may want to pursue. Professor Boussabaine says several of BUiD students are carrying out research which is of national importance and lists projects on cyber security, innovation, entrepreneurship, climate change risks and infrastructure resilience as ones that could have an impact on policy making in the UAE. He adds that project management is making a significant contribution to the country. “The BUiD has trained some talented students and contributed to the vibrant higher education developments in the UAE. Some of our graduates are currently assuming higher leadership positions the UAE pubic institutions,” he comments. “There is a growing trend for project-intensive industries in the UAE and worldwide and graduates with project management degrees are sought by both public and private entities. Thus, as most UAE citizens are expected to assume leadership positions, PM skills will become indispensable for them.” 27

CONSTRUCTION DISPUTES

Arcadis’ research showed that in 2015, the average value of construction disputes in the Middle East was $82 million versus a global average of $46 million.

Preventative measures

Understanding and addressing construction disputes in the Middle East is improving but needs to be better as costs rise, writes Rob Nelson-Williams, Arcadis Middle East

he construction industry across the Middle East has faced a variety of headwinds including a sustained low oil price, and commodity price and currency volatility. A tightening of liquidity across the board has added to these challenges and created strains across the supply chain, particularly around cash flow. This has resulted in various projects and programmes of work being cancelled, deferred, or facing outright termination, although not uniformly across the region. Many that were already underway now face a very different economic backdrop to when they were initially commissioned, with some also facing very different prospects in terms of financial viability compared with the initial project business case. In this type of environment, the risk of disputes grows significantly. This is

particularly the case in a region which has not yet managed to shake off the ‘buyer’s market’ legacy of the 20082009 global financial crash. It is better to avoid or mitigate disputes than to resolve them. But when resolution is required, it is generally agreed that a speedy settlement of any dispute is desired. But why? There are a number of compelling reasons; to use current and available people and documents, which are directly relevant; to maintain cash flow within the supply chain; to maintain party relationships; to keep the respective delivery teams focused on delivering the project; and to avoid a cumulative effect of minor issues being aggregated into large disputes. Construction disputes on the rise Arcadis Contract Solutions’ Sixth Annual Global 29

CONSTRUCTION DISPUTES

Arcadis’ 2016 data suggests that disputes are being resolved quicker in the Middle East (15.2 months) than in Asia (19.5 months) or Continental Europe (18.5 months).

Construction Disputes Report gave an in-depth, internal datadriven assessment of the global construction disputes market focuses on five key areas: the length of construction disputes; the average value; the most common causes; the most popular resolution methods deployed; and regional specific nuances. We define a ‘dispute’ as a situation where two parties typically differ in the assertion of a contractual right, resulting in a decision being given under the contract, which in turn becomes a formal dispute. The value of a dispute is the additional entitlement to that included in the contract, for the additional work or event, when it becomes formalised. Our research showed that in 2015, the average value of construction disputes in the region was $82 million. This was higher than anywhere else in the world and significantly more than the global average of $46 million. This reflects the fact that construction projects in the Middle East are typically larger and more complex than other regions. Perhaps the more concerning trend however, is that the average value and length of disputes has continued to rise for the past three years. On a more positive note, 2016’s data also revealed that disputes are being resolved quicker than in Asia (19.5 months) or Continental Europe (18.5 months), with the average dispute taking 15.2 months to conclude from initiation. This 30

Arbitration is being reformed The team at Eversheds recently looked at the changing legal framework in the region... “Not surprisingly, arbitration developments continue to take place across the region due to the evolving role of arbitration in the Middle East. The reforms are not directed specifically at the construction sector but would apply generally across all sectors. The developments are anticipated to open up arbitration as the preferred dispute resolution tool across the Middle East for all disputes. “In Qatar, the Draft Qatari Law is expected to introduce numerous positive changes and new concepts to the existing arbitration provisions. There is also a draft UAE Federal Arbitration Law (“UAE Draft Law”) which has been in circulation since 2006 with the latest draft being issued by the UAE Ministry of Economy in 2013. The UAE Draft Law intends to introduce a modern legislative framework for arbitration in the UAE, in line with the UNCITRAL Model law. The UAE Draft Law includes an intention to provide that no arbitration order is issued

without verifying that it is not “in conflict with a ruling on subject of dispute passed by any UAE court of law”. Construed broadly, it may be interpreted to mean that an arbitration award may be prevented from being issued in a construction dispute where the nature of that dispute has already been tested by any UAE court of law. However, construed narrowly, it may only apply when dealing with the same cause of action between the same parties. “Arbitration centres are growing in significance and are being used increasingly in construction disputes. This is reflective of the developments in legislation setting the framework for arbitrations and enforcement of awards and encouraging government bodies in the Middle East to use arbitration as a method of dispute resolution. Global construction companies are increasingly getting more comfortable dealing with disputes in the region as the arbitration centres embed international standards. This is a positive step, contributing to market confidence of the international business community and encourages FDI.

compares favourably, albeit marginally, with the global average of 15.5 months. Common causes of disputes Data from the Arcadis Global Construction Disputes Report showed that the three most common causes of disputes in the Middle East are: a failure to properly administer the contract; poorly drafted or incomplete and unsubstantiated claims; and incomplete design information or employer requirements (for Design and Build projects). To understand what is driving an increase in cost, size and volume of construction disputes in the Middle East, it is important to adopt both a macro and micro perspective. The macro (economic) perspective includes the impact of a low oil price which has resulted in slower decisionmaking (in relation to projects both before and after the point of contract formation), and a reduction in government spending. This has also led to an increase in the number of suspensions, terminations and deferrals of contract awards, all of which inevitably result in more disputes. On larger projects this is a challenge as there may be numerous variations, as well as time and cost claims. Failure to account for these in a timely manner has pushed many contractors to enter into more formal dispute proceedings, such as arbitration, to try and recover these costs.

CONSTRUCTION DISPUTES

A report last year revealed that in the first half of 2016, the number of Court of First Instance (CFI) and arbitration cases, had grown by 35%. The total value also increased by almost 50% At the micro (project) level, the Arcadis Global Construction Disputes Report data showed that the most common cause of a dispute in the Middle East was a failure to properly administer the contract. Poorly drafted or incomplete and unsubstantiated claims was the second most common, and this has been a consistent result that we see year on year in the report. Common causes of poorly drafted claims include the desire for a speedy submission by the claimant (particularly at executive level, if not necessarily at project level), lack of substantiation, the lack of capability to prepare a robust and credible claim, or the complexity of issues to be claimed. Although lower oil prices and limited liquidity in the market might be creating the conditions for more disputes,

the above demonstrates a core need to get the basics right from the employer side with regards to contract administration, and from the contractorâ&#x20AC;&#x2122;s side to submit properly thought through claim submissions. Use of alternative dispute methods When it comes to resolving disputes, the Arcadis Global Construction Disputes Report showed that party to party negotiation remained the most popular method of alternative dispute resolution in the Middle East, followed by arbitration, and then mediation. Recent data from MEED also supports our internal finding. A report last year revealed that in the first half of 2016, the number of Court of First Instance (CFI) and arbitration cases heard at the Dubai International Financial Centre (DIFC), had grown by

35%. The total value of these disputes also increased by almost 50% compared with the previous 12 months, to approximately AED3.4bn. Although there is a sense that mediation ought to be gaining more traction in the region, the evidence outside of Arcadis Contract Solutions suggests that regionally, itâ&#x20AC;&#x2122;s time has not quite come yet. Learning from the past and embracing new approaches There appears to be a desire from all parties to better streamline formal dispute processes, reduce administrative burden, reduce cost, and create a more transparent contracting model. It will be interesting to see how this evolves over the next four to five years within the region. Perhaps by the time that the EXPO 2020 in Dubai or the 2022 FIFA World Cupâ&#x201E;˘

in Qatar are upon us, the use of adjudication will be more popular. Adjudication offers a short, sharp, administration of justice, regularising contract issues in a timely manner, and has been used to great effect in jurisdictions such as the UK and Australia. By that time perhaps mediation will also be more in vogue. However, remembering that avoidance is better than resolution, some standard rules will always apply. Risks must be properly identified at the outset and ought to be apportioned to the party best placed to manage and mitigate them. Similarly, where disputes do arise, effective alternative dispute avoidance mechanisms need to be actively deployed as quickly as possible, and implemented by qualified and experienced experts who can help to reduce the impact of that dispute on a project. 31

BUILDING MANAGEMENT SYSTEMS

Using BMS in cost control Koen Bogers, senior executive vice president of Building Technologies at Siemens Middle East, outlines how BMS is moving into new territory

How has BMS technology evolved over the years? What has been the biggest driver of change? Transparency and efficiency are really driving demand for building management systems. You have to remember that only 20% of a buildingâ&#x20AC;&#x2122;s costs are related to its construction; the remaining 80% are operating costs. So being able to control and optimise all the functions in a building â&#x20AC;&#x201C; from heating, ventilation, lighting and shading to room automation, energy 32

management and fire safety, as well as security disciplines, has clear financial, safety and environmental benefits. In terms of the evolution of technology, we have come a long way in the last 30 years or so. From isolated controls such as thermostats we have moved to fully integrated building management platforms, and this change has been in part driven by the wider understanding of the value of data analytics. This has enabled the shift from simple control of individual building functions to

fully integrated optimisation. State-of-the-art BMS systems like Desigo CC are also capable of being used as a building integration platform, integrating other smart systems in a building, like low-voltage distribution, elevators, smart meters, generators, chillers, solar panels, smart lighting, back-up power systems and audio-visual systems. An iBMS can also be used multisite, managing a portfolio of buildings from a central control room. This way BMS functionality and integration

can also be made available for smaller and mid-size buildings, operational and maintenance costs can be reduced, and building performance data is made transparent. We are of course now looking at the next evolution, which is how the Internet of Things (IoT) will further enhance the potential of technology for smart buildings. Has there been a shift towards having BMS in independent residential units? How much of an

BUILDING MANAGEMENT SYSTEMS

Only 20% of a building’s costs are related to its construction; the remaining 80% are operating costs, says Koen Bogers.

also ensures that a comfortable environment is maintained.

impact will that have on the use of the technology? So far, we have seen building management platforms implemented more in commercial and large buildings, but automation is certainly a trend in residential buildings. For example, Siemens’ Total Room Automation (TRA) combines room HVAC, lighting and/or shading systems into one package, which enables occupants to adjust the environment from a single wallmounted device or a smart app. This reduces operating costs and

How can BMS be integrated with the IoT? What impact will that have? The IoT is merging the physical and virtual worlds, and for this it’s important to have both the domain knowledge and the digital capabilities. For building management, the IoT enables us to integrate the asset management and analytics with the technical understanding of how buildings actually perform, in order to make building operations more reliable, costoptimised and sustainable. We play a key role in the ecosystem of IoT. Earlier this year, we took an important step towards this by partnering with IBM to combine their asset and database technologies with our domain knowledge, in order to maximise the potential of connected buildings and the data they create. We are also well positioned with our Navigator cloud software, a single, integrated cloud-based platform which uses powerful analytical and reporting capabilities to give operators total control of infrastructure. With technology like this, we are able to create complete transparency of the energy performance of a portfolio of buildings, maximising efficiency, minimising costs and reducing environmental impact. Ultimately, digitisation technologies and the IoT could radically change the business model of building management.

Transparency and efficiency are really driving demand for BMS. You have to remember that only 20% of a building’s costs are related to its construction; 80% are operating costs How can BMS improve efficiencies and create smart buildings and cities? A building management platform such as Siemens’ Desigo CC is able to integrate all the functions of a building, such as heating, ventilation, lighting, energy management, fire safety and security, into a single system in a single location. We’re talking about building intelligence into our infrastructure – giving it a brain. The ability to control and optimise individual elements of a building gives operators total transparency. For example, end-to-end energy management

through Desigo CC in global installations has reduced operating costs by up to 20%, and this of course also has clear environmental benefits. These systems are the cornerstone of a smart city. The IoT will see buildings increasingly digitised and connected, and this will enable the data produced by a single building or group of buildings to be analysed in the context of an entire city. Benchmarking will become possible, occupant usage patterns can be analysed so that utilities can optimise their resource generation and distribution. Weather patterns can be factored in. Buildings themselves can become part of the city’s energy system, storing and distributing power according to demand data Digitisation technologies are generating huge amounts of data, and turning this data into intelligence creates an extremely powerful asset. How can we lower the cost of BMS to increase its uptake? A building management platform like Desigo CC is in itself a costreduction technology. There are also costs associated with the implementation of a building management platform that change over time. Cabling, for example, is a significant cost factor, and as wireless technologies become increasingly secure and reliable, the requirement and therefore cost will be reduced. 33

Strategic Procurement

Spending insufficient time in selecting the most appropriate project procurement strategy and delivery method at the very outset of a project can lead to major problems throughout and beyond final construction.

A risky business Rob Nelson-Williams, head of contract solutions and Stewart Cash, head of cost & commercial management at Arcadis Middle East ask do you have the right procurement strategy?

n the recent Global Construction Disputes Report by Arcadis, internal data showed that in 2015, disputes in the Middle East took more than 15 months to resolve and were of a higher value than anywhere else in the world by a significant margin. In part, this reflects the fact that projects in this region are typically larger and more complex than in others (Asia, North America, Continental Europe and the UK), with both employers and contractors facing a higher level of corresponding risk. In an economic environment impacted by a depressed oil price, the focus now needs to be on understanding how to avoid these disputes in the first place, rather than just resolving them in the most efficient way possible as and when they materialise. In the Sixth Annual Arcadis Global Construction 34

Disputes Report, we also noted repetitive issues around failure to properly administer the contract, followed by poorly drafted or incomplete and unsubstantiated claims. In many cases, however, the root cause of the problem is more fundamental and relates to the fact that insufficient time was spent in selecting the most appropriate project procurement strategy and delivery method at the very outset of a project. Common ways of delivering construction projects: Before deciding on the right procurement strategy, an employer should consider each of the delivery method options available, and choose the approach that is most appropriate for the project stakeholders involved and the technical requirements of the project. In the Middle East, there are three main methods deployed, each

with their own benefits and disadvantages, the traditional approach, design and build, and the turnkey solution. 1. Traditional approach â&#x20AC;&#x201C; this is the most widely used delivery method and typically carries the least risk as there is a level of certainty around design, cost and duration. All project elements are fully designed by the employer or by the employerâ&#x20AC;&#x2122;s consultants in advance, and when the construction contract is signed, the contractor

is then responsible for completing the project on time and within budget. This approach allows the employer to define and detail its needs and requirements to absolute specification, and can achieve a high level of performance and quality in the design. In general, this is a transparent process and the detailed level of information means there is a reasonable level of cost certainty. It also offers the employer, consultants,

Strategic Procurement

government authorities and funders, time to coordinate throughout the design process to ensure the final product is acceptable to all stakeholders. On the down side, construction cannot commence until the design is complete and the sequential nature of the process often results in lengthy project durations. Furthermore, it offers little scope for early contractor or supply chain involvement in the design or planning phase, and the employer requires a

larger staff to maintain proper project control and to manage the multiple interfaces. Any significant design change post-contract will also weaken the contractor’s commitment to the original price and programme agreed. 2. Design and build – in this instance engineers and architects are engaged early to develop a preliminary design and corresponding Employer’s Requirements which are then issued for contractor bidding. The employer’s

design team responsible for the preliminary design may be novated to the contractor, or retained by the employer to ‘police’ the project if the contractor engages its own design team. The employer has less control than with the traditional approach, however there is a single point of responsibility for the design and construction. The contractor must deliver the project to the required quality, at the agreed price, and within the agreed programme.

This approach offers the potential for early completion as it allows construction and manufacturing to begin before the designs and specifications are complete. It also means construction expertise can be reflected in design development. A single source of responsibility for design and construction also negates the need for an employer to have a large internal team. However, with design and build, employers are reliant on the contractor to construct 35

Strategic Procurement

There is no ‘one size fits all’ solution when it comes to procurement strategy. However, taking the time at the very outset to fully understand a project’s risk is crucial in order to make the best strategic decision.

Very often, a project or program of works will be competing with other major projects for funding or resource. If support is needed from a ‘champion’ who can influence decision-making, it may make sense to allocate higher risk to the team with the best relationship with that stakeholder a functional facility and it is often difficult to remove the contractor in the event of nonperformance. The employer is also required to commit to a design intent at an early stage, often before detailed designs are complete. As a result, the final project may not be exactly as the employer expected and the employer may struggle to control design quality and aesthetics. Furthermore, bidder prices may be higher to reflect the higher level of risk assumed, whilst the employer will almost certainly pay a premium if there are any significant changes to scope post-contract. 3. Turnkey solution – in this scenario the contractor assumes complete 36

responsibility for the design and execution of the project, with little involvement of the employer. The contractor will carry out all engineering, procurement and construction and provides a facility to the employer at completion, ready for operation at the “turn of a key”. In committing to specific targets around cost, time and quality, the contractor offers the employer a high degree of certainty of final price and programme. The model allows the contractor an opportunity to be innovative and shorten the project programme by overlapping the design, procurement and construction phases. Significant risk

is transferred to the contractor as it has single and absolute design and construction responsibility. The downside with this model is that there are limited opportunities for third party participation, and the employer has less control over design and construction. This means the final project delivered may not be exactly as the employer envisioned. Finally, there is likely to be a cost premium to the employer to reflect the total risk transfer to the contractor. Selecting the most appropriate delivery method: When it comes to deciding on the most suitable

project delivery method, an employer needs to assess how much responsibility and corresponding risk it wants to delegate, and the level of project control and coordination its in-house staff and/or consultants can provide. To help make that decision, there are a number of important risk parameters to consider, five key areas include: 1. Internal resource – does the client have sufficient in-house resource, with the right level of experience in both the design and construction phases, to effectively manage multiple interfaces on a project? If not, outsourcing greater levels of responsibility and risk may be a more appropriate choice. 2. Scale of the project – the

Strategic Procurement

length and complexity of the project will be a key determinant in whether to keep it in-house or outsource the risk to a contractor. Similarly, understanding what the key drivers are e.g. cost or speed, will influence the delivery method selected on a project. 3. Use of technology – if new or untested technologies are being adopted on a project then there is always a degree of risk involved. To ensure the potential impact is minimised during the design and construction phases, the responsibility should be allocated to the teams with the most experience

or understanding of the technology in question. 4. Political issues – very often, a project or program of works will be competing with other major projects for funding or resource. If support is needed from a ‘champion’ who can influence decision-making, in this instance, it may make sense to allocate higher risk to the team with the best relationship with that stakeholder. 5. Contractor experience – this is one of the most important considerations when deciding where to allocate risk. If the contractor has limited experience in a particular delivery method or a

history of working on projects that end up in dispute, then that could be a potential red flag. Similarly, resourcing availability and competition in the market are two other factors that should be considered when making any decision about risk allocation. To avoid is always better than to mitigate or to resolve: There is no ‘one size fits all’ solution when it comes to procurement strategy. However, taking the time at the very outset to fully understand a project’s risk is crucial in order to make the best strategic

decision. In more simple terms, to avoid is always better than to mitigate or to resolve. In a tight market such as the Middle East today, awareness of the consequences of rushed or poorly thought through contract decisions needs to be even greater. In this market, disputes are no longer an inconvenience that ties up cash and senior resource for an extended period of time, but something that poses significant financial risk that could threaten not only the survival of your project and future business relationships, but ultimately your business.

SUSTAINABLE DESIGN

Sustainable learning Dr Hanan Taleb, associate professor, Faculty of Engineering at BUID, gives an overview of the role the private and public sectors can play in sustainable design

learly, there is a growing concern over the current and future consequences of climate change and the rapid depletion of natural resources. To that end, we need to remember that the built environment is a major contributor to carbon emissions and depletion of resources; of particular concern is the energy used to cool, ventilate and light buildings as well as the embodied energy in the material used. In addition, the indoor environment within buildings has a major impact on the health, well-being and productivity of occupants. Rapid building development rates places enormous pressures on future energy use. Over the past few years, the UAE has emerged as a global leader in the field of sustainability, from Dubai announcing its objective of being one of the most sustainable cities in the world, to sustainability being one of the core themes of the 38

EXPO 2020 plans. The UAE Government wants to ensure sustainable development while preserving the environment, and to achieve a perfect balance between economic and social development. The programme complies with UAE Vision 2021 by improving the quality of air, preserving water resources, increasing the contribution of clean energy and implementing green growth plans. The number of sustainable buildings in the UAE continues to increase for a number of reasons including: increasing awareness, rising concerns over energy and environmental problems, and the introduction of sustainable building codes. According to the Dubai Municipality, around 1,500 green building projects have been completed across Dubai since 2010. Additionally, there are 120 million square feet real estate registered with Dubai Municipality for green buildings. It is anticipated that the newly launched AlSafat rating system for green buildings will lead to 20%

SUSTAINABLE DESIGN

Dr Hanan Talib says BUiD graduates are engaged in various sustainability initiatives in the UAE. Real case scenarios are also crucial to learning.

of electricity consumption, 15% in water consumption, 20% of CO2 emissions and 50% waste reduction. A more sustainable approach to the design of the built environment can be achieved using a combination of passive and active strategies utilising the latest knowledge and use of advanced energy and BIM modelling software within a modern architectural context. This will reduce the energy needs, which in turn will reduce both local and global pollution in addition to providing more comfortable and healthy indoor and outdoor living environments. And we should consider that, while Dubai is home to 150 skyscrapers, more than any city in the world except New York and Hong Kong, such tall buildings have a potential to be sustainable. They can provide high-density living with all supportive facilities nearby, thus curbing the demand for transportation and the associated emissions. In addition, tall buildings due to sharing walls, floors, and ceilings with neighbours â&#x20AC;&#x201D; require less construction materials per inhabitant when compared with typical houses like villas in the GCC countries. Our graduates are engaged in various sustainability initiatives in the UAE and they are making a change for a better tomorrow. At BUiD, we believe that both public and private sectors play a crucial part in advancing the sustainability agenda. We have developed

A more sustainable approach to the design of the built environment can be achieved using a combination of passive and active strategies close relationships with various players in the field in order to meet their requirements for modern and relevant training. Our SDBE programme is strongly connected to the UAE market and most of our student-led projects adopt real case studies from the region. In my capacity as a faculty member in BUiD, I am actively engaged in various activities including training, consultancy, media contributions, giving public seminars and judging sustainable competitions. Through a number of industryrelevant academic programmes, BUiD is actively supporting the sustainable building agenda in the region. Other BUiD

initiatives include the running the Sustainability Summer School â&#x20AC;&#x201C; an annual event that has been attracting a large number of students from across the UAE universities since 2011. The BUiDâ&#x20AC;&#x2122;s SDBE programme is accredited by the UAE ministry of education and is also offered in association with Cardiff University. This is a first-of-its-kind postgraduate-level programme that allows students to develop problem-solving skills and apply analytical knowledge to real-life cases from the UAE and wider MENA region. Our unique curriculum offers the opportunity to learn about the latest thinking and cutting-edge trends in the field of sustainable buildings. Both innovation and enterprise are central themes with the ultimate aim of providing the design team members with the knowledge, skills and tools to enable them to undertake innovative approaches to sustainable design, integrating architectural and engineering solutions. The degrees offered are: Master of Science (MSc), Post Graduate Diploma (PGDip) and Post Graduate Certificate (PGCert). The MSc is offered via two tracks: Dissertation or Research Project. The PGDip and both MSc tracks can be awarded with concentration or general without concentration. At present, there are four concentrations, namely Architectural Design, Interior Design, Smart Buildings, Urban Design. 39

QUALITY MATTERS

Jubaili Bros

Turning the key on gen-sets Jubaili Bros discusses how it works closely with the construction industry to keep projects powered as they build

017 marks the 40th year since Jubaili Bros started providing power and expertise to construction projects. First established in the city of Sidon (Saida) in Lebanon, the company has subsequently expanded beyond its home on the shores of the Mediterranean and today is active in an everexpanding list of major markets. Jubaili Bros offers complete power solutions throughout the Middle East from its branches located in Lebanon, United Arab Emirates, Kuwait and Qatar. It also recently opened 40

a new office in Johannesburg to offer its world class power solutions to South Africa and its neighbouring countries. The new operation complements a growing network of branches throughout Africa and Asia which comprises countries such as Nigeria, Afghanistan, Ghana and Uganda. Jubaili Bros also serves a variety of business sectors which includes, but is not limited to, construction, telecommunications, Oil & Gas, government, banking, insurance, healthcare, infrastructure, residential, real estate, manufacturing,

transport and logistics, utility power generation and others. In whatever market or sector its clients operate in, Jubaili Bros specialises in providing consultancy-style assistance from pre- to after-sales support that can encompass their entire power requirements. The company employs 1,500 employees worldwide and its team of highly qualified engineers and technical staff are available at its 27 branches and service centres. Jubaili Bros operates a nationwide team of product support engineers, who can be efficiently dispatched anywhere in the nine countries

it operates in to take care of urgent customer needs. “Jubaili Bros sets itself apart from other providers through its dedication to customer satisfaction; it continually provides highly qualified engineers and technicians promoting a line of superior products and services,” says Jad Jubaili, Marketing Manager. As part of its service to the construction industry, it offers ‘Turnkey Power Solutions’ that include a pre-sales visit to assess the project requirements. A team of highly qualified engineers and technicians then meet with the customer

QUALITY MATTERS Find out more information: Jubaili Bros SAL, Jebel Ali Free Zone, PO Box 16520 Tel: +971 4 883 2023 Email: jbdubai@jubailibros.com www.jubailibros.com

and visit the site and work with the client to define their actual requirements and review the alternatives available for providing a cost-effective solution. “Our mission is to ensure customer delight by providing superior products and services. We serve our customers via emails, phone calls, personal visits, site visits, whichever is the most convenient to our customers,” explains Jubaili. “The Jubaili Bros. team will then design and supply the required power solution along with testing and commissioning,” continues Jubaili. “In order to enhance the performance and life of the system, Jubaili Bros. imparts training courses, as well as offers 24/7 aftersale service afterwards.” Jubaili Bros stocks complete ranges of diesel generators sets along with adequate supply of spare parts and accessories. It is also an authorised original equipment manufacturer (OEM) for the assembly of generating sets powered by Perkins engines, which are globally recognised for their fuel-efficiency, ruggedness and reliable operation under all conditions. Jubaili Bros. received an esteemed award from Perkins Engines Co. Limited in recognition for achieving sales in excess of 10,000 engines by 2013 and for its continuing growth. The two companies’ successful partnership continues apace with generator sets customised to cater to the diversified needs of individuals, customers

We stock and offer a diversified range of power solutions, in addition to the presence of strong dealer network covering a wide geographical area. We can support and respond to market needs from our various locations logistically in terms of after sales or stock supplies

and the corporate world. Jubaili says that delivery of its power solutions are backed-up by excellent aftersales support within a vast dealer network which offers efficient genuine spare parts and accessories availability, 24/7 maintenance and service programmes, product warranties and product support training. “Making it the region’s top choice for power requirements,” adds Jubaili. The company’s diesel generator sets are designed, developed, manufactured and tested to the most demanding of international standards; using state-of-the-art manufacturing and testing facilities and raw materials of the highest standards from world renowned suppliers such as: Leroy Somer Alternators, Deep Sea Electronics PLC, ABB Ltd, as well as Perkins Engines Company Limited itself. Its

customised enclosures also allow easy access to the engine for maintenance operations. “The design ensures the lowest noise level using high density sound absorbing material and highly effective aeration system,” adds Jubaili. “We stock and offer a diversified range of power solutions through several locations, in addition to the presence of strong dealer network covering a wide geographical area. We can support and respond to market needs from our various locations logistically in terms of after sales or stock supplies.” Looking ahead, the company is introducing Marapco Mobile light towers to its portfolio in addition to other products. Fittingly Jubaili Bros. continues to power on its 40th year and will continue to expand its geographic reach by opening more branches and expanding its dealer network.

CONSTRUCTION TECHNOLOGY

In the Middle East construction industry, the biggest breakthrough technologies in 2016 were UAVs, 3D printing and immersive technology.

The now and future of construction technology AECOM’s Charles Dunk looks at the state of construction technology and what lies ahead in 2017

016 was a year of political and humanitarian upheaval. News in the first half of the year was dominated by the Syrian refugee crisis. The latter half of the year saw major political upsets across many regions, including disputes in the South China Sea, sovereign debt crises in Europe, Brexit in the UK and the US presidential election. Amidst media coverage of the US election, an article was published about an Indian computer scientist who accurately predicted the last four presidential elections by using an artificial intelligence machine to search the web, collating more than 20 million data points to accurately estimate voter decisions. Earlier in 2016, the issue of ‘evil’ artificial intelligence was

heatedly debated in technology journals, with scientists claiming it represented an existential threat to humanity. For example, IBM’s Watson, a super computer for hire, demonstrates humanlike behaviour, and Google is leveraging the power of quantum computing to solve complex puzzles that traditional computers would take years to complete. Last year also saw the Middle East construction industry continue to adopt cloud computing and storage, enabling virtual teams and facilitating connected worksites. Cyber security and security in general became an important issue for governments across the Middle East. Regionally, the oil price continued to strengthen due to the cooperation of oilproducing countries. Set against

this backdrop, technology continues to grow in the Middle East in areas such as BIM, data management, unmanned aerial vehicles (UAVs), virtual reality, autonomous vehicles and 3D printing. In the Middle East construction industry, the biggest breakthrough

technologies were UAVs, 3D printing and immersive technology. Immersive technology, an umbrella term for technologies such as virtual reality, augmented reality and holographic projection, also saw increasing popularity this year with the release of

CONSTRUCTION TECHNOLOGY

VR headsets by HTC, Sony, Facebook, Samsung, Google and others. These headsets were accompanied by an influx of media attention driving growth of mobile technology in a faltering smartphone market. In July, Nintendo released the AR game PokĂŠmon Go and saw its share price double in

less than a month, despite only partly developing the app. Tech-savvy consultants and contractors embraced immersive technologies for marketing, training and collaboration across virtual teams. Smartphones and tablets are now ubiquitous, and many construction companies are

integrating mobile technology into business workflows. Use of photogrammetric modelling (3D modelling) and UAV drone technology grew in 2016. The creation of the Dubai Innovation Council plus other regional initiatives saw drone technology take off. In the construction industry, the

main use of UAVs is to gather high-resolution images. UAV cameras can be very sophisticated, collecting not only visible light but also other electromagnetic frequencies, called hyperspectral imaging. This data is used for mapping, change detection, photogrammetry and security. 43

CONSTRUCTION TECHNOLOGY

Hyperloop One is an example of the UAEâ&#x20AC;&#x2122;s commitment to exploring how emerging technology can transform the cities of the very near-future.

The application of immersive technology will continue to be used on projects across the Middle East. Authorities will experiment with autonomous and electric vehicles. UAVs and large-scale 3D models from photogrammetry will be used by authorities for infrastructure projects Comparatively, other forms of surveying have been slow to be adopted in the Middle East, such as mobile laser scanning and robotic total stations. Visualisation experts have seen a growth of mobile technology in the Middle East, particularly for site inspections. The ubiquity of mobile internet and smart devices, combined with software from companies such as ACONEX and Trimble, makes the use of digital devices on-site a realistic proposition for projects of any scale. In the latter half of 2016, 3D printing surged in popularity. Rapid prototyping and 3D printing has been around for a while, but the creation of the Museum of the Future using 3D printing technology 44

and media coverage in other manufacturing industries has led to a keen interest in the public and private sectors. Other technologies with much media coverage were transportation solutions such as Hyperloop and autonomous vehicles, making an appearance at multiple trade shows. Singapore has a small suburb using autonomous taxis and Dubai has shown an interest in duplicating its efforts. Hyperloop One and Hyperloop TT became established in the UAE. Ride sharing companies Uber and Lyft continue to grow across the globe and made a splash in the Middle East in 2016. In China, a prototype of an overhead bus/tram

solution was created in a very short time, demonstrating the regionâ&#x20AC;&#x2122;s ability to rapidly move from concept design to working prototypes. Modular construction also grew in China and across the region generally. According to experts, mobile laser scanning using SLAM technology is slowly making an appearance, with tech-savvy survey companies offering fast and affordable ways to provide indoor laser-scanned point clouds. Interest in the Internet of Things continues to grow, and exciting uses of interconnected sensors and control devices are appearing in projects across the Middle East, offering owners and operators a smart way to manage their assets.

2017: breakthrough and growth technology This year, we can expect to see virtual and augmented reality more widely adopted. Concepts such as real-time design may make an appearance towards the middle of 2017. Wearable technology will be normalised through the spread of VR, AR and other head-mounted displays. Other breakthrough tech to look out for will come from Apple in September. This technology giant has been very quiet on developments such as autonomous vehicles, virtual reality and, of course, its next-generation smartphone. Expect a media frenzy to start in the summer and reach fever pitch for the launch events in September.

CONSTRUCTION TECHNOLOGY

Mixed reality devices from other makers include Magic Leap, which will also make an appearance this year. Matthias Krampe, director and co-founder of auggd, predicts continued growth of augmented reality in 2017. He expects an explosion of mobile-based AR enterprise applications that add value to an enterprise’s supply chain with uses such as on-site visualisation, stakeholder engagement/project team communication, siteplanning and visualisation at the tender stage.

Growth technology is much larger than breakthrough technology. In 2017, we will see the continued adoption of a range of technologies. Immersive technology will continue to be used on construction projects across the Middle East. Transportation authorities will experiment with autonomous and electric vehicles. UAVs and large-scale 3D models from photogrammetry will be used by planning authorities for infrastructure projects. The European Space Agency will start testing Galileo, its

We can expect to see virtual and augmented reality more widely adopted. Concepts such as realtime design may make an appearance towards the middle of 2017

satellite network alternative to GPS. This technology has the potential to disrupt many industries across the planet when it goes online for commercial use in 20192020. There is a lot of hype around the Internet of Things and Smart Cities – these technologies, in partnership with telecommunication operators, will continue to grow across the region. Other technologies to appear in the Middle East include 5G mobile phone coverage, with influence from China, and the use of 3D printing for life-size prototyping. Technology will be an important part of the toolkit for contractors, consultants and clients to deliver successful projects this year. Tight budgets will push companies to find more efficient ways to deliver projects in an increasingly value-driven market. A sensible and pragmatic approach to the use of breakthrough technology is likely for many players in the construction sector in 2017. Middle East companies will look towards proven technologies such as mobile and cloud computing. Apple may make a big splash in September, but the immediate effect on the construction industry won’t be felt for a while. Savvy consultants and contractors will continue to grow BIM in 2017, and forward-thinking clients will look to use innovative media campaigns to garner investor and stakeholder support, using virtual or augmented reality. 45

TAX REGULATION

Preparing for VAT Ernst & Young’s Jennifer O’Sullivan and Morris Rozario say now is the time to prepare for 2018’s tax changes

he strategic motivation to introduce VAT in the Persian Gulf countries is the ultimate aim of the GCC Union (comprising Bahrain, Saudi Arabia, United Arab Emirates, Kuwait, Qatar and Oman) to achieve economic integration that would lead to a common market and 46

economic and monetary union. The IMF has long identified the introduction of VAT and corporate tax as a primary means to enhance market mechanisms and significantly increase the contribution of the private sector to the generation of public revenues in the GCC states. The more immediate and urgent imperative driving the introduction has been the

prolonged and likely longer term decline in oil and gas prices. Obviously, the need to reduce the dependence on oil and gas to contribute over 60% of the revenues is immediate. Not surprisingly, on 16 June 2016, at an extraordinary meeting in Jeddah, Saudi Arabia, the Finance Ministers of the GCC states approved the introduction of the first

phase of VAT implementation by the beginning of 2018 for businesses with a turnover of over US$1 million. Across the GCC region, the requirement to be registered will arise in early 2018 during the first phase of implementation. Once registered, companies will be required to account for VAT on an ongoing basis.

TAX REGULATION

All six GCC countries have signed up to the VAT Framework Agreement and implementation is expected to begin on 1 Januray 2018.

Companies whose revenues fall somewhere between $500,000 and $1 million will have the option to register for VAT during the first phase of the VAT implementation. It will become mandatory for all companies to be registered under the system, when it is rolled out in the second phase, regardless of the reported revenues. The

roll-out date of the second phase of the implementation is yet to be decided. All the six GCC member states will be signatories to the GCC VAT Framework Agreement, which is in the very final stages of negotiation on certain procedural aspects only. The principles contained in the GCC VAT Framework Agreement [KPMG confirmed that all member states had ratified the agreement at the beginning of 2017 with Bahrain the last of the bloc to sign on] will be transposed into and augmented by the domestic VAT law in each of the six GCC member states. With the approval of the GCC VAT, companies doing business in the GCC are on a tight timeline to prepare for the first phase of VAT implementation by 1 January 2018. The urgency is even more evident when one is aware that most of the GCC countries have already made substantial progress on drafting their domestic VAT legislation and preparing their tax administration systems for VAT, such that the focus has now shifted to preparing the business community for VAT. Although the VAT rate has not been officially confirmed, it is expected that a 5% VAT will apply on supply of most goods and services including imports with specific exemptions for basic and essential foods, medicines, health services and specified banking, financial and insurance services.

Preparing for VAT The experience from VAT and GST implementations in other countries clearly shows that a comprehensive understanding of the impact of VAT on all facets of business, its customers, and then making the business VAT-ready early are key to the ongoing successful conduct of business under the new tax regime. 10 key preparatory actions Companies in the GCC would be prudent to undertake the following key actions to prepare for the new tax regime: 1. Develop a project plan and budget for the cost of implementing VAT (e.g., consultant fees, configuration of accounting systems, training expenses and hiring of additional finance support) 2. Analyse the business itself in order to determine if it will constitute a VAT-able entity and determine the VAT rate and tax treatment which would be applicable to each supply which it undertakes 3. Consider the tax cost if any exempt activity

is undertaken and the cash flow impact, as VAT is payable on an accruals basis 4. Identify the tax and legal implications of the existing long-term contracts spanning the VAT implementation period â&#x20AC;&#x201C; i.e., who bears the burden of VAT 5. Analyse the capabilities of the existing accounting systems to deal with the new tax â&#x20AC;&#x201C; all transactions should be VAT coded in the ERP system 6. Review accounts payable processes to assess whether tracking and posting of expenses are done in a timely manner, including employee benefits 7. Determine the changes required for existing documentation to support compliance with the new tax 8. Analyse and understand transitional issues for supplies of goods and services that span the VAT implementation period 9. Evaluate the impact on pricing for any supplies that span the VAT implementation period 10.Train employees to appreciate the impact of VAT on accounting and reporting processes

Structural engineering

Structured learning Abid Abu-Tair, professor of Structural Engineering at BUID, gives an overview of structural engineering in the region What does your Structural Engineering programme at BUiD engineers offer students in terms of being able to specialise? The structural engineering programme follows the British system and is the only master programme in structural engineering in the Gulf region, students enrolled specialise in either structural design or structural rehabilitation. The programme was rewritten and accredited to satisfy the UK Joint Board of Moderation (JBM) of the institutions of Civil, structural, Highway and Transport institutions. Are the majority of your students from one particular area or background? Such as public agencies or private companies? We have a mix of students working in the public and private sectors, also in terms of local and expats working in the UAE. How have the current generation of buildings been shaped by the 48

economic distress since the turn of the decade? Have we been limited by cost? The UAE in general and Dubai in particular seem to have recovered from the minor economic crisis of the last decade, construction is booming evident by the sight of high cranes across the skies in all parts of Dubai and Abu Dhabi, in particular. All types of construction seems to be flourishing in Dubai, from single units to medium arise to tall towers. What are the other main opportunities and challenges in this area? There are great opportunities for our graduates of attaining good position and advancing in their existing roles after graduation, the industry is large and the need for structural engineers is evident by the large number of engineers arriving in the UAE every year. The challenge is to attract the best engineers to the programme and also to gain the professional JBM accreditation speedily, for that we are working with two of the key UK institutions

Structural engineering

Abid Abu -Tair of BUiD describes the construction industry as conservative by nature, however the university encourages the exploration of advanced materials and new technologies.

namely the Civil Engineering Institute and the Institution of Structural Engineers. What changes are being made to regulation that affect this area (ie. greater fire resistance)? The fire regulations are being devised by the Dubai Municipality, in our programme Fire Resistance Design, Sustainability and Durability of Structures are key themes throughout. Research by our students focused on answering key concern for the industry in Dubai, such as sway of asymmetric tall buildings, performance of very deep pile foundations, whole life cycle costing and use of Artificial Neural Networks to predict bridge deterioration. How do you cover SMART building design in your programmes? What impact can structural engineers have in this area in the future? With the advances in technology and mobile communication, structural health monitoring (SHM) is also introduced and promoted to our students. SHM promote a more sustainable and durable construction as well as better structural maintenance. This is part of smart structures and construction. How has our choice of materials been changed by ambitions for greater durability and sustainability?

the main European countries in terms of use of renewable materials, there is a drive from the government to make Dubai a leading sustainability city. At BUiD, we are guiding our student to conduct research on recycled, advanced materials and sustainable materials to achieve this aim.

There are great opportunities for our graduates, the industry is large and the need for structural engineers is evident by the large number of engineers arriving in the UAE every year The Gulf region is one of the most aggressive environments for the traditional structural materials like steel and reinforced concrete, advanced composites and nanomaterials now offer a more durable structural materials, with better performance and service life. Please discuss progress in terms of renewable materials in the region? How do we compare to other regions? What research has BUiD committed in this area? The UAE is still way behind

Where do advances in structural engineering and materials come in the region? How important is the private sector? What role does academia have to play? The construction industry worldwide is one of the most conservative industries and the UAE is even more because of its youth as a country, we emphasise to our students the need to seek alternatives and carry out research in the use of advanced materials and construction techniques, especially those that have been tried and tested in more developed countries. Please specify any relevant initiatives instigated by the BUID. The staff at BUiD take every opportunity to present their expertise and ideas to the industry and public sector at every opportunity, in the form keynote presentations, workshops and also organising conference, in March we are organising a major sustainability event, the Third International Sustainable Building Symposium at the Dubai Marina Hotel. 49

QUALITY MATTERS

voestalpine Metsec

Phillip Lange / Shutterstock, Inc.

Abu Dhabi Airport.

From design to delivery voestalpine Metsecâ&#x20AC;&#x2122;s ability to work with engineers on design has ensured efficient Purlins installation on some of the regionâ&#x20AC;&#x2122;s biggest projects

oestalpine Metsec plc is a specialist cold roll-forming company, providing products for the construction and manufacturing industries. It focuses on adding value through expert design, precision manufacturing and on-time, in-full product delivery. It has established a complete high quality service offering in the region supplying quality framing, purlin and cable management systems. Its value and design expertise ensures compliance, performance and building 50

integrity long into the future. The company offers a complete system including all accessories, enabling customers to source from a single point and avoid manufacturing or mixing and matching component parts of the systems; reducing both time, costs and liability. Its higher yield strength material is manufactured up to 15m lengths and all systems are tested, CE marked and underwritten by its own Professional Indemnity. The company has won major contracts to supply landmark projects such as Abu Dhabi Airport, the

Nakilat Damen shipyard and the Warner Brothers Theme Park. It continues to supply major construction projects throughout the GCC, including industrial units, warehouse and distribution facilities, healthcare, education, commercial centres, shopping malls and major transport infrastructure projects such as airport and shipyard facilities. It has established a substantial track record in commercial and public buildings. By placing the quality of product and range before the margins of materials it has helped customers

to achieve substantial cost savings on projects with accurate specifying for waste minimisation. The Dubai-based sales office is supported by a dedicated team in the UK and provides a range of local services ranging from design through to CPD training and site inspections. voestalpine Metsec works closely with structural engineers and steel fabricators, in particular, to add value and design expertise that will ensure compliance, performance and building integrity long into the future. At the design stage of projects,

QUALITY MATTERS

a dedicated technical manager liaises with engineers to produce value engineered solutions. It also provides its owns easy-to-use design software called MetSPEC 14 which reduces design time and can quickly provide the most economical solution; making the process for engineers more efficient. A technical manual also provides detailed information for its systems including load tables that structural engineers can reference when planning a project. Its work at Abu Dhabi Airport, where voestalpine Metsec was specified for the project by the engineer on the project, typifies how it works closely with its clients. “Kevin Jones (Purlins sales director) met with a contact at the customer, China State Construction Engineering Corporation,” explains the company. “We provided design support to the engineer by helping to mark-up drawings to assist with strutting arrangement issues. We also designed connection details to address some design issues the structural engineer was having and the connection loadings that the engineer sent to us. “Metsec is a name that most people in the construction industry know and trust and this is reinforced through strong long-term relationships, and working closely to deliver the most cost-effective solutions in full and on-time with fully backed warranties and the highest level of

Metsec is a name that most people in the construction industry know and trust and this is reinforced through strong long-term relationships, and working closely to deliver the most cost-effective solutions in full and on-time with fully backed warranties and the highest level of customer service

Purlins Z and C Sections.

customer service,” says the company. “Our warranties, in particular, have proved popular in the Middle East, as they give an added layer of reassurance and help reduce liability and risk on high profile projects.” voestalpine Metsec offers CPD training seminars aimed at increasing structural engineer knowledge about the different purlins systems it offers and when to specify them. Easy to organise at offices or events, the seminars also include a demonstration of MetSPEC 14, as well as providing updates about the latest service and product innovations, including its Building Information Modelling (BIM Level 2) capabilities. Companies can also gain access to one-toone technical advice and free design and support services on products to ensure the engineer has a support throughout the lifetime of a project. “Ultimately, we want our customers to achieve the most

efficient designs possible and MetSPEC has proved an invaluable tool. We have also invested in ensuring that the Tekla software programme favoured by fabricators works perfectly with Metsec products,” says voestalpine Metsec. To assist with efficiency onsite, the company utilises its Rapid/Boltless rail system for side rails and they arrive on-site complete for easy assembly and with all components individually marked. Looking to the year ahead, is continue to build closer working relationships with main contractors and fabricators to ensure they have the best possible service. It will also be broadening the distribution of its new technical manual and MetSPEC 14 design software. “Service is at the heart of everything we do,” says voestalpine Metsec. “We have a deep understanding of our customers’ needs and invest in our systems and resources to meet those needs. By adopting this flexible approach, we are able to offer a different kind of service – reactive, reliable and responsive. This has been the cornerstone of the long-term customer relationships that we have built at Metsec.” The download centre on voestalpine Metsec’s website is a valuable free resource for its design software and Revit files, plus technical manuals. To access the resource, please visit: www.metsec.com/ purlins/literature-downloads/ 51

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Country focus Saudiâ&#x20AC;&#x2122;s contraction pains HSBC: Building Saudi 2.0 Saudi Arabia: Strategic real estate JLL: The new normal in the UAE Dubai gets its smarts Beware the false economy Qatar hits its peak Qatar stadia report BNC: Kuwait Construction Market report Bahrain focused on housing Oman looking healthy Iraq remains a challenge Iran needs reform Egypt in flux 53

DATA

The GCC in figures Population, in millions 30

Source: World Bank

31.54

25 20 9.156

2.268

10 KSA

% Nationals

UAE

Qatar

3.89

Kuwait

2.23

1.377

Oman

Bahrain

Source: World Bank, Qatar Ministry of Development Planning & Statistics

100 80

70%

46%

60 31.3%

19%

20 KSA

UAE

12%

Qatar

Kuwait

Oman

Real GDP (2015), in US$ billions

Bahrain

Source: World Bank

750 600

646.0 370.0

450 300

164.6 114.0 69.8

150 KSA

UAE

Qatar

Kuwait

Oman

Gross National Income per capita, in US$ â&#x20AC;&#x2DC;000 100

31.1 Bahrain

Source: World Bank

83,990

80 43,090

60 40

42,150

23,550 16,910

19,480

20 KSA

UAE

Qatar

Kuwait

Oman

Bahrain

DATA

Percentage of active construction projects

Source: MEED Projects

40 37%

37%

30 16%

3% KSA

UAE

Qatar

Kuwait

5% 2% Oman

Fiscal breakeven oil price (2015 est.), in US$

Bahrain

Source: IMF

100 90.70 75

76.70

93.10

Oman

Bahrain

71.70 54.70

52.80

Qatar

Kuwait

KSA

UAE

Ease of doing business

Source: World Bank

GCC Rank

Country

Global Rank

UAE

Bahrain

Oman

Qatar

Saudi Arabia

Kuwait

102

Corruption perception

GCC Rank

Source: Transparency International

Country

Global Rank

UAE

Qatar

Saudi Arabia

Oman

Bahrain

Kuwait

SAUDI ARABIA

Saudi’s contraction pains David Clifton, regional development director, Faithful + Gould, says Saudi Arabia’s construction market will contract further in 2017

audi Arabia’s construction market is expected to contract further in 2017, with the market likely to be heavily reliant on the private sector and Saudi Aramco, a leading construction researcher has said.

In a report published towards the end of 2016, David Clifton, regional development director at Faithful + Gould, said that up to Q3 2016, there had been only $18 billion of construction awards out of the its forecast of $29.9 billion. “To meet our upper estimate, a Makkah Metro

contract award would be required (this would be subject to a Royal Decree). The private sector has delivered over 70% of awards, bucking the trend of all previous years on record,” Clifton said in the report. Clifton adds that the primary challenges facing the KSA construction market

revolved around the shutdown in the government awarding work in the past year. Coupled with a lack of liquidity to finance projects and contracting organisations on reasonable terms, the industry now faces an uncertain 2017. “Government entities have typically awarded 70% to 75%

SAUDI ARABIA

The outlook for KSA’s finances is improving but it still ran a significant deficit of more than $86 billion in 2016. Upward pressure on oil prices could ease fiscal pains.

of all construction contracts in KSA. In 2016, without the private sector and Saudi Aramco, there wouldn’t be much of a contracting market,” he explains. “Liquidity is tightening globally, but with the regional governments withdrawing from local banks, their deposit to loan rates have increased. “The Saudi Arabian Monetary Authority (SAMA) raised the limit in February 2016 from 85% to 90%, but the market in the round has reached this level now. Government payments to contractors seized over the course of the year, and although this seems to be starting to unblock, there remains a significant level of money owed all through the supply chain.” However, Clifton says it isn’t all doom and gloom in the Kingdom. With oil prices beginning a level of recovery to $45/barrel and OPEC’s recent agreement to slow production output, the outlook for KSA’s finances seems to be improving. Although the Kingdom still ran a significant deficit of more than $86 billion in 2016, the upward pressure on oil prices will ease fiscal pains. Furthermore, the Saudi government’s move towards modernisation and costcutting has begun, with public sector salaries cut and subsidies on fuel lifted. The lifting of subsidies on power and water has also been forecast. This

GDP in US$ billions from 2006 to 2016 744

800

377

534

527

520

600

400

686

669

711

430

416

328

200

2006 2007 2008 2009 2010

2011

2012

2013

2014

2015

2016

Ready mix concrete prices, in SAR/m3 (Jul 2015- Jun 2016) 250

240

230

Aug

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Oct

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Feb

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Sep

Rebar prices, in SAR/m3 (Oct 2005 - Sept 2016) 2000

1800

1600

1400

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Jan

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Mar

Apr

May

Jun

Jul

4.2

4.1

Saudi general inflation (2006-2016) 5%

4.3

4.2

4.3

3.8 4%

3.3

2.4

2.3

2006 2007 2008 2009 2010

2011

2012

2013

2014

2015

2016

continued streamlining could lead to the amalgamation of some ministries and government departments. In keeping with the NTP and Vision 2030, a National Project Management Office (NPMO) is being created for government entities to provide guidelines and governance for future project delivery. However, the NPMO is unlikely to be completely operational before the end of 2017, due to the complexities associated with designing and implementing these initiatives. This will have the knock-on effect of slowing government approval of new projects. “The government has identified the need to restructure, reprioritise and reorganise, so as to limit the exposure to spending, diversify the economy and reduce reliance on the government sector for contracts,” says Clifton. “To make any meaningful impact will take time. “As a matter of urgency, however, the government needs to support some larger infrastructure schemes in the market, as the diversification cannot just be switched on like a light.” Although the situation is only forecast to improve in 2018, there is a case to be made for one-off major infrastructure projects, such as the Makkah Metro. However, Clifton points out that the main question around KSA’s project pipelines isn’t about the 57

SAUDI ARABIA

Construction awards in the Kingdom are expected to slow further from just under $30 billion in 2016 to $27 billion in 2017.

BMI Research’s view “The outlook for growth in the Saudi Arabian construction sector over 2017 is poor as liquidity remains tight and the government’s realignment of the project pipeline and effort to improve efficiency in project delivery through the introduction project management offices slows project progress. Vision 2030 will be key to opening up the infrastructure market, with the potential of private investment in transport sectors to energise the sector. “We forecast overall construction growth of 1.9% y-o-y for 2017. This will be an acceleration on 2016 as the industry recovers from the government failing to pay contractors and benefits from slightly improved

liquidity and more efficient project implementation. “From the demand side for the construction sector, we expect a continued lull of largescale investment plans in the short term as concerns over the economy remain. In September 2016, the government enacted wide-ranging fiscal reforms, which pared subsidies and salaries in a variety of sectors. The announcement of the Vision 2030 and associated National Transformation Plan (NTP) confirmed a number of our previously highlighted long-term themes for the Saudi Arabian construction market; namely infrastructure is at the centre of realising diversification plans; and private sector participation will become increasingly common.

cutbacks, but rather around reprioritisation and timelines. With the Kingdom’s government’s $700 billion programme previously on a ten-year timeline, extending it to twenty will have a dramatic impact on the construction industry, with the government sector essentially halving its awards. “SAMA released shortterm loans of $4 billion in July and $5 billion in September, as well as raising book to loan ratios from 85% to 90% in 2016. With international liquidity tightening, down 8% from Q1 2015 to Q2 2016, the introduction of transparent, competitive alternative financing models in the Kingdom of Saudi Arabia is paramount in order to access funding that is available and deliver on the social infrastructure, power and water requirements for the young and growing population whilst supporting the diversification of the economy,” Clifton explains: “Initial IPOs of government companies are under development but require more urgency to streamline the economy, drive commercial efficiency and release capital from these businesses.” Clifton is certain that construction inflation went negative in the last quarter of 2016, with awards struggling to meet forecasts and the worsening of the short-term outlook over the previous quarter.

“2017 now looks likely to be slow given our view on Vision 2030, although VAT will start becoming a major pricing factor, while 2018 forecasts start to reflect the impact of regional event driven spending and also the re-entry of the government to the construction awards market. “Construction awards are expected to slow further from just under $30 billion in 2016 (the awards were $18 billion at Q3 2016) to $27 billion in 2017 as the industry again relies on Saudi Aramco and the private sector. The possible alteration to this is that the $29.9 billion in 2016 is predicated on Makkah Metro being awarded. Should this not occur, the 2017 numbers will be bolstered by this award. The fact is that Makkah is the

SAUDI ARABIA

Saudi construction industry value, in SAR billions (2015-2025)

Source: Ventures Onsite

400 350

2024

2025

279.8 256.7

250

233.3 210.8

200 162.8 2015

170.1

2016

179.8

2017

194.2

2018

2019

2020

2021

2022

2023

Saudi construction industry value, Real Growth vs. GDP (2015-2025) 8%

362.3

306.3

300

150

333.9

Source: Ventures Onsite

GDP

6% Real Growth 4%

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

exception in the government market at this time and the market really needs another one or two major schemes to be approved by exception. â&#x20AC;&#x153;The root cause of the continued slowdown in 2017 revolves around the design and implementation of the Project Management Offices in government and government related entities. It will take at least a 12-month window to have any effective implementation of change and process. With this in mind, 2018 looks most likely for a level of recovery, especially when you combine tightening liquidity in the finance markets and the need to structure potential alternative finance for large government driven infrastructure schemes,â&#x20AC;? Clifton concludes. 59

SAUDI ARABIA

Building Saudi 2.0 HSBC SABB KSA Insights Day looks at the role of the private sector in a post-oil Saudi Arabian economy

audi Arabia’s Vision 2030 hopes to wean the kingdom off oil dependency, fuel new foreign investment, and place it on a trajectory towards real diversification and sweeping social reform by 2030. But will the oil price malaise and associated economic slowdown hinder progress? Vision 2030 aims to see Saudi Arabia diversify and restructure its oil-dependent economy, including the part-privatisation of major state assets such as energy giant Aramco. There will also be tax increases along with spending and subsidy cuts. Analysts at McKinsey agree that Saudi Arabia “can no longer rely on oil revenue and public spending for growth in the face

of a changing global energy market and a demographic transition that will significantly increase the number of working-age Saudis by 2030.” And so, with the Kingdom’s economic scale and individual wealth in mind, the broader consensus is that there is a real opportunity for the country to inject new dynamism into its economy through a productivity – and investmentled transformation that could help ensure future growth, employment, and prosperity. This is good news for both financial and corporate investors but to enable this transformation Saudi Arabia will need to accelerate the shift from its current governmentled economic model to a more market-based approach.

Many of these opportunities are being consolidated around ambitious infrastructure projects like the King Abdullah Economic City (KAEC). This megacity in the desert will contain a state-of-the-art deep water port on the Red Sea shore which can handle the world’s largest ships. And with new road and rail networks, KAEC is just an hour from Jeddah, Mecca, and Medina. Already home to some of the world’s biggest multinational companies, KAEC’s stated aim is to rival China for manufacturing and the western world for innovation. Dr Abdullah Hafiz, Advisor to the Minister at KSA’s Ministry of Economy and Planning, has identified four major opportunities for foreign

corporates today: electricity, water, healthcare and education. “A change in the rules is set to happen that will allow companies to do trading in Saudi Arabia without a Saudi partner. The previous rule stipulated that as a foreign company the maximum you could own [of a domestic entity] is 75%,” explains Dr Hafiz. “That rule is about to be reviewed. There will be a set of criteria that will allow companies to do trading in Saudi Arabia at 100%, whether you want to sell to the government or the market. That is a huge change and a huge opportunity. We hope this will incentivise and broaden the activity of foreign corporates in the Kingdom. We are also thinking of transferring some

SAUDI ARABIA

An investment-led transformation of the Kingdom’s economy could help ensure future growth, employment and prosperity, says HSBC.

government social services to the private sector, not only to decrease spending but to increase productivity. This will happen slowly but surely and we want the private sector to help us draft our private-public partnership laws to make sure we cover all of the loopholes.” The low oil price is adding urgency and elevating the importance of privatisation. What is more, the private sector is being seen no longer as a vendor, but as a partner. The government, he adds, does not want to neglect SMEs. On a recent visit to Singapore, Dr Hafiz was shocked to find that SMEs account for more than 90% of Singapore’s enterprises. “In the past our rules have been quite bureaucratic: we need to incentivise an

ecosystem that is friendly to SMEs but also removes the hurdles on SMEs themselves.” The oil problem In the near term, the Kingdom will have to cope with the immediate consequences of the massive terms of trade loss that it is currently passing through. Beyond this, the challenges get trickier as Saudi Arabia positions to reinvent or at least accelerate the evolution of its entire economic model. Yet while the stakes are high and the challenges formidable, there is room for optimism, says Simon Williams, Chief Economist, CEE MEA at HSBC. “Oil income is going to force change on the Kingdom but the emergence of the Deputy Crown Prince’s leadership,

who has shown real urgency on the economic reform agenda, is enormously encouraging. “We spend a lot of time worrying about the demographics in Saudi Arabia and fretting about the youth bubble. It is true it is a challenge, but it is also a huge opportunity. It means we have a growing workforce and consumer base which are powerful economic drivers for growth.” With the strong public relations activity around the National Transformation Plan announcement in February 2016, it is easy to forget that private sector involvement in the Kingdom has already been considerable. The Saudi Arabian Investment Authority (SAGIA), is tasked with

creating a highly competitive economic climate and modern infrastructure that will lead to greater social prosperity. The body recently revealed that private sector contribution to GDP has exceeded its oil contribution for the first time. As Saudi Arabia looks to the future, it is clear that the Kingdom will need to confront key external and internal challenges. But by unleashing the private sector to raise productivity and create Saudi jobs, and introducing a more market-oriented approach to fiscal management and economic development, the Saudi economy is looking to thrive as a sustainable hub for corporate and financial investment, as well as other non-oil sectors. 61

SAUDI ARABIA

Saudi Arabia: Strategic real estate The National Transformation Program (NTP) outlines strategic objectives and key performance indicators for public, private and non-profit sectors

mong the targets published early in 2016 was a raft of objectives that aimed to increase the property sector’s contribution to the country’s GDP from 5% to 10% by 2020 – the equivalent of $74.8 billion. Under the new plan, both the public and private sector are encouraged to take a role in ensuring the growth of the property sector, either through individual initiatives or forming public-private partnerships (PPPs). Key among these:

which provides institutional investors with diversity, longterm stability and growth.

Plans to introduce a Real Estate Investment Trust This is likely to institutionalise the real estate market in Saudi Arabia and attract foreign investors while offering them the opportunity to diversify their investment. The creation of a REIT is likely to encourage commercial investment in office towers, retail centres and hotels,

Development of a homebuilding programme The Ministry of Housing announced plans to create its own property development company and start a mortgageguarantee fund to boost the rate of lending growth. The new entity will essentially provide plots of lands to businesses planning to develop homes, and

Approval of a ‘white land’ tax on undeveloped land Under the regulation, owners of undeveloped land plots of 10,000sqm and above are subject to an annual 2.5% tax of the land value. This measure aims at encouraging land owners to develop more homes to the market in order to tackle the shortage of housing in the Kingdom and avoid speculative land trading.

SAUDI ARABIA

The $71 billion NTP details projects and initiatives, as well as performance indicators, which aim to transform the Saudi economy into a powerhouse led by the private sector.

also help them secure financing by offering loan-guarantees. The creation of a state-owned mortgage firm aims to expand the countryâ&#x20AC;&#x2122;s mortgage market and increase real estate access. Viewpoint The $ 71 billion National Transformation Program (NTP) details projects and initiatives, as well as performance indicators, which aim to transform the Saudi economy into a powerhouse led by the private sector, which the real estate industry forms an integral part of. While efforts to tackle the issues surrounding the housing market in Saudi Arabia have been on-going before the NTP announcement, we welcome these measures as a step in the right direction, proving that there is willingness to change. This in turn is expected

to translate into strong prospects in the market. In the short run, the approval of a white land tax on undeveloped land is expected to see land owners review their holdings and develop value optimisation strategies to maximise their assetâ&#x20AC;&#x2122;s productivity and improve returns. Through recognising their real estate capabilities, undertaking comprehensive valuations and developing high operating assets, land owners are well positioned in light of the proposed tax. This in turn is likely to increase development activity across the Kingdom. Over the medium to long term, these development strategies are expected to transform cities for the better, improving the quality of life while maintaining affordability and safety of the local communities.

Key housing targets of the National Transformation Plan

1.5 million residential units in 7 years

SAR 13.5 billion in 5 years to develop largescale residential projects

60 days average time to approve residential projects

All land holdings to be surveyed 63

UAE

The new normal Real Estate experts Jones Lang LaSalle say the UAE medium outlook is bright

016 was a challenging year. GDP growth declined from 4.5% in 2015 to just 2.3% in 2016 and employment growth remained relatively flat at 1.5% in 2016, as companies consolidated their operations, particularly in the oil and banking sectors. GDP growth figures for Dubai declined at a slower rate of 1.8% between 2015 and

2016 compared to Abu Dhabi, which declined 4.2%. The oil sector comprises half of Abu Dhabiâ&#x20AC;&#x2122;s GDP so the reduced oil price means lower GDP from oil. Meanwhile, Dubaiâ&#x20AC;&#x2122;s economy is more diversified. While remaining far below their 2014/2015 levels, oil prices recovered by about 46% during 2016, increasing steadily from $30 per barrel in January to $45 per barrel in December 2016. Crude oil and natural gas

account for about 30% of the GDP of the UAE and lower oil prices have therefore been a major driver of the reduced rate of economic growth in 2016. In November 2016, OPEC members agreed to cut oil production by about 1.2 million barrels a day, effective January 2017. OPEC members aim to negotiate a reduction of 600,000 barrels a day from non-OPEC oil producers, but the viability of this option

remains to be seen. Capping oil production would resolve the oil surplus in the market, leading to higher market prices, with Oxford Economics predicting a further modest growth in prices during 2017 to just over $50 per barrel. As the regional economic situation improves, an increase in GCC tourism is expected to contribute significantly to the recovery of the hospitality and retail sectors, reflecting

UAE

Although the short-term challenge of adjusting to lower oil revenues are considerable, the medium-term picture for the UAE economy is more positive.

positively on the UAE real estate market as a whole. Although the short-term challenges of adjusting to the new normal of lower oil revenues are considerable, the medium-term picture for the UAE economy is more positive. The real estate market in the two largest emirates (Dubai and Abu Dhabi) reflect their relative economic strengths. The greater diversification of the Dubai economy and the

earlier downturn of real estate prices (from mid-2014) means the Dubai residential market is now poised closer to its cyclical trough, while prices may have further to fall in Abu Dhabi. Dubai is also benefiting from increased spending on real estate projects in the lead up to the Expo 2020. Data from MEED projects suggests that new construction tenders across the UAE could increase by more than 95% in 2017 to reach $100 million, although not all of these projects are likely to materialise. The majority of this additional spending is on projects in Dubai ($66 million). The Dubai office market saw the delivery of 129,000 sqm of GLA in 2016, bringing the total stock to 8.55 million sqm. The majority of these completions were in Business Bay (56%) and TECOM A & B (32%). Notable completions were Westbury Square and B2B Office Tower in Business Bay, as well as The Butterfly in Dubai Media City. Approximately 10,300 sqm of office space was completed in Q4 2016, including The Edge in Dubai Internet City. 2017 is expected to witness the completion of approximately 300,000 sqm of office space, with 30% of the expected supply in Business Bay, 22% in the Greens (Onyx Towers) and 20% in JLT (Amesco Tower), highlighting a shift away from the CBD to other areas in the city. The Abu Dhabi office market saw the completion of 214,000 sqm of GLA in 2016,

bringing the total stock to 3.5 million sqm. Most of the completions occurred in the first half of the year, on Abu Dhabi Island, such as Bloom Central and the ADNOC HQ. Maryah Tower and the new FGB HQ were also completed in 2016. A further 210,000 sqm of GLA is expected to enter the market in 2017, dominated by the delivery of ADIB on Airport Road, as well as Leaf and Omega towers on Reem Island. Although office rental performance remained stable, the demand is weak and this is reflected by the ongoing consolidation of many businesses. JLL expects this trend to continue in 2017 as occupiers impose greater downward pressure, particularly on strata-owned properties in peripheral areas. Single-owned well-managed buildings with good amenities in central locations are likely to maintain current performance levels over the next year. In Dubai, occupancy rates remain strong due to reasonable demand and limited supply. In addition, there is growing interest and construction in areas such as Business Bay and Silicon Oasis, historically seen as secondary locations. As for Abu Dhabi, there is a general softening in demand due to the decline of the oil sector, a reduction in government spending and mergers between several government entities such as NBAD/ FGB and Mubadala/IPIC. A total of 14,600 residential units entered the Dubai

residential market in 2016, the highest level since 2012 (16,000 units). Contributing to the volume of completions were 1,500 villas for Emirates staff in Meydan and 690 units in Wasl Oasis II in Muhaisnah. The last quarter witnessed the completion of more than 1,000 Mira townhouses in Reem Community by Emaar and 1,200 apartment units in City Walk Phase 1 by Meraas. There are 31,000 units scheduled for completion in 2017. Dubai South is gaining prominence, with 550 units slated for completion in 2017 and another 10,000 units announced and in the pipeline. Based on the historic materialisation rate of 35%, JLL expects actual deliveries to be lower than those announced. Abu Dhabi saw fewer completions than its neighbouring Emirate, with only 3,100 residential units completed during 2016, bringing the total stock to 248,000 units. In Q4 2016, 700 units entered the market (mainly the Marina Bay One and Marina Bay Two towers on Reem Island). Looking ahead, JLL expects completions in 2017 along the Corniche, Al Raha Beach, Reem and Saadiyat Islands, adding approximately 5,000 units. However, similar to Dubai, the rate of materialisation is likely to be below announced supply, as projects are delayed. Sale prices for both apartments and villas in Dubai show signs of stabilising, with no change recorded 65

UAE

As the region’s economy improves, an increase in GCC tourism is expected to contribute significantly to the recovery of the hospitality and retail sectors.

during the final quarter of 2016, but transaction volumes remain down. On a Y-o-Y basis, apartment prices recorded a mere 1% decline, while villa prices actually improved marginally by 2%. Abu Dhabi reinstated the 5% residential rent cap in midDecember 2016. This comes three years after the rent cap was suspended, and at a time when the average rents in the emirate have fallen by about 5% Y-o-Y, due to job losses and cuts in public expenditure, which continue to suppress demand. The largest decline was observed in villa and apartment sale prices at 11% Y-o-Y, as of Q4 2016. JLL is expecting rents to remain under

UAE construction industry value, in AED billions 230

210

229.6

2019

2020

198.73

190

170

217.01

181.32

162.18

2016

2017

2018

Dubai construction industry value, Real Growth vs. GDP 12%

GDP

8% Real Growth 4%

2016

2017

2018

2019

2020

pressure in Abu Dhabi until the return of government spending. About 260,000 sqm of retail space was completed in Dubai in 2016, the highest volume since 2010. Q4 saw the completion of about 20,000 sqm of retail space in the Dubai Festival City expansion. Other notable completions throughout the year were Phase 2 of The Avenue in City Walk (130,000 sqm), and the Ibn Battuta Mall Phase II (17,000 sqm). Additionally, a total GLA of 84,000 sqm entered the neighborhood and community domain. Given muted market activity and demand, the potential entry of more than 300,000 sqm of additional retail GLA in 2017 poses a risk of over-supply to the market.

The changing UAE property and investment market Increased cost of living In Abu Dhabi, the cost of living increased over 2016, with an annual inflation increase of 2.1% for the first 10 months of the year. As part of the government’s diversification plan, energy subsidies were removed, and a new fee (3% of rent) added as a fixed cost to a household’s utility bill. Further increases likely in 2017 and with VAT being introduced in January 2018. Continued appreciation of the US dollar A strong US dollar reduced demand from

many traditional leisure source markets in 2016. Performance of hotels and retail markets could remain under pressure during 2017 if the $continues to strengthen in value. Growth in the UAE’s entertainment and tourism sector A number of tourist attractions came to completion during 2016 such as the Dubai Parks and Resorts as well as the Dubai Opera, with others under way in Abu Dhabi principally on Yas and Saadiyat Islands which feeds positively into

the real estate market. Going forward, JLL is expecting the completion of Louvre Abu Dhabi, Dubai Safari in 2017 in addition to many more in the pipeline, such as the Six Flags Park which is scheduled for completion in H2 2019, and Sea World on Yas Island by 2022. Domestic legislations and reforms In October 2016, Dubai’s Real Estate Regulatory Authority (RERA) implemented a law whereby all advertisements of property will require a permit. Additionally, in

December 2016, the government reinstated the Abu Dhabi 5% rental cap three years after its suspension. Opportunities in alternative real estate The major attractions of the education sector to real estate investors and developers looking to diversify are the strength of demand, the attractive financial returns available and the alignment of this sector with government policies to improve educational standards across the region.

UAE

Although the short-term challenges of adjusting to the new normal of lower oil revenues are considerable, the medium-term picture for the UAE economy is more positive In Abu Dhabi, no major completions occurred throughout 2016, with total stock remaining at about 2.6 million sqm. Approximately 85,000 sqm of retail space is scheduled for completion in 2017, mostly within residential communities or towers. About 260,000 sqm of retail space was completed in Dubai in 2016, the highest volume since 2010. Q4 saw the completion of about 20,000 sqm of retail space in the Dubai Festival City expansion. Other notable completions throughout the year were Phase 2 of The Avenue in City Walk (130,000 sqm), and the Ibn Battuta Mall Phase II (17,000 sqm). Additionally, a total GLA of 84,000 sqm entered the neighborhood and community

domain. Given muted market activity and demand, the potential entry of more than 300,000 sqm of additional retail GLA in 2017 poses a risk of over-supply to the market. In Abu Dhabi, no major completions occurred throughout 2016, with total stock remaining at about 2.6 million sqm. Approximately 85,000 sqm of retail space is scheduled for completion in 2017, mostly within residential communities or towers. Dubaiâ&#x20AC;&#x2122;s hotel market witnessed the completion of approximately 7,000 rooms in 2016, bringing the total hotel stock to almost 79,000 keys. Q4 saw the delivery of Jumeirah al Naseem, with 430 rooms, the Premier Inn Ibn Battuta, with 372 rooms, and Nikki Beach

Resort with 117 keys. Other major completions in Dubai in 2016 were W Al Habtoor in Al Habtoor City, the Four Seasons DIFC, and the Hilton Garden Inn Dubai at Mall of the Emirates. A potential 14,000 keys could be handed over in 2017, but not all of these are likely to materialise in time. Hotel supply will however continue to increase in the lead up to the Expo 2020. Abu Dhabi saw the introduction of about 1,000 hotel keys throughout 2016, bringing total hotel supply to 21,400 keys. Q4 saw the completion of 422 rooms in Millennium Bab Al Qasr, opposite the Emirates Palace hotel. Other significant completions in 2016 were the Four Seasons, with 190

rooms and 125 serviced apartments, the Marriott Downtown, with 315 rooms, and the Marriott Executive apartments Downtown, with 64 units. About 2,000 hotel keys are expected to be handed over in 2017. Dubai managed to sustain occupancy rates at the mid70s level, while absorbing significant levels of new supply. Abu Dhabiâ&#x20AC;&#x2122;s hospitality sector remains reliant on corporate demand which has been significantly affected by the decline in oil prices, reduced government spending and corporate consolidation. The decline in corporate demand has partly been offset by increased leisure demand, driven by initiatives to diversify towards leisure tourism. 67

UAE

Dubai gets its smarts 2016 saw Dubai move closer to its ambition of a city that celebrates intelligent design and infrastructure

ubai has emerged as the Middle East’s leading smart city, according to an index by global research firm Navigant that weighed up the high-tech infrastructure in several cities in the region. Navigant assessed the cities according to their vision and execution of ‘smart’ initiatives, and said Dubai stood out for its “strategic 68

vision and clear understanding of the practical requirements to deliver on its vision”. The Smart Cities Index was commissioned by Huawei with the aim of understanding the level of readiness of cities in the Middle East for the next level of smart city adoption and deployment, a statement said. “As countries in the Gulf are increasingly diversifying their economies away from fossil fuels, they are also

coping with the need for rapid digitalisation in business and government,” said Safder Nazir, vice president of Smart Cities and IoT at Huawei Middle East. The study found that the foundations laid by Dubai’s leadership and the Smart Dubai Office will provide an “excellent basis for a range of innovations that will have a significant impact on the city’s operations and quality of life”. “Dubai stands out in this

Navigant Research ranking as a leader among cities for its strategic vision and ambitious implementation program,” said Eric Woods, research director at Navigant Consulting. “Overall, cities in the region are expanding their digital infrastructures, developing new services, and investing in large-scale building programs. The emerging focus on open data and data analytics programs is an important next

UAE

The city of the future? The Smart Dubai roadmap targeted the delivery of 1,000 services across 100 initiatives by 2017.

They are looking at New York, London and Munich and saying, ‘yes, we want a part of that but we want to do it better and suit our needs. We are already seeing teams setup to manage innovation (in smart transportation). We will see over the next 12 months some real green shoots of the things that are being touted now step. This will be one of the most important developments in the next stage of smart city evolution in the Gulf region.” The Smart Dubai roadmap has targeted the delivery of 1,000 services across 100 initiatives by 2017. As of September 2016, it had documented more than 500 current and planned smart services and initiatives, of which 150 have been completed.

Programmes such as the Dubai Data Initiative for data sharing and analytics, smart mobility solutions for traffic control, a smart grid programme for better management of power and water consumption and smart health services are examples of how the city has implemented smart city strategies, the study said. The study profiled seventeen cities and developed an index

of ten cities classifying each of the ten as Leader, Contender, Challenger or Follower. Smarter transportation Sheikh Mohammed bin Rashid Al Maktoum’s bold plan to bring driverless or rather autonomous vehicles onto the roads of Dubai could be one of the most radical urban transportation shake-ups since the first metro systems were introduced a century and a half ago. The question now is whether the technology exists to make his dream of 25% of journeys driverless by 2030? While the aims of cutting costs and traffic accidents seems straightforward enough, it will require new thinking, new approaches and technology. But speaking to Professor Nick Reed of the UK’s Transport Research Laboratory, it quickly becomes clear that technology is nearer than you might think. We really could see a semiautonomous road network in the near-future. Some major hurdles will, however, need to be jumped to make that date. “Thinking about Dubai and its targets and ambitions – that can happen very quickly with the right support from the authorities and with the right testing and regulations in place,” he says. Shaping this plan will be the RTA, Dubai’s road and transport authority. Directorgeneral Mattar al-Tayer, recently revealed that the agency had already contacted a number of driverless vehicle

sellers with plans to conduct live test-runs. Reed thinks that Dubai is a good fit to explore what this technology can do. “I think that the first thing to do is recognised there are already a significant number of journeys in Dubai on self-driving transport. The Metro is fully self-driving,” he remarks. “Certainly, we have worked with the RTA (in the past). Their plans are being formulated now and it will be very interesting to see what they are doing.” Professor Reed’s colleague at the TRL, Akin Adamson says that effective smart transportation or smart mobility will require a level of data sharing not typically seen in the design and construction of infrastructure in the region. “I think the sharing of data is where this region is a little different to the rest of the world, and where things will slow down a bit,” he says. “Dubai is looking to get ahead of the curve and almost take two steps at once. They are looking at what the rest of the world is doing and then adapting it for the local market, condition and environment. “They are looking at New York, London and Munich and saying, ‘yes, we want a part of that but we want to do it better and suit our needs’,” he adds. “We are already seeing teams set-up to manage innovation (in smart transportation). We will see over the next 12 months some real green shoots of the things that are being touted now.” 69

UAE

The size and scale of projects in the UAE compare favourable to many other locations throughout the world.

Beware of the false economy Zander Muego, director of Thomas & Adamson, a UAE-based cost consultancy, explains the pitfalls of choosing cost over value

ubai has changed dramatically over the last three decades, becoming a major business centre with a more dynamic and diversified economy. Dubai enjoys a strategic location and serves as the biggest re-exporting centre in the Middle East. We ourselves have set up offices here, having identified the exceptional opportunity that the city offers both national and international companies. The perfect recipe for a successful economy, right? Crash aside, Dubai has seen huge economic success. But now is the time to look ahead and assess the longterm consequences of the way in which we have become accustomed to doing business. Put simply, using the lowest cost as the determining factor when procuring goods or services can create false economies which do more harm than good. The problem Quality over quantity is a simple and well understood

concept, but is difficult to reconcile with todayâ&#x20AC;&#x2122;s price-sensitive corporate environment. Dubai is an attractive place to do business, with low barriers to entry and significant business opportunities, and in many industries this translates into a very competitive marketplace. The high levels of competition increasingly result in products and services becoming commoditised, putting downward pressure on prices. But while it makes commercial sense to capitalise on competition and the related low costs, treating certain products and services as commodities can often result in longer-term issues and costs that far outweigh the initial cost savings. The construction industry is a great example, with significant construction projects both currently progressing and in the pipeline within the UAE. The size and scale of these can be significant in comparison to many other locations throughout the world. These

projects attract competition from both multinationals and established local businesses, and competition is fierce. In construction, as in many other industries, there are tensions within the project objectives that need to be considered when developing procurement strategy. Tradeoffs are required to find the right balance between the various stakeholder objectives. As part of an international business, I see different approaches across different regions, and in the UAE cost considerations are often weighted far more significantly than other factors. But this focus on minimising initial capex is often misaligned with the wider objectives of the project stakeholders. With commercial developers, for example, there can be significant financial incentives to get projects finished quickly, thus accelerating the income stream that comes from the completed asset. Conversely, delays can increase interest payments and affect commercial viability. 71

UAE

2016 international building costs per m2 of internal area (AED)

Domestic terminal

16,000

12,000

8,000

4,000

Airports (building only)

Source: Turner & Townsend

16,300

Low-cost carrier terminal

11,000

Car parks Multi-storey above ground Multi-storey below ground

3,400 4,100

Commercial Offices – Business Park CBD Offices – up to 20 floors

4,285 5,340

CBD Offices – high-rise prestige

7,200

Education Primary and secondary

6,190

University

7,000

Hospitals Day surgery

5,890

Regional hospital

7,400

General hospital

9,000

Hotels 3 Star travellers

7,500

5 Star luxury

11,000

Resort style

13,000

Industrial Warehouse/factory units Large warehouse centre High-tech factory/laboratory

4,400 4,150 6,180

Residential Detached or terrace style house

6,300

Detached house – prestige

10,000

Townhouses

5,550

Apartments low-rise

5,400

Apartments high-rise

6,200

Retail Large shopping mall Neighbourhood mall

5,300 5,755

Prestige car showroom

This can quickly offset the apparent capex savings made from selecting contractors and suppliers with the lowest tender cost, but who turn out to have insufficient capacity or resources to deliver on time or to the desired level of quality. This is particularly relevant for complex projects in the 72

9,780

UAE, where basing the final selection on price point alone will often result in: • Project delays, as the tenderer struggles to mobilise subcontractors and procure long-lead materials, usually due to a lack of cash flow and administrative

delays in procuring bonds and guarantees • Poor quality control, as less qualified and cheaper site management personnel are deployed to the project • Demotivated site operatives, often as a result of being overworked or receiving delayed salary payments

• Unprofessional (or non-existent) HSE protocols, increasing the risk of injury (or worse) to those involved in the project, with knock-on effects on project and developer reputation • Increased installation and quality issues, resulting from all of the above and causing prolonged snagging and commissioning durations, ultimately delaying handover and impacting end user satisfaction levels The long-term implications of these issues are conceptualised in the term Cost of Poor Quality (COPQ), which is the cost of providing poor quality products or services. These costs can have an impact on all levels of the supply chain, but have a particular impact on clients and end users, who must live with the issues over the long term, plus the resulting reputational damage. Tangible Actions Determining procurement strategy and ultimately product or supplier choice needs to be based on a wide range of factors. How you weigh up the importance of these different factors will be based on your firm’s priorities and strategy. Businesses cannot lose sight of the importance of using the correct balance of criteria to fit the strategic direction of the business. Selecting the lowest priced tender might initially

UAE

Selecting the lowest priced tender might initially appear to represent good value, but will this provide the most appropriate solution for your business?

appear to represent good value, but will this provide the most appropriate solution for your business? Have the long-term implications been factored into the evaluation process, and are there whole-life cost implications between different options that need to be considered? We recently completed a very demanding project in the hospitality sector in Dubai, during which this very issue needed to be addressed. The project had exceptionally challenging time constraints but also had a very demanding budget. After a fast-track competitive tendering process, there were two clear frontrunners to take on the main contractor role â&#x20AC;&#x201C; one that had proposed a particularly competitive price, and another that was more expensive yet significantly more

experienced in delivering this specific type of project. Ultimately, in selecting the contractor, the likelihood of achieving the aggressive completion date together with the track record of producing the desired quality was factored into the analysis, and the more expensive contractor was awarded the project, with savings achieved in other areas of the project to offset the additional expenditure. The result has been a successful project, completed quickly and to a high level of quality, with minimal snagging issues and an early launch of the venue. This is just one of many examples Thomas & Adamson has of the benefits that come from taking a holistic view on vendor selection and related procurement strategy. While cost is almost always an important consideration, and in some cases is essential

Businesses cannot lose sight of the importance of using the correct balance of criteria to fit the strategic direction of the business. Selecting the lowest priced tender might initially appear to represent good value, but will this provide the most appropriate solution for your business?

to project viability, it is also important to ensure that the right level of technical competence, product quality, personnel and service levels exist as part of the offer. In summary Quality over quantity, or in this case cost, is an age-old lesson that too many of us forget when making important procurement decisions. While a cost focus may support the short-term financial viability of any given project, there can be significant wider implications that will ultimately affect the success of any investment in the long term. Businesses must adapt their procurement strategy to reflect the complex business world that we live in, which in turn will help achieve sustainable, long-term profitability rather than focusing purely on short-term profit.

QATAR

Qatar’s new $24 billion budget for 2017 has been received favourably by construction companies and experts.

Qatar hits its peak 2017 is set to be boom time for the construction industry in Qatar

he construction market is set to peak this year as Qatar’s preparation for the FIFA World Cup 2022 hits its stride and the country continues its investment into its infrastructure. Qatar’s new budget for 2017 has been received favourably by construction companies and experts, with building for the FIFA World Cup 2022, infrastructure, health and education taking the lion’s share and accounting for almost half of all expenditures in Qatar 2017 budget at a staggering QR87 billion ($24 billion). Mohamed Abdulaziz, CEO, CEG International, told the Qatar Tribune newspaper that he expected the construction sector to peak in the first half of 2017. “Most companies are upbeat about the ongoing works at the new Hamad Port, the redevelopment of Hamad Medical Corporation’s Medical City, the Doha Metro project and the construction of at least eight stadiums for the World Cup,” he said.

Abdulaziz pointed to the Supreme Committee (SC) for Qatar’s hosting of the World Cup in 2022 announcement at the close of 2016 that the main contractors of two stadiums has been selected, with the names of the contractors of other stadiums to announced soon. Also, he noted that Qatar Rail will select contractors for building stations in the second half of 2017. Raid Raaft, CEO of Kahraman Construction, drew attention to the opening of the Bulk Materials Handling System (BMHS) at Mesaieed Port, which he said will help meet the rising demand for primary materials for key construction and infrastructure projects. He pointed out that since Q4-2016, as the private sector became more confident in investing in health care and education, the construction sector had begun to gain momentum. Qatar has been anticipated to undergo intensified activity, sustaining steady growth driven by the Qatar National Vision (QNV) 2030 and hosting of FIFA World Cup 75

QATAR

Qatar aims to increase tourism demand by growing and diversifying its leisure and cultural offerings.

2022 for some time. Progress was initially slow in the gulf peninsular country but that has accelerated and Qatar has emerged as one of the fastest growing economies in the region due to the continued infrastructure spending by the government. Spending on the infrastructure sector was targeted at $14 billion in the 2016 budget. That figure represented a quarter of the government’s spending. Effectively the share has doubled year-on-year. The total amount of spending for the FIFA World Cup 2020 is expected to cost about $30 billion, with stadia accounting for a third of that amount at $10 billion. Likewise, Qatar’s continuing investment into upgrading its transportation, infrastructure and housing projects – alongside the tournament preparation has ventured north of $30 billion since the turn of the decade. The most recent Ministry of Development Planning and Statistics (MDPS) data published in June 2016 targeted economic growth of 3.8% in 2017 and could rise with a resurgent rise in oil prices. The country is however beginning to see beyond the hydrocarbon sector for its growth with the MDPS predicting that services will be the largest contributor to growth, followed by construction in the economy. 2017 and 2018 will see attention turns towards completing current projects 76

BMI Research’s view Investment flows into non-residential building as the country readies itself to host the FIFA World Cup 2022 will be the key driver of construction industry growth over the medium term. “Continued deficit spending in support of infrastructure projects and the solicitation of private capital will sustain the Sultanate’s construction sector growth rally into 2017. Oman’s construction fundamentals are increasingly bright - the government’s focus on infrastructure investment as a means to facilitate economic diversification will ensure that contract opportunities remain plentiful in the years ahead, particularly in the industrial and commercial sectors, while growing structural demand in the country’s water

and power segments will continue to entice international investors. “The country’s proven ability to attract private investment by leveraging its PPP framework - among the more robust in the GCC region - will be a key advantage in blunting the effects of a prolonged period of low oil prices. “We expect that Oman’s 2016 recovery has further to run in 2017 and have accordingly revised our 2017 construction forecast upward to 10.1% from 7.4% to reflect an acceleration of project announcements in H216. Our five-year growth outlook is similarly sanguine, with the government’s commitment to economic diversification and infrastructure investment informing our view that Oman’s construction sector will expand by an annualised average of 10.6%.”

rather than starting new ones, according to the MDPS and as population growth eases, growth in the non-hydrocarbon sector is expected to moderate. Construction will continue to expand through to 2018, though its pace of growth will ebb as existing projects are completed and no additional new assets are built. One beneficiary of Qatar’s boom in construction has been the manufacturing sector and there has been growing demand for cement and metals from construction and infrastructure projects and is hoped to sustain momentum in other manufacturing activities. According to Ventures Onsite, Qatar’s investments, “have included a variety of projects, among which were new highways, the development of economic zones and also stadiums and other public infrastructure to host “the World Cup in 2022. “Qatar aims to increase tourism demand by growing and diversifying its leisure and cultural offerings. Qatar is planning to build new hotels and hotel apartments over the next five years in advance of the surge in visitors expected during the 2022 FIFA World Cup, which is driving the hotel pipeline. “Qatar is expected to continue its aggressive retail expansion in the coming years as the supply of retail space is expected to nearly double in 2017,” reports Ventures Onstite. “Qatar is also continuing to enhance spending on key

QATAR

Qatar aims to increase tourism demand by growing and diversifying its leisure and cultural offerings. Qatar is planning to build new hotels and hotel apartments over the next five years in advance of the surge in visitors expected during the 2022 FIFA World Cup sectors, especially education, as funds allocated to the sector have increased to $ 5.59 billion. Qatar’s western region is planning a major expansion of healthcare facilities in a bid to meet the needs of a growing population. Consultant and analyst ValuStrat additionally estimates that the hotel sector supply pipeline could include over 9,600 new hotel keys and 3,400 new hotel apartments in 2017. Major retail developments are expected to come online in the market in 2017, adds ValuStrat. They include Doha Festival City, North Gate Mall and Al Hazm Mall. “Doha’s retail stock is expected to expand by around

Qatar construction industry value, in QAR billions 100

103.8 88.34

90 77.63

80 68.37 70 59.56 60 2016

2017

2018

2019

2020

Dubai construction industry value, Real Growth vs. GDP 14%

12%

Real Growth

10%

GDP

2016

2017

2018

2019

2020

1.9 million sqm over the next five years,” says the firm. Qatar Rail announced early in 2017 that the Doha Metro project will achieve 70% “project progress rate” during the year. There are currently 37 stations of the Doha Metro project under construction in a huge effort requiring more than 41,000 workers on-site. Track installation works should also be completed by year-end. Despite international scrutiny of the construction industry in Qatar, the metro project has so far worked a total of 202 million man hours and achieved one of the lowest accident frequency rates (AFR) in construction in the world, Qatar Rail claims. 77

QATAR

Qatar Stadia progress report Forget the scare stories, Qatar is progressing well with its 2022 FIFA World Cup preparations

onstruction work on eight of the proposed host venues for the 2022 FIFA World Cup is in full swing, the Supreme Council for Delivery and Legacy (SC) has said, adding that the Khalifa International Stadium – the first host stadium – is on track for completion in the first quarter of 2017. With the event kicking off five years from now, work on the eight proposed host venues are currently at different stages of construction, with work advancing rapidly on the different sites. The stadia have been designed by a variety of leading architects to reflect different aspects of Qatari culture while also keeping three key priorities in mind – access and comfort, sustainability and posttournament legacy. For the Khalifa International Stadium, the 78

SC said that construction is moving at a rapid pace, with external cladding and LED screens coming up around the exterior of the venue. The complex system of cabling for the roof of the stadium has also been completed, with the canopy roof likely to be fixed in place within the coming weeks. Once the roof has been completed, the countdown towards the finalisation of the renovation and upgrading works will be underway, SC said. The 60,000-seat Al Bayt Stadium at Al Khor C is scheduled to host the semi-final matches at the tournament. Construction of the project is well underway, with the recent successful installation of elements of the main structure taking place. Current ongoing works include the construction of access tunnels to the stadium and bridges to the venue. The Al Bayt Stadium’s design is meant to mirror a

QATAR

Construction is underway. Each stadium is being constructed and designed to reflect different aspects of Qatari culture.

Bedouin tent, as a symbol of Qatari hospitality. It will also have a retractable roof which will be able to close within 20 minutes, allowing for optimal playing conditions. SC said that the workers’ accommodation for the project has been completed, which has been built according to the SC Workers’ Welfare Standards. Meanwhile, the Qatar Foundation Stadium, which is located near Doha’s Education City, is scheduled to be completed by the end of 2019. The venue will host fixtures up to the quarter-final stage. Further bulk excavation works of a total volume of 650,000 cubic metres to formation level, and the implementation of a dewatering system for the next main-package contractor have been completed in recent months, SC said. By the end of 2016, the main-works contractor were expected to be fully mobilised onsite, with work progressing on the schematic design, while foundation works will be finished. The securing of a large portion of the structural steel for the superstructure will also be completed by then, the council added. Meanwhile, the Al Wakrah Stadium, a 40,000-seat venue designed by the late Zaha Hadid has seen the main contractor come on board and work is underway to prepare the stadium design to be issued for construction. Foundation works on the project are progressing well,

By the end of 2016, the main-works contractor were expected to be fully mobilised onsite, with work progressing on the schematic design, while foundation works will be finished. The securing of a large portion of the structural steel for the superstructure will also be completed by then, the council added SC said. Three cranes have been installed within the stadium bowl onsite and works are advancing to prepare for the start of above ground construction by year-end. A total of six 60-tonne cranes will be working onsite, in order to bring the structure of the stadium up from the ground. For the Al Rayyan Stadium, SC said that the first concrete was recently poured on the West Stand area of the

stadium. The main contractor for that project is continuing to advance on the construction of the 40,000-seat stadium. More than 100,000 cubic metres of concrete and 6,700 tonnes of structural steel will be used on the project. Construction work on the Lusail Stadium – the opening venue of the tournament and the host of the final – is also moving smoothly, the SC said. The 80,000-seat stadium is expected to be complete by the end of 2020. Schematic design work is ongoing, while early works have been completed and the project team has relocated to the site. The Ras Abu Aboud Stadium is currently seeing early works underway, the SC said. It added that the stadium will bring the ‘design for legacy’ concept onto the world stage, as the stadium will one of the first sports venues that will have the ability to transform into a dynamic mixed-use urban neighbourhood once the tournament is over. Finally, the eighth proposed venue – the Al Thumama Stadium – will have a capacity of 40,000 seats, which will then be reduced to a maximum of 20,000 seats following the tournament. Early works are currently underway on that project, with preparations taking place for the main construction work to commence. These include levelling and grading works, the SC concluded. 79

QATAR

Powering Qatar’s future How is Qatar balancing its Vision 2030 plan with hosting the FIFA 2022 World Cup?

ith Vision 2030 in place and the FIFA 2022 World Cup approaching, the Qatari government is working steadily towards creating a sustainable economy and advancing the standard of living of its people. Major infrastructure and stadium projects are underway, and large hospitality and residential developments are

also mushrooming all over the nation, in a bid to ensure that all requirements to achieve this goal are successfully met. As Qatar’s dreams are taking shape, one area being given a lot of attention is the power sector. According to data from UK analyst firm Wood Mackenzie, the country’s total power generation capacity has grown by 3.4GW since 2010, to 11GW at the moment. One reason for this increase in capacity

is the rise in demand for electricity from the industrial and residential segments, says Johannes Wetzel, power analyst at Wood Mackenzie. “The start-up of the Qatalum aluminium plant in 2010 and its ramp-up of production has been a significant driver of electricity demand growth in the industrial sector, while growth in the residential sector has been driven by a 27% increase in

population from 2010 to 2015. As a result, air-conditioning loads have increased and have been a major factor for residential consumption.” While the available generation capacity has been more than capable of meeting peak load requirements so far, what kind of an increase is expected, particularly in the run-up to the World Cup? Wetzel says demand for electricity in Qatar is likely

QATAR

According to data from UK analyst firm Wood Mackenzie, Qatar’s total power generation capacity has grown by 3.4GW since 2010.

to reach at least 46TWh in 2022, compared to 36TWh in 2015, with most of this growth coming once again from new industrial and residential needs, and many major power projects are underway to support these future generation requirements. One such development under construction at the moment is the Umm Al Houl independent water and power project (IWPP), previously known as the Facility D project.

According to the GCC Power Market 2016 report by Ventures Onsite, this massive 2.5GW development 15km south of Doha has an estimated value of $3.1 billion. Construction began in Q3 2015 and is expected to be completed in Q3 2018. Other large projects include the Qatar Power Transmission System Expansion – Phase 12 by Qatar General Electricity and Water Corporation (KAHRAMAA), which came online in Q3 2015. This project has an estimated value of $1.7 billion and is expected to finish in Q4 2017. Meanwhile, Phase 13 of the same project, which has an estimated value of $2 billion, is expected to start during Q3 this year, with completion targeted for the fourth quarter of 2018. Renewable energy is another area expected to play a key role in the national energy mix in Qatar by 2022. Wetzel points out that Qatar has ambitious plans for growth in terms of renewable electricity supply, with the government aiming for 1.8GW of installed capacity in 2020 and 10GW in 2030. And with such favourable conditions along the country’s coastline, solar and wind energy generation will see plenty of opportunity. “Many initiatives have been put in place at the moment by Qatari entities such as KAHRAMAA, QEWC, Qatar Petroleum and Qatar Foundation, to proliferate renewable energy in the nation. In fact, several solar projects are expected to

come online over the next few years,” says Wetzel. “While solar PV will definitely lead the growth in renewables, we believe that concentrated solar power (CSP) will soon enter the mix as well. We’re also expecting to see the introduction of wind power by 2020, albeit at a smaller scale than solar. “Additionally, though there isn’t a formal support or subsidy mechanism for renewables in place at present, we expect the commercial structure for renewables to be based around tenders, competitive bidding and power purchase agreements at fixed

Though there isn’t a formal support or subsidy mechanism for renewables in place at present, we expect the commercial structure for renewables to be based around tenders, competitive bidding and power purchase agreements at fixed rates, as is the case in the UAE

rates, as is the case in the UAE.” With such large projects underway, challenges are inevitable. Wetzel believes that the main issues that the power industry will face while trying to ramp up capacity are two-fold. Firstly, he says that in order to ensure future investment in a low commodity price environment, the burden on public finances has to be eased. One way of guaranteeing the financial viability of this public utility, while lowering the subsidy burden, is by having higher retail electricity prices. Additionally, different approaches to project financing need to be explored, to stimulate continued investment in the power sector without overstressing public finances. This can be done through public-private partnerships, which Qatar first embraced in 2015. Secondly, he says that the government must also implement a framework for the development of renewable energy. Concluding with his outlook on power generation and the likely impact of macroeconomic conditions on development, he says, “The current low commodity price environment is taking its toll on the economy, and measures such as an electricity price hike and the decision to let gasoline prices fluctuate show the government’s intent to cut the subsidy bill. However, we do not expect any detrimental impact on Qatari power supply from this situation.” 81

KUWAIT

Kuwait construction market report 2016-2017 BNC Project Intelligence Database looks at the simmering Kuwait market

he Kuwaiti construction market has been growing at a steady pace. According to the BNC Project Intelligence Database, the value of announced projects in Q2, 2016 was relatively high, and is an indication of a healthy pipeline of project investments in the near future.

Kuwait has 709 active projects with a combined estimated value of $230.4 billion. Of the 709 projects, approximately 58% are under construction, indicating a healthy flow-through of project investments. A few high-value projects in the initial stages of construction are giving a huge lift to the total project investments in

Kuwait in Q2, 2016. Some of the key market drivers include medium and long term government planning, and public investments in tourism and real estate. There are several highvalue projects that are active in Kuwait. According to the BNC Project Intelligence Database, 20 projects are under construction, each worth over

$1 billion or more and have a combined estimated value of $55 billion. The value of under construction projects makes up approximately 58% of the high-value projects in the recent quarter. Construction Market Overview Kuwaitâ&#x20AC;&#x2122;s project investments are relatively small in

KUWAIT

The combined estimated value of projects in the initial stages of construction (i.e. in concept & design stage) is $41.6 billion, and makes up approximately 18% of all the project values in Kuwait.

comparison to the project investments of other GCC countries. But the Kuwaiti construction market is performing well under the backdrop of an economic slowdown in the region. The 709 active construction projects supports a relatively healthy market outlook. At the same time, newly announced projects in Q2, 2016 add to the pipeline of project investments in the country. The GCC has approximately 18,885 active construction projects with a combined estimated value of $2.3 trillion. Kuwait has the lowest number of active projects in the region. Kuwait constitutes almost 4% of the 18,885 active projects in the GCC. But when looking at this in dollar terms, the combined estimated value of construction projects in Kuwait makes up around 10% of all construction project values in the GCC. The reason for the variance between the number and value of projects in Kuwait is because of a few high-value projects in the country. Some of the notable projects in Kuwait include the South Saad Al Abdullah New City ($4.0 billion) and the upgradation of Oil Gathering Centre GC-24 ($1.7 billion). It is also noteworthy to mention that several high-value projects were announced in Q2, 2016. There are 709 active projects in Kuwait indicating a strong flow-through of investments. Of the 709 projects, approximately 58% are under construction. The main growth drivers for

BMI Research’s view Kuwait will post moderate, if unspectacular, construction sector growth as the government ramps up public expenditure for infrastructure projects in support of its economic diversification programme. Although streamlined Public Private Partnership (PPP) legislation has catalysed an uptick in PPP activity, Kuwait‘s opaque and cumbersome business environment as a whole remains unattractive to private investors, which will weigh on growth potential in the coming years. “We have raised our outlook for Kuwait’s construction sector’s growth upward and expect construction sector growth of 4.6% in 2016 and 2017. Sustained government support for infrastructure projects in the context of its five year development

plan informs our more optimistic five-year forecast, a period over which we expect annualised average growth of 4.4%. “Kuwait’s Ministry of Electricity and Water has scrapped plans to construct a nuclear power plant, citing cost concerns and a lack of feasibility. The ministry has indicated that it will concentrate on delivering more cost efficient renewable projects such as wind and solar. “The Kuwaiti Cabinet has approved local airlines Jazeera Airways’ request for land to build a dedicated passenger terminal and car park buildings at Kuwait International Airport. The project is expected to entail an investment of $46 million. The terminal is part of company’s value boosting projects. Work, including the permits acquisition phase, is slated to be completed in 15 months.”

the Kuwaiti construction market are medium and long term government planning, and public investments in tourism and real estate. This section looks at these drivers in detail. Government planning State-led initiatives are supporting a relatively strong construction market in Kuwait. The Kuwaiti government has launched a five-year plan (2015 to 2020) aimed at achieving specific social and economic objectives. These objectives are aligned with building a diverse and sustainable economy by 2035. The five-year plan also involves addressing social and economic challenges in the country, as well as putting in place the infrastructure to support the country’s long term growth strategy. Kuwait’s five-year plan is a milestone objective to support a grander plan under Vision 2035. Part of Kuwait’s five year plan involves building up the transport sector to support commercial logistics and travel. According to BNC’s Project Intelligence Database, Kuwait awarded five transport projects in 2016 that have a combined estimated value of $1.5 billion. The country also announced $130 million worth of transport projects last year. This includes a marine infrastructure development project worth approximately $100 million. The rationale behind these projects is to build up the country’s infrastructure to promote commerce and trade. 83

KUWAIT

There are approximately 551 construction projects in Kuwait that are ongoing with a combined estimated value of $137.3 billion.

The Kuwaiti construction market is showing signs of growth, although growth is slower than expected due to the number of projects on hold. The following analysis is based on data from the BNC Project Intelligence Database:

Kuwait construction industry value, in KWD billions (2015-2025)

Source: Ventures Onsite

2.25 1.98

2.12

2024

2025

1.86

2.00 1.74 1.63

1.75

1.52 1.41

1.50

1.32 1.22

There are approximately 551 construction projects in Kuwait that are ongoing (this excludes projects on hold). The combined estimated value of these projects is $137.3 billion. It is also noteworthy to mention that 33 of the ongoing projects are worth $1 billion or more. Some of the notable high-value projects in Kuwait include the Kuwait National Railway Network ($10 billion), the Olefins III Olefins Cracker ($9.0 billion) and the Mina Abdullah Refinery Package 1 & 2 ($8.0 billion). Although there are approximate 158 construction projects on hold in Kuwait, it is also noteworthy to mention that the combined estimated

1.25

1.12 1.04 2015

2016

2017

value of three of the projects on hold makes up approximately 64% of all the project values on hold in the county. These three projects are the Kuwait Nuclear Power Plants ($30 billion), the Mina Abdulla Refinery Expansion ($15 billion) and the Khairan City ($14.3 billion). The combined estimated value of projects in the initial stages of construction (i.e. in concept & design stage) is $41.6 billion, and makes up approximately 18% of all the project values in Kuwait. This indicates a relatively healthy pipeline of new project investments in the near future.

2018

2019

2020

2021

Sector overviews Kuwait’s social and economic objectives are aimed at addressing the economic, human and social challenges of development, as well as the efficiency of government institutions and administrations while combating corruption. Meanwhile the country’s Vision 2035 strategy aims at transforming Kuwait into a financial and commercial hub for the region. Kuwait also plans to invest in its hospitality and leisure-recreation market. The country still has a relatively nascent tourism sector in comparison to other GCC countries. But the Kuwaiti government has announced

Kuwait construction industry value, Real Growth vs. GDP (2015-2025)

Source: Ventures Onsite

Real Growth

3% GDP

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2022

2023

that it will invest $1 billon in its tourism sector by 2025. (Tourism made up about 1.5% of Kuwait’s GDP in 2015.) The Kuwaiti government has stated that it aims to increase the contribution of the tourism sector to GDP by 0.3% to 1.8% in 2025. At the same time, it plans to increase the number of overnight travellers from 270,000 in 2014 to 440,000 by 2025. Part of this plans involves adding new “high profile” brands to its hotel mix. For example, the Grand Hyatt 360 Mall Expansion ($300 million) was awarded in Q1, 2016, as part of the development of Kuwait’s hospitality and leisure-recreation market. The Kuwaiti real estate market has posted mixed results in 2016. Although there has been weak demand for homes in Q1, 2016, the prices of homes seem to be stabilising. Public investment is driving residential and commercial real estate in the country. The construction of commercial buildings and prices of residentialland is driving growth in the real estate market.

KUWAIT

The Kuwaiti construction market is showing signs of growth. Kuwait has 709 active projects with a combined estimated value of $230.4 billion. Kuwaitâ&#x20AC;&#x2122;s project investments are increasing in the near term because of several high-value projects recently announced According to the BNC Project Intelligence Database, Kuwait awarded 20 new projects in 2016 related to the construction of residential and commercial units. The Kuwaiti construction market is supported by public planning and investments. There are several highpotential sectors that are attracting investments such as tourism and real estate. The Kuwaiti construction market is showing signs of growth. Kuwait has 709 active projects with a combined estimated value of $230.4 billion. Kuwaitâ&#x20AC;&#x2122;s project investments are increasing

in the near term because of several high-value projects recently announced. This is an indication of growth in the near future, as some of the higher value projects replace those that have been completed.

The government in Kuwait has set medium and long-term goals that are stimulating construction activities in the country. Also pubic investments in high potential sectors such as tourism and real estate will continue to

encourage growth. The recent announcement of the South Saad Al Abdullah New City is an example of the type of development projects currently underway. Report originally published by BNC for The Big 5 Kuwait.

Kuwait projects during construction life cycle 500

Source: BNC Project Intelligence Database

$100bn

Projects

400

$80bn

Value in $billions

300

$60bn

200

$40bn

100

$20bn

Concept

Design

On hold

Tender

Under construction

BAHRAIN

Bahrain focused on housing Expect Bahrain to concentrate on sorting its housing crisis

entures Onsite says that Bahrain’s building construction market growth is mainly attributed to its need for housing. There are currently 53,000 social housing applications with 4,000 new applications annually. Bahrain has experienced considerable growth in residential construction sector over the last decade and the government plans to develop three new cities. A royal order the King has sanctioned the fast-track construction of 40,000 units and 3,100 homes are part of a multi-million dinar social housing scheme in Diyar Al Muharraq will be ready by the end of 2017. Bahrain also signed contracts in August 2016 to carry out housing projects worth more than

$395 million funded by its Gulf Development Programme. The Saudi Development Fund has donated $85 million to fund the construction of six schools. In the hospitality sector, the government is keen to attract high-end tourists and there has been an upturn in the number of five-star hotels. The Rotana Downtown in central Manama, along with Wyndham Grand at Bahrain Bay add a further 509 rooms to the fivestar hotel stock. The Marriott Residence Inn at Water Garden City was also expected to be completed in 2016 and Emaar Hospitality Group is reportedly build five new hotels in the kingdom by the end of 2018. One of the major projects awarded to contractors in early 2016 was the construction of a new $1.1 billion passenger terminal at Bahrain International Airport. Serving

Private investors remain deterred by domestic and regional instability and public spending is hampered by low global energy prices, leaving Bahrain heavily reliant on multinational financing to drive forward transport, utilities and residential construction projects

as a gateway for Bahrain to the rest of the world, BIA is expected to handle 14 million passengers annually by 2020 from the current nine million. The BIA modernisation programme is expected to be complete by the second quarter of 2020. A detailed study on Bahrain’s railway network is also expected to be finalised in 2017, which is expected to add more activity into Bahrain construction industry in the near future. Ventures Onsite also notes that “Aluminium Bahrain (Alba) with its sixth potline expansion as well as the power station package gave Bahrain a clear push in its 2016 contract awards as well as the construction activity for the next couple of years.” Harry Goodson-Wickes, head of Cluttons Bahrain and Saudi Arabia, describes the decision to allow 100% foreign

BAHRAIN

New investments in the hospitality sector and efforts to raise Bahrain’s international profile should drive tourism growth.

ownership as an important development for the real estate market in Bahrain. “Economic growth in the country has been subdued ever since oil prices fell from record highs two years ago and the announcement will likely have positive implications for business. The move will also improve investor confidence and make Bahrain an attractive place to work and live in,” says Goodson-Wickes. According to the government, the new law will allow 100% ownership in residency, real estate, administrative services, health and social work, information and communications, manufacturing and technical activities, amongst others. “For the property market, Bahrain already offers a competitive advantage to many other regional locations as residential and commercial rents and values are amongst the most attractive in the region,” said Faisal Durrani, head of research at Cluttons. “The decision is likely to attract companies to set up a Middle East foothold in

Bahrain construction industry value, in BHD billions (2015-2025) 2.00 1.80 1.60

2025

1.32 1.23 1.14

1.40 1.04 1.20

0.95 0.86 2015

2016

2017

the kingdom and for the first time puts Bahrain on a competitive footing with some of the region’s mega free zones and business hubs.” “There is unlikely to be an overnight boost to real estate values and rents, but it will certainly help to support long-term activity.” BMI Research says that despite the improvement to oil prices, Bahrain’s construction and infrastructure sector continues to face significant challenges. “Private investors remain deterred by domestic and regional instability and public spending is hampered by low global energy prices, leaving Bahrain heavily reliant on

2018

2019

2020

2021

multinational financing to drive forward transport, utilities and residential construction projects,” says BMI Research. “The key focus remains on residential construction as Bahrain addresses the shortfall in social housing capacity, as well as transport infrastructure, particularly connections with neighbouring Saudi Arabia. These developments remain heavily reliant on external funding and as the GCC investment programme slows we expect growth in Bahrain’s construction sector to weaken over the latter half of the forecast period of 2017-2026.” BMI Research has revised its growth forecast for Bahrain’s construction Source: Ventures Onsite

GDP

Real Growth

2017

2024

1.55

2016

1.99

1.43

10%

2015

1.83 1.68

Bahrain construction industry value, Real Growth vs. GDP (2015-2025)

Source: Ventures Onsite

2018

2019

2020

2021

2022

2023

2024

2025

2022

2023

industry upwards across its ten year forecast, expecting an average growth of 5.8% y-o-y over the 2017-2026 period. “From 2019 towards the end of the forecast period, growth is expected to slow slightly to 5.6% annually as government spending slows and oil prices fall again in 2019 and 2020,” says BMI Research. “The dip in 2019, with growth slowing to 4.6% corresponds to our expectation that oil prices will fall again (construction rates in Bahrain traditionally follow the trajectory of oil), in addition to the anticipated completion of several major projects.” According to BMI Research, Bahrain’s housing shortage means the government will continue to focus on residential construction projects: “Although we remain sceptical that Bahrain’s government will manage to deliver in full on its ambitious residential building programme, the government’s continued focus on affordable housing will see the residential sector assuming a greater role in driving wider construction growth over the coming years.” 87

OMAN

Oman looking healthy Major international investment has begun filling the funding gap caused by reduced government spending

man’s construction sector is expected to post a healthy growth in the coming years, following major international investments into Duqm, according to BMI Research . Global investors, mainly from China, have begun to fill the fundraising gap caused by low oil prices and the subsequent cuts to government spending on infrastructure projects. It is predicted that the Sino-Oman Industrial City – the result of the Omani government’s efforts to involve private partnerships in major projects, will help underpin growth in the sultanate’s construction industry. This will accelerate growth from an unexpected 2.4% this year – the lowest 88

Although Oman possesses some private investment in its construction sector, the state still plays a pre-eminent role in funding infrastructure projects, and as oil accounts for approximately 85 per cent of government revenue, the collapse in price has had a negative impact

since 2000 – to 4.9% by 2019, the analysts said. “Although Oman possesses a degree of private investment in its construction sector, the state still plays a pre-eminent role in funding infrastructure projects, and as oil accounts for approximately 85 per cent of government revenue, the collapse in price has had a negative impact on its ability to finance projects,” David Lee, an infrastructure research analyst at BMI, was quoted as saying in the report. Meanwhile, a number of sectors are expected to show healthy growth, with transport, electricity and water projects all likely to see strong improvements over the medium term. “Growth in Oman’s construction sector will come primarily from investment in transport infrastructure

projects and the government’s push for private partnership to mobilise investment in the construction sector. This will become increasingly important as global oil prices remain low, curbing government spending,” Lee said. Residential and nonresidential construction is also expected to receive a boost, supported by a growing tourism industry and popular support for social infrastructure projects. In May 2015, an agreement was signed between Oman and China, which would see a consortium develop three separate zones – heavy manufacturing, light manufacturing and a mixed-use area. In an analysis commissioned by the Big-5 event in Dubai, Ventures Onsite looked at how Oman’s status as a

OMAN

The tourist sector was given a number of project boosts in 2016 and $20 billion has been pledged for investment into the transportation sector.

family tourist destination is helping the development of its hospitality sector. “Oman’s luxury hotels market was given a significant boost in 2016 as a host of major international hotel chains are set to open their first or new properties in the country,” says the research company. First time entrants include the Anantara Group which is opening two five-star resorts in Jebel Akhdar and Salalah and the Kempinski and Fairmont hotels in Al Mouj. Construction has also begun for the W and Westin hotel properties. A Louis Vuitton property is also planned for the capital, says the Ventures Onsite report. Other major projects underway are the Saraya Bandar Jissah project on the outskirts of Muscat, the University - Administration Facilities (ADFA), the 6.5 Ring Road and East Extension and first phase of the Seventh Ring Road. A flurry of activity is expected in the retail sector too with plans of major new shopping malls such as Mall of Oman and My City Centre

Oman construction industry value, in OMR billions (2015-2025) 7.00 6.00

2025

3.76 4.00

3.27 2.85

3.00

2.07 2015

2.26 2016

2.52

2017

in Sur by Majid. Al Futtaim (MAF) and Muscat Festival City Mall by Al Futtaim Group Real Estate. All the three projects are currently in the design stage. “To decrease its dependence on oil, Oman has embarked on a diversification plan that will see it invest more than US$50 billion on infrastructure over the next 15 years, of which $20 billion has been earmarked for the transport sector,” writes Ventures Onsite. Oman’s transport sector has also been offering “ample opportunities for the construction sector” through the expansion of ports, airports, roads, and the proposed railway that will connect with the GCC-wide network.

2018

2019

2020

2021

“Infrastructure projects launched by the Omani government in 2015 gave most contractors healthy order book positions in 2016. Given the volatility in oil prices, the government’s push for PPPs will be key to increasing private sector investment in infrastructure, which is critical for Oman’s future economic development. “As per the 9th five year plan (2016-2020) under the Vision 2020, private investment in infrastructure is 29%. Targeted infrastructure projects for private sector cover Oman railway, South Batinah Logistics Area etc,” it notes. “Oman’s government is keen to develop its US$775 million Source: Ventures Onsite

5% Real Growth 2017

2024

4.21

GDP

2016

6.34

4.63

5.00

15%

2015

5.74 5.14

Oman construction industry value, Real Growth vs. GDP (2015-2025)

10%

Source: Ventures Onsite

2018

2019

2020

2021

2022

2023

2024

2025

2022

2023

medical city project in Barka on a PPP model. Some of the major projects awarded to contractors in 2016 include Integrated Light Industries Park at Muscat Expressway, MISCO Steel Plant in Sohar, The iTower in Baushar, Industrial Waste Water Treatment Plant at Sohar Industrial port, Al Sulaimi Group Headquarter Building at Ghala Heights to name a few,” says Ventures Onsite. “Some of the projects expected to be awarded soon to contractors include New Sultan Qaboos Hospital in Salalah, Housing Complex in Saham and various sections of the Batinah expressway.” Government officials have confirmed recently that while the rail link aiming to connect the countries of the GCC has been put on hold following the dip in global oil prices, Oman’s own internal rail network plan is still on track. “The internal rail link will connect all three major ports in the country: Salalah, Sohar and Duqm – and would be a vital logistics boost for the country when completed,” says Ventures Onsite. 89

IRAQ

Iraq remains a challenge Latest World Bank research describes an Iraq under pressure

ccording to the World Bank’s latest report, the Iraqi economy is facing severe and pressing challenges. The decline in oil prices in 2015 and 2016 and the ISIS insurgency have contributed to a sharp deterioration of economic activity and have rapidly increased the fiscal and current account deficits. Macroeconomic risks remain elevated due to Iraq’s continued exposure to a volatile oil market, but the medium-term outlook seems more favourable, thanks to an expected increase in oil prices in 2017 and important gains against ISIS. “The government is facing the challenge of maintaining macroeconomic stability, undertaking structural reforms to improve the delivery of public services, reconstructing

core physical infrastructure in the areas liberated from ISIS and assisting the 3.4 million people displaced by the conflict,” says the organisation “The double shock has severely dented growth, diverted resources away from productive investment, and increased poverty, vulnerability and unemployment.” BMI Research describes the Iraq construction market as growing slowly despite

the country’s security situation improving and the increase in oil prices. “The security situation will improve in 2017, but public spending will remain constrained by low hydrocarbons revenues and a wide fiscal deficit. However, investment, driven by institutional funding, stabilising oil price and FDI, especially in its hydrocarbons industry and gas pipeline infrastructure,

will see the return of fixed investment and reconstruction in 2017,” says BMI. Its short-term view predicts growth of only 1.3% forecast for 2017 after several years of contraction. “Meanwhile, the project pipeline remains swollen with large residential developments, but the investment and operating environment make it exceptionally challenging to conduct business.”

Iraq construction industry value, in IQD billions (2015-2025)

Source: Ventures Onsite

35,000

32,314

35,422

2022

2023

29,288

30,000 26,376 23,717

25,000 21,277 20,000

19,085

2015

18,322

2016

19,238

2017

2018

2019

2020

2021

IRAN

The construction market in Iran in 2016 achieved a volume of more than $154 billion, with a full-scale boom in residential building: demand in the future is around 750,000 new homes/year.

Iran needs reform The reopening market is also highly competitive

he January 2016 lifting of the nuclearrelated sanctions is providing a shortterm boost to Iran’s economy, says the World Bank. For the recovery to be sustained, long-standing structural reforms are needed however. “Due to the lifting of the sanctions and a more businessoriented environment, real GDP growth is projected to reach 4.3% and 4.8% in 2016 and 2017, respectively,” says the organisation. The lifting of the sanctions has seen the tentative re-entry of global companies who are not limited by on-going US restrictions on trade. However competition from the Far East countries that continued to work in Iran means it is a highly competitive market. Dr Wolfgang Bernhard, board member Daimler and

the de facto head of its truck division estimates that the market could be as large as the 40,000 truck per year Turkish market. Despite re-opening its partnership with Iran’s Iran Khodro days after the UN ban was lifted, he warns that it is difficult to compete again in Iran: “The chairs we used to sit on in Iran weren’t left empty when we were gone,” he mused. “Chinese competitors now sit in these chairs.”

“The post-sanctions investment uptick we have seen will gather pace in 2017, as an improving macro-economic outlook lays the foundation for broad-based, sustained construction sector growth,” writes BMI Research in its latest look at the market. The industrial construction, oil and gas pipeline, and power sectors will emerge as bright spots, with the robust structural demand serving to

entice international investors, predicts the analysts. “We expect robust construction sector growth as the sector expands in tandem with a growing economy, with heightened levels of international investment, in the wake of sanctions easing, driving 7.5% growth in 2017,” comments BMI Research. “Iran’s energy and utilities space will outperform the country’s wider construction industry in 2017.”

Iran construction industry value, in IRR trillions (2015-2025)

Source: Ventures Onsite

4,000 3,500

3,946

4,415

2024

2025

3,390 3,000

3,051 2,648 2,648

2,500

2,297 2,297 2,055

2,000 1,500

1,807 1,155 2015

1,362 2016

1,573

2017

2018

2019

2020

2021

2022

2023

EGYPT

Egypt in flux Frost & Sullivan looks at a dynamic Egyptian market hampered by soaring costs

gypt is the fourth largest economy in the MENA region and the single largest country with a population of around 91 million. The population growth is projected to increase by 2.3% per annum to reach 110.0 million by 2025. The economy has started to recover from 2014 political

and economic crisis and the countryâ&#x20AC;&#x2122;s GDP was estimated at nearly $331 billion in 2015, growing at 4.2% over 2014. The economy has doubled its growth rate observed during the past few years. The government is focusing on various sectors such as agriculture, electricity, and tourism to boost the economy. It is noted that the government

has scaled up infrastructure spending and is undertaking pre-emptive measures to restore macro-economic stability in the country. The Egypt Economic Development Conference, (EEDC) which took place in 2015, saw the country signing some 40 new investment agreements and Memorandum of Understanding (MoU)

worth $163 billion. The foreign direct investment (FDI) was estimated at around $6.7 billion in 2015, and is gradually picking up its pace, up 56% from $4.3 billion in 2014. The major factor influencing the growth of the real estate sector in Egypt is the devaluation of the Egyptian pound. According to the Ministry of Finance, the

EGYPT

The Egyptian government is focusing on various sectors such as agriculture, electricity, and tourism to boost the economy.

Egyptian construction and building sector accounted for 4.8% of the country’s GDP in 2015. The sector grew by 7.4% and 9.7% in 2014 and 2015, respectively, which was projected to grow by 8.0% in 2016, amidst strong investments from public-private partnerships (PPP) and infrastructure projects in the pipeline. According to Central Bank Data, the value of investments in the construction and building sector rose by 33.4% in 2015 to reach $506.2 million from $379.4 million in 2014. However, in 2014 there had been a contraction in investment of 25.5% as against $509.4 million in 2013. Nonetheless, the share of the construction and building sector of the total investment value in the country rose from 1.0% in 2014 to 1.1% in 2015. Growth in economic output and population will increase the investments in construction and building activities and the share of the private sector investments of the overall investment in the construction and building sector moved up to 75.0% in 2015 from 70.0% in 2014. However, the major factor restraining the construction sector is the inability of the government to provide favourable investment destination to developers. In the real estate sector, contracts worth $16 billion have been signed in the commercial segment. This includes a construction deal

BMI Research’s view “We expect Egypt’s construction sector growth to accelerate in the coming years as an influx of development and external funding eases Egypt’s fiscal deficit and facilitates continued government investment in infrastructure projects. “We retain our optimistic growth outlook for Egypt’s construction sector over the remainder of our tenyear forecast period on the back of elevated levels of structural demand for infrastructure and the government’s active solicitation of private capital via Public Private Partnership (PPPs), both of which will provide support to Egypt’s ambitious infrastructure investment targets. A deterioration in the country’s security situation poses the largest downside risk to our otherwise bullish forecast.” • We revised our 2016 construction sector

growth forecast upwards to 9.7% to reflect an acceleration of construction activity and the disbursement of external funding. We expect broad-based growth across Egypt’s construction spectrum over the long term, as Egypt’s growing population increasingly strains the country’s existing infrastructure. • The IMF announced that it would extend a USD12bn loan over three years, alleviating fiscal pressure. • Egypt’s substantial housing deficit will continue to provide investment opportunities for private investors. Egypt is set to invite 12 real estate developers to bid for a new phase of PPP projects, with an estimated total investment of USD 25bn. Source: BMI Research

worth $4.6 billion with the local real estate developer ‘Arabia Group’ to develop a mixed-use project in Cairo which includes schools, hotels, and medical facilities. On the other hand, the public sector investments announced during the new budget session was expected to reach $8.5 billion by the end of 2016 (2.5% of the GDP) of which $6.2 billion is financed from the state’s resources and the rest through grants and self-financing. Several mega- projects have been announced by the government; one of which is the formation of new city known as ‘New Cairo’ and this is expected to create job opportunities and housing for local residents. The new city will be built at a cost of $45 billion, covering an area of about 70,000 acres and could have a population of 5 million. The first phase alone could take up to seven years to complete throwing huge demand for FM services market in Egypt (see box-out). The Ministry of Housing has instigated a building programme of approximately 500,000 new homes every year for five years to keep pace with a growing population which is expanding at a rate of 2% to 2.5% per year. Signalling the demand, the UAE-based ‘Arabtec Company’ agreed to invest $36.7 billion and construct around 1 million homes across the country. This includes construction of 100,000 housing units to be built in Egypt’s El Obour and 93

EGYPT

Egypt has scaled up infrastructure spending and is undertaking pre-emptive measures to restore macro-economic stability in the country.

Badr districts. In addition to this, the Ministry of Housing has signed deals worth $12.7 billion with real estate developers namely ‘Mountain View’, ‘Palm Hills’, ‘Sisban Holding’ and a consortium of Arab firms to develop New Cairo and 6th of October City. Cairo already consists of established residential districts such as Zamalek and Maadi. The residential communities are currently

moving towards the East and the West, following the development of New Cairo City, and 6th of October City owing to high density. According to Jones Lang LaSalle (JLL), Cairo’s residential supply was 113,000 sqm in 2015, followed by 114,000 sqm in 2016. The demand for new office space in Egypt expected to be delivered up to 2021 is 350,000 sqm as per data from Colliers International.

According to JLL, Cairo’s office supply was 921,000 sqm in 2015, followed by 941,000 sqm in 2016 and i sprojected to supply an incremental of 136,000 sqm between 2017 and 2018, another 136,000 sqm between 2019 and 2020 and finally 78,000 sqm in 2021. There are a number of quality local brands expanding within high street shopping nodes, such as Zamalek, Maadi, and El Korba (Heliopolis).

However, the absence of this retail category within new districts such as 6th of October City, which is fast becoming a popular residential locality, is creating an opportunity for developing high street destinations. It is noted that in 2015, Saudi-based retailer Azizia Panda United announced plans to develop 16 new Panda supermarkets across Egypt, the first of which opened in 6th of October City, followed

FM in Egypt The Middle East and North Africa (MENA) facilities management (FM) is one of the fastest growing markets globally. Though North Africa consists of countries such as Algeria, Egypt, Libya, Morocco, and Tunisia, this article focuses only on Egypt and explores in detail the demand drivers for Egypt’s FM market. Growth in economic output and population will increase the investments in construction and building activities, thereby creating huge demand for FM services market in Egypt. The share of the private sector investments of the overall investment in the construction and building sector has moved up to 75% in 2015 from 70% in 2014. However, the major factor restraining the growth of the FM market

in Egypt is the inability of the government to provide a favourable investment destination to the developer, thus reducing the demand from construction sector. Growth in tourism industry and investments in hospitality, healthcare, and infrastructure segments in Egypt presents a tremendous potential for outsourcing of non-core activities. Customers are becoming increasingly aware of the benefits of outsourcing the FM services in order to reduce operating costs and to focus on the core business activities. Therefore, the willingness to outsource FM services among customers/end users is expected to have a positive impact on the growth of this market in Egypt. Strong demand from public and private sector

investments in sectors such as commercial, residential, industrial, Oil & gas, and infrastructure developments have been driving the growth of the construction and building sector, which reflects positive outlook for FM services market in Egypt moving forward. The Egyptian FM services market appears to be slowly recovering, as the economy is returning to a healthy growth trend and the spending on infrastructure projects are slowly getting implemented. The FM market is expected to gain momentum and further improve in future as there are aplenty construction projects and commitments through multilateral organisations such as the United Nations (UN) and World Bank, along with the agreement and MoU

signed during the EEDC enter the execution phase. The growing demand for FM services will ensure more value-addition to the property as well as to manage the property in a more efficient and customer centric approach. The market participants with a vast pool of qualified resources and experienced personnel will excel in delivering quality services across sectors. Many are gaining competencies in providing wide range of service offerings, supported by availability of sufficient manpower with dedicated training facility. The growing use of CAFM for quality control program, clear-cut Standard Operating Procedures (SOPs) and Service Level Agreements (SLAs) will ensure consistency and standardisation of services.

EGYPT

by five in Cairo by 2016. The remaining ten stores are expected to be developed across the country over the next two years. More recently, the LuLu Group announced in December 2015 that it plans to invest $300 million to launch ten new hypermarkets in Egypt over the next two years. According to JLL, Cairo’s retail supply was 1.3 million sqm in 2015, followed by 1.75 million sqm in 2016 and the projected supply is expected to reach 441,000 sqm between 2017 and 2018. According to Colliers International, Egypt would require an additional 35,000 hospital beds and Cairo (Giza included) would require an additional 7,000 beds by 2025. In order to meet the demand, Cairo alone requires an additional four/five hospitals annually and the estimated ten-year incremental demand for Cairo stands at 700,000 sqm to 875,000 sqm of hospital space. Moreover, the demand for hospital space for Egypt stands at 4.4 million sqm.

The Egyptian tourism and leisure sector witnessed some renewed confidence during the mid-2014, but some unfortunate security events have disrupted the already moderate tourism activity in the country. According to the Ministry of Tourism, occupancy rates in four- and five- star hotels have registered a moderate growth of 49% in 2015 compared to 37% in 2014. The upcoming projects in the sector are dominated by capital-intensive luxury hotel developments, such as The St. Regis (292 keys), The Address Uptown Cairo (300 keys), and JW Marriott Hotel Cairo (90 keys). According to Jones Lang LaSalle (JLL), Cairo’s hotel supply was 28,000 rooms in 2015, followed by 29,300 rooms in 2016 and is projected to supply 1,000 rooms between 2017 and 2018. Construction costs soar Construction costs in Egypt have soared since Cairo took the decision to float

According to Central Bank Data, the value of investments in the construction and building sector rose by 33.4% in 2015 to reach $506.2 million from $379.4 million in 2014. Nonetheless, the share of the construction and building sector of the total investment value in the country rose from 1% in 2014 to 1.1% in 2015

its currency, the pound, according to a press report. Prices of some steel and cement products have doubled, experts told Zawya Projects, as the value of the Egyptian pound fell sharply against the US dollar. Rising prices could see real estate prices rise, threaten projects, and even force contractors out of the market, the news service said. “Prices of some steel and cement products have jumped by nearly 100% This will negatively affect projects and put pressure on some contracting firms, who could be forced out,” Ahmed Al-Zaini, chairman of the Building Materials Division, Federation of Egyptian Chambers of Commerce, told Zawya Projects. Daker Abdellah, Board Member of the Egyptian Federation for Construction and Building Contractors, said Egypt’s increase in fuel prices and implementation of VAT would also negatively affect projects. 95

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