The Road to 2020
Lower oil prices have hit the regional construction sector in recent years but the approach of Expo 2020 has helped sustain momentum in Dubai. Not only will billions of dollars be invested in and around the Expo site over the next three years but big projects are being launched all over the emirate with a view to being ready in time for 2020.
How much of a boost has Expo 2020 been for the construction sector? Has the government left it late to award main contracts for Expo 2020? How can companies fast track projects to be ready in time for the event? These are a few of the questions posed to experts that participated in the top panel discussion at the recent Construction Innovation Forum 2017.
Considering the regional construction industry has been going through a rough time, how much of a boost is Expo 2020 to the industry as a whole?
Zander Muego: What we’ve seen is the Expo has contributed to the construction sector for sure. What it’s done from our perspective is increased the positivity that came with winning the Expo and helped offset an otherwise very difficult market. There are a number of macro-economic factors at play, with oil prices and a strong dollar value putting a lot of pressure on the sector, so the Expo has helped boost the morale of the industry and a conduit of work, not just specifically Expo projects but also those around and related to it.
Do strong oil prices provide an opportunity and an incentive to diversify local economies further and build more sustainable economies?
Raj Chinai: What we’ve seen since 2014 is a dip in the overall macro environment, particularly related to real estate. We’re now starting to see some positive momentum in terms of sales velocity and the overall fundamentals of the economy. That two and a half year down cycle typically gets followed by a two and a half year upcycle. With the Expo 2020 coming up I think what might happen is that the positive momentum may carry that cycle forward beyond two and half years. So from our perspective Expo is an important event. It creates a positive sentiment that investors have at the back of their mind, also for international investors that are looking at Dubai.
Mohammed Jafer Musthafa: Developments in Dubai have carried on well despite the oil price. If you consider the value of the construction sector last year was around AED 160bn and this year it’s AED 180bn – AED190bn, so growth of around AED 30bn. The construction market this year will drive growth in the economy of around 3 – 3.5% and that’s definitely happening with the help of Expo 2020.
Are construction companies experiencing difficulties sourcing finance?
Maged: Some foreign companies are getting finance from other countries to finance projects which enables the client to get the project delivered. Typical finance model is 60/40 up to even 80/20 so the client is paying only 20% while the bank is financing the other 80% with a holiday period of up to 36 months. So they can build now and pay later. This has been happening with many projects since late 2014.
Raj: Whether you’re looking at foreign capital or capital from within the region it’s imperative that investors have a confidence level based on some sort of prior track record. Investors within the region are more comfortable and familiar with Dubai and the fundamentals but the moment you start talking to investors in London, North America, etc there is a question mark around the confidence level given what Dubai has been through in the last 10 – 15 years. So the ability to demonstrate a proven track record, particularly on large scale projects, is important. Sobha Hartland is an 8million sq ft parcel of land in the heart of the city. It’s no small feat. Investors need to have some degree of confidence, particularly for a city like Dubai that has been through its ups and downs.
Is the government able to demonstrate they are doing enough to instill confidence in foreign investors to consider investing in projects leading towards 2020?
Raj: In our projects we see upwards of 50 nationalities represented in our buyer profile. The fact that we have such a diverse mix of investors coming in says a lot about the confidence that people have in Dubai.
Is the government cutting it a bit fine with the late award of Expo 2020 contracts? What sort of challenge does that bring?
Miguel: Working on the Milan Expo 2015, one issue we had was the late award of the contract which put a lot of constraints and difficulties in term of logistics, because you have several contractors working on site at the same time and using the same infrastructure. That makes it harder to deliver on time so it’s important to start as soon as possible and to release contracts early.
Zander: In terms of financing, I’m not sure raising finance is the issue but more cash flow seems to be one of the main themes. There’s definitely a reluctance in the market here to pursue the enforcement of contract terms when it comes to contractors receiving funds. Even when payments are delayed and it interrupts the cash cycle it can have practical implications on site. It might not entitle the contractor to slow down or stop works but it has a practical reality. So when you talk about fast tracking projects that’s one of the challenges that always exists in the market here. As things pick up and we go through one of these increases in the cycle it becomes more and more of a challenge that contractors have to deal with and by virtue of that the consultants and clients in the industry.
Which one of those challenges is causing the biggest headache?
Maged: The time constraint is a major challenge for Expo 2020 which adds more pressure on cash flow. We are almost 30 months away from the event now.
If Expo 2020 didn’t exist what sort of shape would the construction industry be in?
Zander: I personally feel that the industry would be in a pretty challenging place right now. It’s difficult to quantify but it’s been a boost in general terms. There’s a push to complete projects. The market is still hungry for more work and there is capacity out there to deliver projects. Expo has been a big part of plugging a big gap that otherwise would have existed.
Should we be fearful that after 2020 there will be fewer projects?
Zander: There’s a lot of focus on Expo, almost a tunnel vision to 2020 just now. Part of my role at Thomas and Adamson is to look at strategy over both the short and medium to longer term. When we look at 2022 it’s difficult to see what’s going to fill that gap that’s being taken up by Expo just now. There’s definitely a concern in the industry what the sector will look like after 2020.
What sort of legacy do you expect Expo 2020 to leave?
Miguel: Expo 2020 is a temporary event but it will leave a legacy for the future. We’ve seen that from previous expos that there was a big legacy in terms of facilities and infrastructure.
How do you sum up the current state of our industry?
Musthafa: I’m very positive about the market and I’m pretty sure that even after Expo there will be growth in the economy, no matter what happens with oil prices. It’s a temporary situation.
Maged: I’m also positive about the market. Dubai started to pick up even before the announcement of the Expo. Since 2012 Dubai started to move again after the crisis. We can’t expect the peak that we saw in 2008 but I still feel positive about the future. Who knows maybe the next challenge will be hosting an Olympics. Expo will force innovation which could bring other opportunities beyond Expo.
Zander: There are always challenges in the construction industry. We’re going to see VAT introduced and I’m not sure anyone fully understands yet what the impact of that will be. There’s cause for optimism but there are also a lot of challenges that companies have to face.
Raj: Expo 2020 is a great catalyst for ensuring that some great projects do come out. Dubai has and will continue to have very strong macro-economic fundamentals. We see the next 15 years being very strong.
Miguel: We’re going through an exciting period but we also need to be cautious and be prepared for what’s next.
MEET THE PANELISTS
Mohammed Jafer Musthafa – Managing Director – Daemaar Group
Mohammed Jafer Musthafa is a passionate, entrepreneurial leader with an extensive background in engineering. After gaining experience with the ADNOC Group in Abu Dhabi, he completed a Master’s Degree in Petroleum from Herriot Watt University, Dubai before using his life savings to start his own company. The quick success of Daemaar Contracting led to the founding of Daemaar Group as a holding company for six-standalone firms covering Construction, Facility Management, Trading and Retail.
Maged El Hawary – Project Controls Director at Al Shafar General Contracting (ASGC)
Maged El Hawary is currently a Project Controls Director in ASGC (Al Shafar General Contracting LLC). He has 20 years of successful experience in all aspects of Project Management, Planning, Risk Management, Cost Control and Earned Value Management in key international companies and was managing major projects in Residential & Commercial, Oil & Gas, and Industrial sectors. Maged is a Guest Lecturer in Heriot-Watt University and President of AACEI, UAE. He is a professional speaker and panelist in many international conferences.
Zander Muego – Director with Thomas & Adamson
Zander Muego is a Director with Thomas & Adamson, an international consultancy providing a range of professional services to the construction and property sector. He has significant experience in the planning and control of construction projects across a wide range of sectors, including residential, hospitality, office, retail, industrial and education. He has gained extensive experience over his 17 year career delivering a wide portfolio of public and private sector projects in both the UK and UAE.
Raj Chinai – Managing Director – Sobha Group
Raj Chinai joined Sobha Group in 2014 as Director, with the primary responsibility of overseeing sales and marketing efforts for Sobha Hartland, a $4bn mixed-use project in the heart of Dubai. In 2015, Raj was appointed as Managing Director (MD) of Sobha Group. As the MD, he works in close collaboration with Mr. PNC Menon, the company’s Founder & Chairman, on executing the company’s short and long-term strategic objectives.
Miguel Da Gama – Projects Manager – Cimolai Rimond
Miguel is a Civil Engineer Master in Construction Management & Certified Project Management Professional with 10 year experience in Construction projects. Miguel is Currently the Project Manager for the Masdar Visitor Center Project under construction in Masdar city. The project was originally built as a temporary structure UAE Pavilion for EXPO Milan 2015 and transported to UAE & Re-Constructed to be a permanent Visitor Center for Masdar City.