ABU DHABI (AFP) – Contractors in the oil-rich Gulf region said Monday they fear for the future as the once-booming construction sector runs short of finance, while hoping governments will come to their rescue by boosting spending on infrastructure.
“In 2009 we’re going to stay as busy as we were in 2008 but I can’t predict how 2010 will develop,” said Riad Kamal, chief executive officer of the Dubai-based giant contractor Arabtec.
“Nobody expected this (crisis)… This has come as a rapid surprise to everybody,” Kamal told reporters on the sidelines of the Arabian World Construction Summit in Abu Dhabi.
Taking part in a panel addressing challenges facing contractors in a volatile market, Kamal stressed that the fact contractors will maintain good revenues in 2009 was only due to a backlog of projects started before the onset of the global financial crisis.
“We will maintain the same turnover as in 2008… But 2010 might be different as we hand over (current projects),” he said.
Johan Beerlandt, chief executive officer of the Belgian BESIX Group, which like Arabtec is involved in the building of Burj Dubai, the world’s tallest tower, agreed that uncertainty hovers over the sector in 2010.
“All contractors are living from a backlog (in projects) but we all have financing problems,” he said.
“The big question is 2010. Where do we go from there?” he asked.
The construction sector across the wealthy Gulf Arab states — mainly in the United Arab Emirates — has been growing at a breakneck speed over the past few years, thanks to a huge windfall of oil revenues, and in the case of Dubai, in foreign investments in real estate.
But a shortage in finance available on the international debt market has left Gulf developers short of capital and applied the brakes on the building sector growth.
“Financing will remain an issue because it is not available, and is expensive,” said Wassim Merhebi, director of Arabian Construction Co.
Contractors are now pegging hopes on governments in the six-nation Gulf Cooperation Council (GCC) to dig into their coffers and expand the financing of infrastructure projects.
A study produced by MEED business intelligence estimated that governments’ spending on energy projects alone will amount to 70 billion dollars in 2009, compared to 65 billion dollars in 2008.
“Private developers were leading the game in 2008, but due to the financial crisis their role is shrinking. Now it is the role of the government to stimulate the sector… through spending on projects,” said Fatima Obaid al-Jaber, chief operating officer at the Abu Dhabi-based Al-Jaber Group, whose portfolio ranges from construction and tourism to transport.
She also echoed calls on GCC governments to inject the capital stashed in their sovereign wealth funds into their economies.
“I like the idea of sovereign wealth funds investing inside the country… If we have the largest SWF in the world,” she said, referring to the Abu Dhabi government SWF.
A construction report said last week that more than half the construction projects in the UAE, together worth 582 billion dollars, or 45 percent of total value, have been put on hold.
However, Arabtec chief Kamal said he thought there was some “exaggeration” in the figure of projects put on hold, saying it could only be true if it referred to projects where building work had not yet started.
A huge drop in the real estate market, mainly in Dubai, has also forced developers to revisit their future projects and seek alterations to meet the new reality.
“I think clients (developers) are taking their time and really re-examining the necessity for those projects, and whether there are buyers,” Kamal said, adding that the high-end market is over-supplied while demand remains for units suiting middle and lower-income customers.
Even in Abu Dhabi, which faces serious shortage of housing units, developers are assessing their plans.
“On new projects, we are rethinking whether they serve today’s market or not,” said Sami Asad, chief operating officer of the Abu Dhabi-owned Aldar Properties, one of the region’s major property developers.