x Abu Dhabi, UAEMonday 22 January 2018

Building suppliers lament slump at Big 5 conference

The annual Big 5 conference in Dubai was marked by low activity and efforts to change the contracting environment in the Gulf.

A large number of projects have been indefinitely put on hold.
A large number of projects have been indefinitely put on hold.

Amid wheelbarrows, an industrial-size ice machine and water pumps, some of the world's largest building suppliers and contractors came together yesterday at the annual Big 5 conference to grapple with the construction industry downturn.

Philippe Francois, an export sales manager for the Belgian materials supplier NMC, said his industry was plagued by cheap imitations from Asia. Mr Francois wore a tie made from a synthetic foam that looked like wood.

"Our major concern is the invasion of low-quality Asian competitors," he said. "Now [customers] want a Rolls-Royce at the price of a Tata."

Contractors and building suppliers are extending their exposure to different types of projects as hundreds of billions of dirhams worth of developments hang in the balance.

About US$457 billion (Dh1.67 trillion) worth of construction projects are in the pipeline in the Emirates, representing 45 per cent of the market in the Gulf, according to a report on the industry released yesterday by Deloitte.

A significant number of these projects have been indefinitely put on hold as developers try to raise funds to complete construction.

The make-up of construction work has shifted sharply towards the public sector, with governments in the UAE spending increasing amounts on infrastructure.

Government awards this year increased to $58bn from $26bn last year, while private sector contracts dropped to a historic low, Deloitte said.

Husein Odeh, the Middle East general manager of the US contractor Turner International, said that after two years of challenging economic conditions, prices for materials had dropped below 2007 levels and companies were competing vigorously over what work remained.

Turner has reduced the staff at its Dubai office by 90 per cent to just 50 people from 500 at the peak.

"We got hit very hard in Dubai," Mr Odeh said. "During the boom, developers did not properly study market demand and contractors didn't ask for feasibility studies."

Cynthia Corby, a partner at Deloitte, said the larger change in the sector was about trying to reduce the risks to which companies such as Turner were exposed when signing contracts.

"In the past, [contractors] were taking change orders at the end of the project", which caused additional expenses for them, Ms Corby said. "That is where there has to be a huge change in the industry.

"There has got to be more of a shift in contracts in terms of risk balance. In the past, they were so hungry for work the equilibrium wasn't there. People wouldn't question whether a project was feasible to build."

Suppliers have also seen sales of new equipment fall sharply in Dubai and begin shifting to other areas with more vibrant construction sectors such as Abu Dhabi, Saudi Arabia and Qatar.

Even with increased activity in those countries, suppliers are competing against a huge amount of equipment trading at a discount on the secondary market.

This year at the Big 5 conference - the event was seen as a cash bonanza for contractors and suppliers during the boom period - salesmen seemed a tad less confident.

Tom McGuinness, the commercial director of Kingspan Insulation, said the show was "slow", with many visitors to his stand coming from other exhibitor stands.

The company opened an office in Dubai but most work is now coming from Kuwait, Qatar, Bahrain and Oman, Mr McGuinness said.

Kingspan's major projects included an expansion of hangar space at Doha International Airport and building the Avenues Mall, Kuwait's biggest shopping complex.

"Sale prices have stayed the same, but our margins are reduced," Mr McGuinness said. "We're disappointed these markets are not giving us the return on investment as Europe."

The market is "very competitive, slow-moving", he said. "It takes forever to move projects along."