Egypt rising

Egypt is a thriving construction market for Gulf contractors

Demands for social change likely to boost infrastructure development.
Demands for social change likely to boost infrastructure development.

The social and political turmoil in Egypt is likely to have a substantial impact on the contractors and service providers operating in the country.

After successive years as a growing market, with many bold and new plans to develop across many sectors and a swell of international interest, the sudden and comprehensive instability as a result of the people’s uprising against the government raises important issues for projects and their respective builders.

Egypt had previously represented one of the biggest growth markets for construction in the Middle East due to a wide range of projects across many sectors.

Last year, for example, the government said it planned to spend $17.25 billion on infrastructure projects. It also announced it was open to receive tenders from consultants for the country’s first nuclear power plant.

The $770million Mall of Egypt, a 160,000m2 development that would be one of the biggest shopping centres in North Africa when complete, had also raised eyebrows across the region, not least as it hinted at the growing disposable income of its people.

Construction companies such as Orascom Construction Industries had posted three- to six-month profits last year, and looked to strengthen its portfolio in regional markets.

Public-private partnerships were also becoming more plentiful, with government spending in abundance – some $764million had been spent on diverse projects along the route of the 414km Upper Egypt-Red Sea Road project, from Sohag to Safaga Port, that will ultimately link central Egypt to the coast, according to Osama Saleh, chairman of Egypt’s General Authority for Investment.

But an unprecedented last two weeks has put the brakes on the juggernaut. The country’s stock exchange froze in the midst of the street protests that started on 24 January, though share markets in almost every corner of the world were affected – including the shares of construction-linked firms in the GCC.

Other markets shaken by the last two weeks may have an important role to play in the future of current projects. Research by Societe Generale, the French investment bank, has highlighted the potential disruption to the flow of crude oil up and down the Suez Canal and the Suez-Mediterranean (Sumed) pipeline – forcing up March delivery of Brent in London to flirt just shy of the $100 mark.

Should oil and gas be disrupted, so too might the innumerable engineering work on refineries and rigs, not to mention the industrial impact of higher oil prices.

Zamil Industrial Investment Company, the manufacturing conglomerate whose subsidiaries include Zamil Steel, attempted to assure shareholders in a statement that “Egypt’s operations represents almost 7.6% of Zamil Industrial overall revenues and that the facilities have not been affected”.

But the unprecedented events have reduced international contractors that had looked to tap the market to cautious fence-sitters. Executives at Arabtec Construction and Six Construct told Construction Week that it was too early to make an assessment of the situation in the country or how it would affect current projects.

At the start of this year, Arabtec Egypt received a construction letter of award from Emaar Misr, a subsidiary of property developer Emaar Properties, to build 74 residential villas and 30 town houses as part of the Al Marassi project at Sidi Abdul Rahman on the country’s north coast.

Six Construct has one project in the country through Besix, a joint venture with Orascom Construction Industries (OCI), the Egyptian contractor, to build a new Ain El Sokhna oil and gas-powered 1,300MW power plant – a $60million contract signed last August.

“This is in a remote area,” said Phillippe Dessoy, general manager of Six Construct. “You will have to wait and see after these events.”

Peyman Mohajer, managing director of engineering consultancy Ramboll Middle East, said the company was relying on regular intelligence reports from the country and endeavoured to get a balanced view of the situation.
He added that one potential positive result from the country’s calls for social change is the added momentum for socially-beneficial projects.

“The private developers might move faster,” he said of the decision-making process. “But the impact in Tunisia and Egypt psychologically will cause a lot of companies to wait and see. In that respect, it will have an effect in the short term.”

He added that Ramboll Middle East was likely to be “more prudent now with the clients and the projects”, which would see it prioritise areas such as healthcare and education, as demanded by the people.

“People want to see governments doing something for them,” he added. “But at the moment all plans are on hold and wait and see how the dust settles.”

Facts:
- $17.3bn Target government expenditure on infrastructure
- $638m Value of cancelled debt auction scheduled
- 12.51% Commercial bank prime lending rate
- 68.8% Cost of business start-up (% of GNI per capita)
- $925,9bn Economic aid (recipient)

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