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Review: Leaders in Construction Oman 2013

Stuart Matthews explores the sense of optimism seen in the Sultanate

Presentations were given by industry leaders into key sectors such as ports, road transport and hospitality, as well as receving advice on bidding for
Presentations were given by industry leaders into key sectors such as ports, road transport and hospitality, as well as receving advice on bidding for

Nice weather and a relaxed environment tend to make people more optimistic, which may explain the happy demeanour of most people you meet in Oman. It can often be difficult to put a finger on why people seem so full of joy, but there's more to this country's mood than the seaside and some sunshine.

At Construction Week's inaugural Leaders in Construction Oman summit in Muscat, delegates from across the construction supply chain had plenty to say about the pros and cons of working in the country. Responses to a brief survey of business confidence, conducted at the event, showed the extent of the optimism, at least within the construction sector.

Delegates were asked to respond to a short set of seven questions. These asked for views on construction costs, staff numbers, turnover and other factors intended to provide a view of the sector's outlook for next year.

With the more positive feeling currently spreading through the entire GCC market, a broadly upbeat response was to be expected. What proved a surprise, though, was the extent of the cheerfulness on display.

A large majority of summit delegates are expecting business to be better next year. They're also expecting to hire more people, bid for more work and boost company turnover.

On the flipside, delegates recognised that more business would come at a price. Inflationary pressures are afoot and greater demand from a busier industry will only increase prices.

Add in the higher minimum wage imposed by new government regulations back in February and it's easy to see why, of all the questions, the one asking people what direction they thought costs would go got the highest number of responses expecting an increase.

For most, though, an increase in costs seemed like a small price to pay for an improved business environment.

"The country has made great strides forward in becoming an attractive business destination," said Stephen Wilson, general manager of Hewlett Construction, an associate sponsor of the summit.

"The construction industry has been recording a sturdy growth rate year-on-year for many years now and continued investment in infrastructure development by the Sultanate is a positive indicator for the future."

"We believe the country will continue to exhibit high growth. With massive government support, the country is displaying prime conditions for growth in the commercial, residential and energy construction markets.

With a focus on upgrading infrastructure and projecting Oman as an attractive tourist destination, economic performance is expected to be further boosted by higher tourist arrivals and increased foreign direct investment."

Like many international companies entering markets in the GCC, Hewlett is keen to promote its expertise. But, in experiences echoed around the Gulf, the company has taken longer than expected to get started.

"We are very keen to promote our expertise in Oman – i.e. the opportunity to use our experience in supervising and managing often complex projects safely with optimum speed," said Wilson.

"It has been a relatively slow process having all the official documentation in place – such as Tender Board registration – which will allow us to start to bid for work and achieve tender success. Our local partner has been invaluable in his support and knowledge of the culture, region and policy procedures.

"We have attached top priority to developing the business in Oman, with an emphasis on energy and transport infrastructure sectors. We believe we have the experience and capabilities to take advantage of the construction-related opportunities and build a secure platform for growth."

Government spending, current and projected, is clearly driving the optimism. A small majority of survey respondents believed they were more likely to be bidding for infrastructure projects than any other type. And twice the number of people thought government projects would have the most influence on their business than those who thought jobs from the private sector would.

"The Oman construction industry has grown strongly in previous years and continues to do so as the Government invests strongly, seeking to move its economy away from full dependence on natural resources," said Ian Kennedy, CEO of British Consulting and a speaker at the summit.

"The current infrastructure investment programme is significant and since the eighth development plan (covering investment from 2011-2015) over $30 billion has been set aside for infrastructure spending. Most of this will be weighted towards transport infrastructure and there are large developments in the sectors of air, rail and maritime logistics."

Having spent years and billions improving power and water security, transport's turn has certainly come. Major road projects are building better links with Saudi Arabia and the UAE, as well as within Oman itself. Muscat's airport is being expanded to a capacity of some 12 million passengers per annum. Salalah Airport will also open a new terminal in 2014, which will have a capacity of around one million passengers per year.

Kennedy points out that the next big rail contract will be awarded in 2014 for a 170km stretch, including spur lines to Buraimi and the Sohar railway yard.

It is hoped construction will be complete by 2018, to be launched as a part of the GCC railway network. Oman also plans significant expansion within ports, including major projects at Salalah and Sohar.

"This level of infrastructure spend within the transportation asset class is attractive to us as it aligns closely with the areas in which we specialise and we believe that Oman will be an area of growth for us in the medium term," he said.

"In particular, we see opportunities at the new airport and within the two port developments as both will require competencies in complex programme integration testing and delivery."

"Each of the projects will necessitate sourcing of specialist skills in infrastructure financing and delivery, and will therefore require the involvement of firms that can provide that. Whilst many capabilities will be provided by Omani firms, there will be a requirement to procure services internationally from companies with deep experience in these types of projects."

Kennedy sounds a word of warning about project delivery. Internationally, infrastructure projects continue to have problems being delivered on time and on budget and he believes the Oman investment programme will be no different.

"Delivering critical projects effectively will be a central challenge," he said. "Secondly, the scale of global infrastructure development also gives rise to demand-side pressures that will undoubtedly lead to high levels of inflation in both raw materials and specialist expertise.

"The government will need to give thought to how it secures both of these resources for the entire duration of its development plan, or risk losing out to other countries."

Kennedy joined others at the summit in voicing the need to look at contract structures, suggesting that the models that penalise non- performance, rather than incentivising good performance, need to change.

While current practice in the region is heavily skewed towards the former, Kennedy believes the delivery of complex infrastructure projects will be susceptible to problems that can only be resolved using collaboration between project parties.

"The Ministry of Finance has started a review of the current standard contracting model and therefore has an opportunity to mitigate this problem if it develops its contracting model in the right way," said Kennedy. "I would urge the government to look at other types of contracting strategy and think a little outside the current status quo."

With countries around the GCC finally starting to tender in earnest, Kennedy shared most survey respondents' positive outlook for next year.

"The amount of projects coming to market is going to increase sharply," he said. "Within Oman itself there is growing confidence and we think that 2014 should be a good year for deals."
Perhaps these are only some of the tangible factors giving the Omani construction sector a sense of optimism, but on the whole, it certainly appears to be more than a feeling.

Extensive development
Mohammed Al Rais, senior VP and MD of Hill International, explains why Oman is an important part of the company's project portfolio

Why is the Oman market an attractive one for your business?
Its attractiveness lies in the sheer extent of the public sector’s development plans. In turn, this will encourage the private sector investment portfolio and compounded with the fact that these projects are aligned with both Hill International’s core competences and growth strategy makes Oman an ideal place for establishing and expanding our business.

What opportunities does the Oman construction industry present to an international business?
In the construction industry, the opportunities are either large scale development or niche services. The former require highly skilled management and the latter demands highly-skilled specialists. At Hill International we offer both these competences.

By the same measure, what challenges are there?
The main challenge is assimilation into the market, with regard to business culture; be it needs and expectations, project complexities or challenging timelines. Hill International has regionalised its services and has comfortably adapted to the market requirements so that they are viewed by as opportunities rather than challenges.

How do you feel the market will perform in 2014?
2014 promises to be an opportunistic year; given that many ambitious projects are either being tendered or planned to be released. Our short term plan is supported by a long-term strategy, an impressive project portfolio and a healthy backlog.

Where will your business see the most activity in the country (geography or sector)?
Our service sector and growth strategy does not confine us with a particular location in Oman; rather the spread of the potential projects are fairly balanced in majority of the main cities and we seek the best opportunity to add value and support each of our clients.

What's your most notable project/achievement to date in the country?
Hill is proud to be associated with the success of the Muscat and Salalah International Airports, Kempinski Hotel and the new addition of the Adam Airbase. We firmly believe in the government's vision and that the best is yet
to come.

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