CW 2015 UAE Infra Conf: Calm before the storm
As Dubai prepares for the onslaught of construction projects in the build up to Expo 2020, contractors believe 2015 is a key foundation year
Dubai faces enormous challenges in building the infrastructure it needs to cope with the rapid expansion expected during the build up to Expo 2020 and beyond.
Wael Allan, chief operating officer of Hyder Consulting and chairman of the UAE Infrastructure Summit 2015 said that while there was a lot off focus on Expo 2020 and the projects required to both host the event and support it, many of the challenges Dubai faced resonated globally.
“It is still about energy conservation – we’re still heavily reliant on fossil fuel and there hasn’t been any real serious replacement for oil and gas as a source for energy. There has been a lot of talk about nuclear energy and its place, but we all know the issue and the controversy of nuclear power and the associated safety with that,” he said.
“Affordable healthcare is really a challenge, as people grow older and live longer, we have a lot of chronic-type diseases that place a huge burden on the social infrastructure as well as budgets and families. Sustainable water supply is also key. Water in the Middle East is a very expensive commodity. The energy that goes into the distillation of water is enormous,” he told delegates.
With Expo 2020 five years away, Allan said companies had entered 2015 with a degree of caution, tempered by a drop in the price of oil, and uncertainty over how that would affect project funding.
Bishoy Azmy, chief executive of Al Shafar General Contracting said 2015 was “an unusual year”.
“I don’t know what to make of it. Expo 2020 has not yet percolated down to us as contractors. We hear about masterplans and ambitious projects being discussed, engineering firms, project management firms and consultancy firms may be engaged, but for us, we’ve not yet felt the impact.”
David Welch, Bechtel’s president for the Middle East and Asia region, added; “We would all acknowledge that we entered 2015 with some degree of uncertainty about what the government budget would look like for the oil-producing hydrocarbon economies, so that’s one issue.
But one thing that doesn’t change is that the UAE is an emerging global centre, and Dubai is at the centre of that. If you look at competitive global cities worldwide, Dubai is the fastest-rising and most prominent of the ones in the Middle East and Gulf region in particular.
“We would see that trend continuing. Of course, Expo 2020 is just one milestone in that, but it’s not the only one. In contrast to the financial crisis in 2007-09, I think that period proved that while the balance sheet may have been stressed here, the business model was not. The business model held and was good, and I think that will be the case in the future, too.
Riad Nashif, Aecom’s executive vice president and managing director for the UAE and Oman, said that lower oil prices had a two-fold effect. “There is the negative side, which is the reduced revenue for the oil producing countries, plus the money and goods are becoming cheaper in the west, especially in Western Europe and Asia, which means the investment environment in Dubai will become more attractive for foreign stakeholders pumping and injecting investments in this country.”
Azmy added, “While it doesn’t have a direct impact because only 2% of Dubai’s GDP is derived from oil, the capital influence into Dubai which fuelled the real estate boom which has happened over the past 15 years, a lot of that comes from oil producing countries such as Saudi Arabia and Russia, Qatar. The sentiment of investors in the region is still linked to oil, and that does have an impact on our work as contractors.”
Azmy said that while materials prices remained an issue, he didn’t see the need for inflation to suddenly increase.
However, Welch explained that the drop in oil prices may naturally lead to questions over project costings.
“There may be a feeling among clients and owners that in this period when oil revenues have changed and there is a stress on the internal rate of return for some of the planned projects that, in that circumstance, one or both of two things need to happen. One is that oil prices need to go back up, or contractor prices have to go down. I think we’re all going to have to look at that reality.
“As a construction company, we see that some of our inputs won’t change in price yet. So the expectation that costs will decline in this market may not be met at the pace that people may think. Certainly the people costs for our firm, which is small, I don’t see them necessarily becoming cheaper in price. We’re going to have an interesting period ahead of us, to see exactly how our clients are going to receive these realities.”
However, Nashif was adamant that Expo 2020 would not see project costs spiral out of control.
“I don’t think so. I think it will be a catalyst for growth over the next five, ten years and beyond as the UAE is building the infrastructure; social and physical. So, it’s highly unlikely we’ll see a repeat of the 2008 meltdown,” he said.