Why are construction companies avoiding Brazil?

Most GCC-based companies are not interested in exploring Brazil

Rio's victory to host the 2016 Olympics should prove an incentive for contractors
Rio's victory to host the 2016 Olympics should prove an incentive for contractors

Despite a territory ripe with opportunities in terms of infrastructure and real estate most GCC-based companies are not interested in exploring brazil.

The UK’s Office of Trade and Investment (UKTI) recently advised all British firms to look to South America in order to tap into a multi-billion dollar boom that is set to blast off; however, in spite of their heavy involvement throughout the Middle East, most firms are choosing to ignore this potential goldmine.

Brazil has been chosen to host the FIFA World Cup in 2014 and the Rio Olympics in 2016 – the biggest two sporting events on the planet just two years apart – which, experts calculate, means at least 80 new projects going up for grabs.

In terms of the size of investment in stadiums, airports and transport systems alone, between US $16 billion and $50 billion will be ploughed into Brazil, without accounting for the numerous commercial, tourism and residential opportunities that World Cups and Olympiads always bring.

More than 600,000 visitors will flood to Brazil for the World Cup, with the Rio Olympics likely to attract triple that number.

And, according to two reports authored by Dmh Consultancy’s David Howell on behalf of UKTI, Mexico is hot on
Brazil’s heels.

“Both Brazil and Mexico are tipped to become major players in the world economy in the coming years, but the current lack of infrastructure is severely hindering economic growth. Both governments recognise this and have committed a combined total of nearly £300 billion [$490 billion] to this sector,” said Howell.

“Quality infrastructure is a key component of a successful economy. With our expertise in the services required to build and operate infrastructure, UK companies can play an important role in the successful implementation of Brazil and Mexico’s plans.

“Rapid growth within the construction sector coupled with a severe skills shortage in both Brazil and Mexico means that opportunities for UK companies are plentiful – for project managers, planners, architects, engineers and finance specialists.”

The reports go on to highlight the importance that BRIC (Brazil, Russia, India and China) will play in the coming years.

“In difficult times for the global economy, it’s vital that UK firms seek out opportunities where they exist with an eye to future growth. UKTI’s research has identified Brazil and Mexico as being among the most exciting places to invest, not just for construction but across the board,” added UKTI chief executive Andrew Cahn.

It’s almost impossible to name a major Middle East project that has not benefited from British experience or know-how at some point in the architectural, engineering, financial, legal or management process; given how quickly British firms jumped on the real estate and infrastructure explosion across the GCC, you would then expect them to be tripping over themselves to take advantage of the Latin American boom too.

Interserve, for example, which also has operations in Oman, Qatar and the United Arab Emirates, will be setting up in Rio as we speak?

“We aren’t involved in Brazil at all and have not hitherto seen it as a target market. The Middle East is where we’re focused,” commented head of corporate communications Giles Scott.

Carillion, involved in mega-projects such as Dubai’s Festival City and Motor City surely has the track record required for taking on large developments, as well as sports stadiums, as the National Cricket Ground on the Caribbean’s
St Lucia demonstrates.

“We do have a joint venture construction business in the Middle East, but have no ambition to grow this business outside the Middle East. Carillion has no interest in construction in Brazil or the US,” Carillion group corporate affairs director John Denning told Construction Week.

“Carillion is very much focused on its strategy of growing its support services business to enhance its position as the UK’s largest support services company. We regard our construction business in the UK as a capability to support that growth and also to support our Pubic Private Partnerships projects business.

“Although construction is an important capability, UK construction contributes only about 7% of the group’s profit.

“Our construction business in Canada is also focused on Public Private Partnership Projects, ie. helping us to win PPP projects for which we can secure long-term support services contracts and where we can also make equity investments,” said Denning.

If British companies operating in the Middle East are refusing to take advantage of all that Latino loot, then maybe the GCC’s homegrown companies will be strengthening their international portfolios?

“It does not impact Arabtec’s work and Arabtec has no direct involvement or interest in these markets,” said a spokesperson.

So, there’s a territory ripe for real estate and infrastructure investment, with – in the form of the world’s two major sporting events – as close a guarantee of success and liquidity as it’s possible to get and yet firms that have thrived in the GCC are reluctant to get in on the act, even as JVs. Could it be because they fear getting burnt?

While many British firms made hay while the sun shined in the GCC, large numbers now find themselves at the mercy of a residential real estate bubble that has well and truly burst; the UK’s secretary of state for business, innovation and skills, Lord Mandelson, has even had to step in.

The subject of the non-payment of British construction firms was at the top of the agenda when Mandelson met with UAE interior minister of economy, Sultan Saeed Al Mansouri for the inaugural gathering of the UK and UAE Joint Economic and Trade Committee (Jetco), in London.

Al Mansouri also raised the possibility of the UAE investing in British projects, such as port developer DP World considering a scheme in the Thames Gateway, and Emiratis being granted easier access to UK visas; but, one source close to the talks revealed that the UAE is also concerned that it currently buys $4billion more from the UK than flows in the opposite direction.

Maybe if the Middle East’s design, engineering and materials experts were quicker to react to burgeoning opportunities overseas, that figure would be more equal.

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