The Big 5 Business Conference
Senior executives on why Dubai still has a huge amount to offer
Under the strapline, “Building Future Cities of the Middle East”, The Big 5 Business Conference took place at the Monarch Hotel on Tuesday, with a number of key speakers offering their opinions on the future of the construction sector in this part of the world.
Speaking to a select audience, the conference aimed to focus on challenges, opportunities and lessons learnt, for what has been a chastening experience for the global industry, and Dubai in particular.
A project overview of the GCC industry was provided by Emil Rademeyer, director of Proleads, who indicated that, overall, there is around half a trillion dollars worth of building projects currently under way in the region. In a breakdown of those projects, Rademeyer revealed that 48% were being executed, with 27% in the pre-execution phase. Around 20% of these projects are on hold, and 5% have been cancelled.
In addition, the Proleads executive explained that project sustainability levels – i.e. those projects that have actually been announced versus those that have actually been completed or are in the execution phase – had unsurprisingly dipped over the course of 2008, but said that he was hopeful that the trend in previous years would continue.
“There is still a lot of liquidity in the market in the UAE,” Rademeyer said. “And it’s one of the few places in the world, like Brazil and China, where this is still the case. As a construction player, you need to be in places like this.”
The Proleads director then posed the question as to whether the Middle East vision would become a reality. “I think it will, but what are the challenges, and can we build better?” he commented. “How does escrow affect the outcome? What have we learnt from litigation, and can we really afford to go green?”
Answering some of those questions was the charismatic MAG Group chief executive officer, Mohammed Nimer, who had some forthright opinions about how the market needed to change in order to bank upon Dubai’s unique capabilities. In particular, Nimer argued that the off-plan model, which has served to drive the emirate’s real estate market to unprecedented levels, was now unsustainable. For potential remedies, the executive outlined a six-point plan, which he argued would put the market back on its feet.
Firstly, Nimer indicated that greater transparency and tougher regulations were needed to reassure and offer confidence to possible investors. In addition, liquidity also needs to be approved, especially as around 30-50% of the full purchase price of the property is still being demanded from the buyer. The MAG Group executive also argued that the visa rules should be relaxed, although this should not amount as far as citizenship for tenants.
Furthermore, Nimer argued that the UAE needed to work harder to attract expatriates and foreign companies to its shores, and, as already mentioned, companies needed to move away from the offplan model. “Lastly, there is a real need to get back to basics,” Nimer added. “We need to focus on solid market fundamentals as opposed to sentiment – that’s the true path to recovery.”
But the MAG Group chief executive officer also told delegates that there was plenty of news, and that in his opinion, Dubai is still ‘an icon for business’. Among the reasons for optimism are the fact that the city has the best infrastructure in the UAE and remains the primary hub between East and West. Nimer indicated his belief that Dubai also has the most diverse financial sector in the region, as well as being a focus for tourism and retail. “Furthermore, the benefits that Dubai offers in terms of free zones and 100%-ownership for foreign companies should not be discounted,” he added. “For example, the Jebel Ali Free Zone is now playing host to some 6,000 firms.”
Lastly, the tax-free nature of the UAE – from both a corporate tax and an income tax perspective – should not be overlooked, Nimer concluded.
As the former chief executive officer of Union Properties, which he ran for 23 years, and the current head of new management consultancy Canterra, Simon Azzam clearly has a strong pedigree in the Dubai construction industry. Azzam’s belief is that real estate is still the most important sector in the UAE, and the executive stated that the problems that had hit the market had been largely set off by outside influences. “The difficulties did not start with real estate, which was doing well,” Azzam remarked. “Due to international problems that did not originate in the UAE, global banks had problems, which put the pressure on local banks, which in turn put the screws on developers and individuals.”
But Azzam was adamant that there are great opportunities available in times of crisis. “This is by no means the end of the road, and there is much that companies can gain from this downturn,” he indicated.
The Canterra executive reminded delegates that around 10 years ago, clients were buying off-plan housing and developments despite the fact that there were no extant laws or regulations to oversee the process. “It says a lot for the confidence in the economy then that people were still buying anyway,” Azzam added. “Since that period, laws, regulations and infrastructure have all been fighting to keep up with the developers. And, as projects have slowed down or been put on hold over the last 12 months or so, infrastructure and regulations have started to catch up. That is definitely a positive thing.”
Azzam indicated that the slowdown would, in the long-term, foster greater confidence on the part of international and regional investors. “Any new developments and projects that take place in the UAE will now be tightly regulated, which has got to be a positive move and will boost the long-term confidence of the sector.” Lastly, the executive asked delegates to remember that Dubai was similar in many ways to other cities around the world. “Have faith in Dubai – there are issues and problems occur, but it’s the same story everywhere else as well. And you should remember that the problems that Dubai has been facing recently began externally.”
Among the other speakers at the event were Ziad Makhzoumi, chief financial officer of Arabtec Holding PJSC, who discussed the underlying reasons for confusion and sceptism about the recovery in the market, and Trowers & Hamlins partner Nigel Truscott, who shared his legal expertise with delegates, offering approaches and advice to enable them to best tackle the challenges that lie ahead. Michael Stephen Small, a partner at VSM Consultants, examined some of the issues related to escrow in the industry, and Faithful & Gould’s risk manager John Cowling considered methodologies for risk management that enhance the likelihood of reaching project objectives.
On the following day The Big 5 Conference segued into a technical tranche for the engineering profession. First on the agenda was a session devoted to project management. “Historically people have tended to under-estimate the pain associated with rolling out projects,” commented session chairman David Gale, a partner of EC Harris. The accelerated growth of the construction industry over the last decade had lead to many different contract types being adopted, depending on the type and size of the project.
“Many were completed on-time and handed over successfully; many not. It is important to look closely at the underlying factors determining either the success or failure of these projects,” said Dr Mamoon Atout, Horizon Star International LLC project manager. “At the outset, it is critical to have a proper understanding of a project and what it entails, because this will dictate the responsibilities of all the participants.” It could involve a lifecycle cost analysis of every phase in order to derive at a comprehensive project assessment.
“Every participant has his own way to achieve the project targets based on best practice and his or her own expert knowledge and experience. It is the role of the project manager to ensure that all these disparate skills and outlooks are integrated and brought to bear on the successful outcome of the project as a whole,” argued Dr Atout.
The following factors contribute to project under-performance: an unsatisfactory end product that is not functioning correctly and therefore incurs additional maintenance costs upon handover, failure to meet standards or criteria, unclear objectives, unrealistic expectations, ineffective quality systems, poor change control, poor scope definition, lack of a team approach and cost over-runs. Successful projects, on the other hand, were characterised by being on-time, with good planning, good management of resources, effective control, evaluation and monitoring, good organisation and good communication in terms of overall design and execution.
“Project failure can be largely attributed to poor planning, not keeping the aims in mind, and neglecting the people on the professional team. Therefore it is essential to have a project manager in control who understands the interactive nature of the process, and who is able to elicit collaborative solutions from the team in order to reduce costs,” comments Dr Atout. This means it is critical to instill a team culture focused on problem-solving, guidance, shared information and networking. “The project manager takes the mistakes of others on his shoulders. He is the last person to ensure the finalisation of the project. Therefore he should be appropriately qualified and a good communicator and leader.”
Riaan Burger from Proleads said that the current challenges faced by the construction industry meant that fluctuating costs and contingencies had to be accounted for in a rational and proactive manner. In terms of risk management, this means “understanding what you do not know” – which means the future increases and decreases in construction costs. “How do we plan and allow for such fluctuations? At the beginning of a project, you only have a vague idea of the total projected cost,” cautioned Burger.
“The issue is how to obtain reliable information on costs; the numbers in the budget cannot be thumb-suck figures, but must be quantifiable and trustworthy.” For example, a three-year project that commenced two years ago, and which entered its final year in the current economic downturn, is faced with a radically different cost scenario than when it started. “Less than 10% of cost consultants and contractors use the FIDIC cost-adjustant formula in planning,” revealed Burger. “If a key cause of project failures is lack of planning, then why not use the information at hand?” he questioned.
“There is a need to understand economic cycles, and the cost implications for contractors and developers, as these fluctuate. The cost to the contractor and the cost to the developer may be two entirely separate things, but wherever we go, we will always arrive together …” urged Burger. “If we adopt a more structured approach to contingency and escalation, the entire construction industry will stand to benefit.”
Martin Seaward-Case, chairman of the UAE board of the Royal Institute of Chartered Surveyors, commented that the construction industry was undergoing a ‘flight to quality’. “The pleasing effect of the slowdown is that those professionals who have endured through the tough times are the more qualified and capable people, which the industry really needs at this critical juncture.”
There was also a need for project managers to assume an overall mantle of responsibility. “They must ‘walk the talk’ by being able to put themselves in the client’s shoes and see things from their perspective.” Another beneficial consequence of the downturn was the increased emphasis being placed on health and safety, and the move towards ‘zero harm’ as a best practice, said Seaward-Case.
“About 75% of our energy and effort as professionals is spent managing the client’s expectations. It is important that they see where we are going so they can meet us there. The project management process can be improved dramatically by bearing in mind the following fundamentals: that time costs money, that getting more stakeholders onboard also costs more money, that business functions are interrelated and that cost over-heads have to be managed,” said Seaward Case. “We all have our respective capabilities which we can bring to the table.”
Seaward-Case made a final impassioned plea to the construction industry to forcibly convert those clients who were in ‘denial’ about the problem of escalation and contingency. “Our bitter experience as industry professionals is that, as late as 2005, there was a general denial that the issue of escalation even existed. This is a very real and relevant issue that cannot be brushed over, and which the current professional fees do not even begin to cover.”
The project management session was followed by a more technical session on energy-saving in the built environment, and how this impacted on utility provision such as district cooling services. “Approaching building design from the viewpoint of maximising energy use can have a dramatic effect on district cooling system loads and design,” argued Scott Wilson building services associate director Cathy Crocker. Mohammed Abusaa, business development regional manager at ADC energy systems, explained how “the different approaches to achieve efficient district cooling systems are as important as implementing district cooling as a concept. It is the selection and optimisation of the appropriate technology that unleashes its true potential.”
TECOM Investments executive director Ali Bin Towaih talked about master-planning sustainable developments, and the measures it has instituted to evaluate and monitor its progress in implementing energy efficiency and cost effectiveness. Platinum Vision marketing and sales director Brocas Burrows homed in on some of the latest technology behind sustainability, such as home-automation systems to control door entry, security, lighting and HVAC control.