Building and construction to the United Arab Emirates
(Last updated: 14 Nov 2011)
Trends and opportunities
The market
Australia is a strong exporter of products and services to the United Arab Emirates (UAE) construction sector. Statistics indicate that in 2010 Australia exported A$98 million of construction-related products to the UAE. Total services exports to the UAE, which are harder to quantify, totalled A$1.7 billion in 2008, with a significant amount of this income coming from the construction sector. Many large Australian services firms have an office in the UAE including Leighton, Worley Parsons, GHD, Cardno, Bovis Lend Lease, Woods Bagot and PTW. In fact, the total number of Australian offices of building-related companies numbers over 100.
The year 2012 is believed to be the year that UAE’s construction industry recovers from the effects of Dubai's downturn and the value of the infrastructure and construction sector is expected to return to normal growth.
The oil price is still high enough to provide the financial backing that the capital investments programs require. As per the GCC trend, the UAE is also seeking to diversify its economy to reduce dependence on oil and gas in the future, while UAE is also looking to create jobs for their fast-growing and largely young population. It is believed that the government’s ongoing heavy spending on capital expenditure projects such as schools, hospitals and transport infrastructure, energy and utilities will provide more opportunities for the construction industry, than commercial or residential developments. The Abu Dhabi government is also keen to pursue the provision of affordable housing for both local citizens and low income expatriates creating more opportunities in the residential sector. (Source: ‘Construction in UAE capital faces grim year ahead’,ConstructionWeekOnline.com, October 2011).
Significant changes in the market
A number of other significant changes have taken place in the market along with the global economic slowdown:
- Firstly, there has been a shift away from residential and commercial construction towards large social infrastructure projects. Significant infrastructure spending is occurring on power and water, roads, ports and rail.
- Secondly, financing and delivery of the some of these large projects has been opened up to the private sector. Power and water projects have been attracting private sector financing for some time.
- Thirdly, transport projects are taking centre stage. Even in Dubai which has experienced a major property decline, more than 45 per cent of 2010 budget expenditure (US$4.71 billion) was allocated to infrastructure and transport. (Source: ‘The UAE's economy: a tale of two cities in 2010’, Middle East Economic Digest, Richard Nield). The UAE is moving forward with plans to be part of the US$100 billion GCC Railway Project which will link the Gulf countries together by rail. The UAE’s portion of the GCC rail project comprises a 1,500km domestic rail network which is due to be delivered by 2015 with a forecast value of US$11 billion. Light rail and metro systems are also under consideration. Abu Dhabi is building and rejuvenating a series of large ports. In all emirates, road and bridge construction and upgrades are receiving significant funding.
- Fourth, government investment in Abu Dhabi is flowing into regional areas such as Al Ain in the south, and Al Gharbia (known in English as the Western Region), which despite their small populations contribute roughly half of the UAE’s GDP from agriculture and oil and gas.
- Fifth, green building and sustainable infrastructure is being championed and mandated in Abu Dhabi by the Urban Planning Council and Department of Municipal Affairs under new building codes effective from 1 September 2010.
The building and construction sector remains the third largest sector of the economy after oil and trade, constituting US$23 billion or about six per cent of GDP, even the in the current post-financial crisis climate. However, a report by Trade Arabia in February 2011, states that out of the US$53.8 billion new construction contracts that was awarded in the UAE during 2010, 66 per cent was for contracts in Abu Dhabi. It is also believed that the double-digit growth levels of the industry in 2006-2008 will not return. The total value of construction and infrastructure contracts awarded in Abu Dhabi during the second quarter of this year fell by 81 per cent, with just US$843 million of construction and infrastructure contracts awarded in the three months from April to June. (Source: ‘Abu Dhabi imposes cost controls’, Middle East Economic Digest, July 2011).
It was also announced in October 2011 that plans to build branches of the Guggenheim, three other museums in Abu Dhabi are clouded in doubt, and the government launched a review of public spending reflecting the economic slowdown (Source: ‘Doubts over Abu Dhabi museums project’, FT.com, Camilla Hall and Michael Peel, October 2011).
Building and construction projects
The Abu Dhabi government is building a US$1.93 billion integrated housing project on the outskirts of the city, which reflects the government's ongoing attempts to put its housing market on a more sustainable footing, they are progressing on the US$37 billion Yas Island, US$37 billion Reem Island, and finally on the US$27 billion Saadiyat Island which will include the Louvre Museum, and Sheikh Zayed museums(Source: ‘GCC’s Top 100 projects reflects real-estate slump’, Middle East Economic Digest, October 2011).
‘Mubadala’ one of the wholly owned investment arms of the Government of Abu Dhabi has been the most active with construction contracts, awarding the $1.5 billion New York University, the $1.3 billion Cleveland Clinic, the $817 million Zayed University, the $327 million Sorbonne University, and the $218 million Rosewood Hotel.
The Abu Dhabi Tourism Development & Investment Company, which holds $2 billion of debts, has awarded contracts for the construction of its $272 million Eastern Mangrove resort, $143 million golf course hotel, the $272 million Saadiyat villas and the $183 million Saadiyat apartments, since late 2008. (Source: ‘Abu Dhabi imposes cost controls’, Middle East Economic Digest, July 2011).
In early 2010, the UAE’s largest ever non-defence contract for the first nuclear power plant (US$20 billion) was awarded, and more than US$8 billion worth of oil and gas contracts have been announced.
Abu Dhabi Plan 2030
The majority of the growth in building construction will take place in the emirate of Abu Dhabi as the Urban Planning Council continues to implement its three 2030 urban plans encompassing Abu Dhabi city, the second largest city, Al Ain, and the Western Region, known as Al Gharbia. In April 2010 the municipal governments unveiled 30 projects ranging across the spectrum from infrastructure to buildings. In general, private developers have been much less active since early 2009, even in Abu Dhabi, resulting in a more measured level of residential and commercial construction than in recent years. Key trends include a focus on new government villas for UAE nationals, of which there are more than 17,000 units planned over the next five years. This is also an emphasis on affordable housing, as the government endeavours to ensure housing caters to all income needs. In addition, new buildings require improved construction standards and more attention to environmental impact under new codes to be effective in Abu Dhabi from 1 September 2010. The Urban Planning Council stipulates that all new buildings must achieve at least a ‘one-pearl’ rating under the locally developed ‘five-pearl’ green building rating scheme. All government buildings will be required to achieve a ‘two-pearl’ rating.
In terms of major projects, Abu Dhabi’s Plan 2030 calls for the creation of a number of new city precincts, the largest of which will be the mixed-use, sustainable Capital District, a 49 square-kilometre area near the airport. Upon completion in 2020, the environmentally sustainable Capital District will be home to 370,000 people. It is believed that the Capital District project is slowing down along with Global economic slowdown and Urban Planning council is reviewing the plans and the population growth forecast. The Urban Planning Council has also developed Al Ain 2030 and Al Gharbia 2030 and plans to develop to the infrastructure and enhance the living standard of those areas.
Masdar city
Another significant project is the construction of Masdar city, a carbon-neutral, low waste community located close to Abu Dhabi international airport. When complete, the city will be powered by renewable energy, built using leading design and technology and home to 50,000 residents and workers. Construction of the city started in early 2008. Despite some delays, it will be completed in around seven phases by about 2020. To improve living conditions for locals, a number of Emirati housing projects and green space rejuvenations are to be carried out in Abu Dhabi, Al Ain and the Al Gharbia. Twelve more parks will be created in Abu Dhabi during 2010. Al Ain will build new roads, parks and rejuvenate landscaping in the city centre. In the country's Western Region, new designs for a full range of family facilities at Delma Beach join plans for new public parks including the Zayed Park at Liwa, a landmark development aimed at giving this desert area a sustainable high quality green space. (Source: ‘Abu Dhabi's Municipal Affairs unveils 30 projects at Cityscape Abu Dhabi 2010’ AMEInfo.com, April 2010).
Construction of new hotels
According to London-based industry analysts STR Global, total GCC spend on new hotels is set to hit AED4.29 billion in 2010, with the UAE home to the largest number of hotels in the construction pipeline. STR Global UAE currently accounts for half of the region’s planned hotel rooms, with the sustainable demand created by rising interest in UAE tourism likely to create significant value for the construction in industry over the next few years. (Source: ‘UAE still has most hotel rooms under construction’, ConstructionWeekOnline.com, July 2011).
Hospitals, schools and universities
In addition, as a result of a post GFC desire to stimulate the construction industry and in order to meet Plan 2030 aspirations, there has been increased spending on hospitals, schools and universities. After Kuwait and Saudi Arabia, the UAE has the third-most university schemes by value planned or under way in the GCC, worth a total of US$5 billion. Most of these are being built in Abu Dhabi. The Abu Dhabi Education Council (ADEC) has announced the integration of 20 government schools and the construction of 11 new school buildings in the emirate during the academic year 2010-2011. The schools are to be located in the city and regional areas. (Source: 'ADEC announces the integration of 20 government schools and the opening of 11 new school buildings', Zawya, August 2010).
When it comes to hospitals, the UAE, and Abu Dhabi in particular, has the most hospital-related projects in the pipeline, worth a combined US$5.3 billion, or 39.4 per cent of the GCC total. The Abu Dhabi Health Services Company is both building new facilities and expanding existing hospitals. The largest hospital scheme by value under way in Abu Dhabi is the US$1.3 billion, 364-bed Cleveland Clinic. In December, contracts for the enabling works packages for the 690-bed Al-Ain and Mafraq hospitals were awarded. (Source: 'Public infrastructure takes the lead', Middle East Economic Digest, 9-15 July 2010).
A US$600 million joint venture was announced in March 2011 between Al Habtoor Leighton and Murray & Roberts planning to build a 739-bed hospital in Abu Dhabi. In addition, an agreement signed in May 2011 between Boston, US-based Mclean Hospital and the UAE's drug addiction body – for a National Rehabilitation Centre – will pave the way for a new 200-bed rehabilitation unit in Abu Dhabi by 2014 (Source: Business Monitor International, United Arab Emirates Infrastructure Report Q3 2011, p40).
Market drivers
- Increased government spending on infrastructure – roads, ports, airports, rail, power and water. In response infrastructure bottlenecks and the GFC, both the federal and individual emirate governments have announced a commitment to increasing infrastructure spending.
- The development of Abu Dhabi – Abu Dhabi has released an extensive plan for its own development called Plan 2030. Under that plan, Abu Dhabi will develop its 200 natural islands, create a new capital city, construct an expansive public transport system, and become the cultural and sporting hub of the UAE.
- Vast financial and oil reserves – The UAE has the world’s third largest oil reserves and fifth largest gas reserves, predominantly located in Abu Dhabi. This gives the country a significant long-term asset base. The UAE also has the world’s largest sovereign wealth funds.
- Favourable investment climate – An accommodating regulatory environment relating to private investments in infrastructure is encouraging the private sector to engage in the development of big-ticket items.
Opportunities
Services opportunities
General construction and specialist sub-contracting services, specialist consulting and services for roads, bridges, light, metro and heavy-haul rail, ports development, sports infrastructure, affordable housing, green building and sustainable infrastructure, parks and landscaping, schools, universities, hospitals, power production and desalination.
Engineering and architecture firms should note that the downturn in the greater Gulf region has diminished the pipeline of construction projects coming on-stream and made conditions for the numerous firms very competitive. New entrants in design and engineering are likely to struggle in the current environment.
Product opportunities
A wide variety of building materials and products including green building and sustainable infrastructure solutions, water saving devices, systems for building automation, air-conditioning and security and swimming pool equipment.
In addition, products for roads and bridges, light, metro and heavy haul rail, ports, solutions for industrial and business zones, sports infrastructure, affordable housing, hotels, parks and landscaping, schools, universities and hospitals, power and desalination.
What makes the UAE an attractive place to do business?
- The UAE is Australia's second-largest market in the Gulf, with good growth prospects. It has a sound economy, a youthful population, a well-established and managed banking system, excellent infrastructure, and a sophisticated business community familiar with Western practices.
- Australia's profile in the UAE is high. There is increasing recognition of Australian companies and capabilities. Over 100 building-related Australian companies have established themselves in the UAE. Many take advantage of the UAE’s advanced transport, financial and communications infrastructure and make the UAE their regional base.
- Australia's advanced engineering and building-services, innovative products, ‘can-do’ approach and ability to deliver are ideal for the UAE's large infrastructure programs.
- The UAE Government is continuing to invest heavily in infrastructure projects which present opportunities for Australian companies.
Competitive environment
The UAE is strategically located between India and Europe and not far from South East Asia. It has typically been a trading hub, so competitors from Europe and Asia are numerous. Australian companies comment that there is a general preference for cost effectiveness over quality.
Tariffs, regulations and customs
There is a five per cent tariff on all goods and services imported into the UAE. Steel and cement have been exempt for some time, but the tariff may revert to five per cent for these items in the future.
Industry standards
In the absence of a formal building code, over the years, the municipality of the Emirates accepted the practice of British standards. However, the UAE’s emirates have been developing their own building codes.
In many cases the accepted systems are British standards or equivalent. However the acceptability of British standards varies from product to product, so Australian companies need to make enquiries as to the standards applied to similar products.
In some cases, even if products meet British or Australian standards, they are may be difficult to sell if they are not tested, approved or certified by the municipal governments. This can take a significant amount of time and may involve a cost.
Companies should enquire as to whether testing and certification is required for their product. Generally, this is a process which local companies distributing the product can undertake.
Marketing your products and services
Market entry
Australia enjoys a good reputation in the UAE and Australians are influential leaders in construction management, both in local and Australian-owned companies. Australian products and services including consultancy, contracting, technology transfers and materials are heavily utilised.
Opportunities for Australia exist in almost all areas of the construction industry. Suppliers of products and materials usually require an agent who can work to ensure their products are pre-qualified with the architects and consultants. Providers of specialised services need to bid for projects and therefore, a local presence is recommended. Australian companies are encouraged to leverage the strong UAE-based Australian construction industry network.
The bulk of building materials are imported through Dubai. Major importers have significant warehousing facilities and well-developed distribution networks. The major importers have branches in at least the three major Emirates – Abu Dhabi, Dubai and Sharjah. The Middle East has a strong manufacturing base and well developed relationships with suppliers in India and China. Australian companies compete best when they have a value-added product with a distinct competitive advantage. Commodity-style products that do not have a strong technical component and are easy to produce do not generally fare well in the UAE.
All government purchases are carried out through tenders, which only UAE-owned agents can bid for. Therefore in order to sell to government, a foreign company usually requires local representation. In order to encourage local manufacture, the government provides a 10 per cent price advantage to local manufacturers over the equivalent imported product for local government purchases.
In the Middle East there is a strong focus on forming relationships to do business. For this reason, companies aspiring to succeed need the commitment and resources to make a number of visits to maintain relationships with their partners or establish an office.
How Austrade can help with market entry
The UAE, with its aggressive spending and high import propensity presents vast opportunities for Australian businesses in the building and construction industry. However, the large number of players, lack of Internet information, and different business culture makes it difficult for Australian companies to identify the most important contacts and secure appointments.
Experienced staff – Austrade's experienced Business Development Managers are members of key building sector business groups and provide input into a number of building and construction directories. They are well connected with key business people and able to open doors on behalf of Australian companies.
Arranging visits – Austrade arranges frequent business delegations to the UAE and appointment programs for companies making individual visits.
Trade exhibitions – The UAE is a regional hub for trade exhibitions. Austrade arranges activities, which bring local and Australian business people together at a number of key trade exhibitions each year.
Legal issues – There is a big difference between the commercial laws in the UAE and Australia, which if not understood by Australian companies, can result in decisions which impede the growth of business. It is very important to understand the legal context. Austrade provides information about agency/distribution and franchise regulations and the different types of commercial entities open to Australian companies.
Austrade can also refer Australian companies to providers of professional services, such as lawyers and accountants.
Links and industry contacts
Government, business and trade resources for United Arab Emirates
Abu Dhabi Chamber of Commerce and Industry – www.abudhabichamber.ae
Abu Dhabi Department of Transport – www.transportabudhabi.ae
Abu Dhabi Municipality – www.adm.gov.ae (website currently under maintenance)
Abu Dhabi Plan 2030 – www.upc.gov.ae/Plan2030_compressed.pdf
Arabian Modern Equipment – www.ameinfo.com
Australian Business Council in Dubai – www.abc-dxb.com
Australian Business Group in Abu Dhabi – www.ausbg.net
Dubai Chamber of Commerce and Industry – www.dcci.gov.ae
Dubai Municipality – www.dm.gov.ae
Government of United Arab Emirates – www.uae.gov.ae
Sharjah Chamber of Commerce and Industry – www.sharjah.gov.ae
UAE Federation of Chambers of Commerce – www.fcci.gov.ae
Media
Gulf Construction Online – www.gulfconstructiononline.com
Middle East Economic Digest – www.meed.com
Contact details
The Australian Trade Commission – Austrade – is the Australian Government’s trade, investment and education promotion agency.
Through a global network of offices, Austrade assists Australian companies to grow their international business, attracts productive foreign direct investment into Australia and promotes Australia’s education sector internationally.
For more information on how Austrade can assist you, contact us on:
Australia ph: 13 28 78 | Email: info@austrade.gov.au
A list of Austrade offices (in alphabetical order of country) is also available.