Transport and logistics to the United Arab Emirates
(Last updated: 14 Nov 2011)
Trends and opportunities
The market
The United Arab Emirates (UAE) construction industry is envisaged to recover from the effects of Dubai's downturn and the value of the infrastructure and construction sector is expected to return to normal growth in 2012. It is indicated that the growth will be moderate and sustained mainly by investment in Abu Dhabi in the water, power, large industrial construction, transport and social infrastructure sectors and to a lesser extent by transport infrastructure projects in Dubai, such as the Green Line metro project, the Al-Maktoum International Airport and the expansion of Dubai Airport. PWC Global construction 2020 report estimates construction output was 15.4 per cent of the UAE’s GDP in 2010 and states the outlook for the UAE remains optimistic with substantial oil revenues from Abu Dhabi, the capital and home to 10 per cent of the world’s oil reserves. They further expect UAE to invest more in infrastructure focusing on roads, rail, power and water, however, the ambitious 2030 Master Plan is under review with the recent global economic slowdown. (Source: Abu Dhabi imposes cost controls, Middle East Economic Review, July 2011 and United Arab Emirates Infrastructure Report Q3 2011, p5, Business Monitor International)
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', Construction Week Online). 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 and Sheikh Zayed museums. (Source: 'GCC’s Top 100 projects reflects real-estate slump', Middle East Economic Review).
‘Mubadala’ one of the wholly owned investment arms of the Government of Abu Dhabi has been the most active with construction contracts, awarding the US$1.5 billion New York University, the US$1.3 billion Cleveland Clinic, the US$817 million Zayed University, the US$327 million Sorbonne University, and the US$218 million Rosewood Hotel. The Abu Dhabi Tourism Development & Investment Company (TDIC), which holds US$2 billion of debts, has awarded contracts for the construction of its US$272 million Eastern Mangrove resort, US$143 million golf course hotel, the US$272 million Saadiyat villas and the US$183 million Saadiyat apartments, since late 2008. (Source: Abu Dhabi imposes cost controls, Middle East Economic Review, July 2011).
Bearing out the resilience of the Abu Dhabi market is illustrated from the fact that, 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. 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 Review, 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', Zawya).
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 Review 2010 by 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.
Australia is a strong exporter of products and services to the 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. A significant amount of this income comes 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.
Airports
The United Arab Emirates has eight international airports and spending continues in Ajman, Dubai and Abu Dhabi. Currently, Abu Dhabi, the home of the national carrier, Etihad Airlines, is conducting an US$6.8 billion redevelopment of its international airport to increase airport capacity to over 20 million passengers annually. In Al Ain, Abu Dhabi’s second-largest city, plans are underway to develop the existing airport into a hub for low-cost airlines, executive and charter flights. A business and logistics park catering to the needs of air-cargo and aerospace companies will be located next to the Al Ain airport. Dubai has recently opened Terminal 3 at the existing international airport, and in June 2010 opened the Al Maktoum International Airport at Dubai World Central, in Jebel Ali, one of Dubai’s largest industrial areas. Sharjah Airport Authority is said to being close to awarding contracts for the construction of a second runway to come online in 2012. (Source: United Arab Emirates Infrastructure Report Q3 2011, p24, Business Monitor and PWC Global Construction 2020 Report by Oxford Economics).
Ports
Dubai is a Gulf trading hub and 73 per cent of imports are re-exported. Dubai’s ports have been ranked as some of the busiest in the world. The emirate has just transferred the bulk of its freight activities to the new port of Jebel Ali and the government is considering another expansion to increase capacity by another 5m TEUs. Abu Dhabi Ports Company is responsible for developing a number of ports in Abu Dhabi including the Mina, Mussafah, Shahama, Ras Al Ghaf and Al Sadr. The largest port development is the Khalifa Port and Industrial Zone (KPIZ), a US$25 billion facility which is located at Taweelah between the cities of Abu Dhabi and Dubai. KPIZ will provide the essential infrastructure for the industrial and commercial growth of Abu Dhabi as outlined in the Abu Dhabi 2030 Plan. It will also link in the railway planned for the Emirate. When completed in 2030, the capacity of the port will be 15 million TEUs and 35 million tonnes of general cargo. The port will contribute up to $22 billion of Abu Dhabi's GDP. The initial capacity of the new port will be two million TEUs and eight million tonnes of general cargo annually. Khalifa Port will be built in five phases with phase 1 to be ready by the end of 2012. An aluminium smelter and chemical, glass and paper plants in the industrial zone will contribute significant business to the port. The project is well under way. The government intends to invite more bids for the remaining four stages of the development. The Emirate of Ras Al Khaimah (RAK) is upgrading the Saqr port at an expected cost of US$3.8 million. (Source: United Arab Emirates Infrastructure Report Q3 2011, p24, Business Monitor and PWC Global Construction 2020 Report by Oxford Economics).
Roads
In the UAE, some $513 million worth of road contracts have been awarded so far in 2011 and the biggest was the $460 million contract awarded in Dubai for the Roads & Transport Authority’s parallel road scheme. It is evident that the Investment in the UAE’s road sector has dropped considerably since 2009. Abu Dhabi’s Department of Transport (DOT) is announcing a raft of projects as part of its $68 billion Surface Transport Master Plan. The largest project is the UAE-Saudi Arabia highway, estimated to have a value of more than US$3 billion. Other roads projects include a highway to Al Ain, new roads around the industrial city of Mafraq, and new highways to important towns in the Western Region of Abu Dhabi, Al Gharbia. (Source: 'Qatar leads road investment', 28 October 2011, Middle East Economic Review)
Rail
Dubai has completed construction of the first two metro lines and additional transport systems are being financed by private developers and the government. For example, the logistics hub, Dubai World Central, is said to intend to spend US$33 billion on a transport network, including light rail which will eventually link to the Dubai Metro at Grand Central Station. The Roads and Transport Authority (RTA) has awarded a US$866 million contract for phase 1 of the Al Sufouh tram network for designing and constructing 13 stations and a depot.The contracting consortium involved in the construction of the US$1.1 billion Al-Sufouh tram in Dubai has received funds to continue working on the project in April 2011. (Source: 'Al-Sufouh tram project receives partial funds', 21 April 2011, Middle East Economic Review). Abu Dhabi’s transport needs are being underpinned by Plan 2030 and the Surface Transport Master Plan (STMP) which makes provision for a metro system in Abu Dhabi city, an integrated network of surface light rail, streetcars and buses, and even a high-speed rail link between Abu Dhabi and Dubai. The Department of Transport’s (DOT) plans for a proposed light-rail tram (LRT) system connecting the airport with the central business district are evolving under a feasibility study. The DOT has also received bids for the design and construction of an extensive metro network but no decision has yet been made.
On freight rail, the UAE is moving forward with plans to be part of the 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, US$11 billion inter-emirates rail network which is said to be completed by 2015. Etihad Railways, Abu Dhabi’s government freight railway company, unveiled plans for phase 1 in March 2010. It will be a 275km stretch of line delivering granulated sulphur from the oilfields at Shah and Habshan to the port at Ruwais. Etihad Railway has already awarded the main important contracts such as wagons, sleepers and locomotives and the Italian consortium led by Saipem has won the $898 million civil and tracks work contract for the first phase of the UAE’s $11 billion federal railway contract in October 2011. Etihad rail is to start the construction in Q4 2011.The second phase of the UAE railway is likely to extend the line in the east to Al Ain and in the west to the Saudi border connecting all the ports in UAE. The final phases will serve Dubai, the northern Emirates and the east coast.
The emirate of Sharjah also has plans for a rail network which will include a metro line, tram networks and monorails, which will eventually be linked to Dubai’s system.
Marine transport
Under Dubai’s Marine Transport Strategic Plan, the Dubai RTA seeks to introduce extensive water transport networks covering 21 per cent of Dubai’s water frontage by 2020. Cost forecasts are US$500 million. The system will also eventually become a hub for a 1,500km super-network by 2020.
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.