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Middle East construction industry ‘in turmoil’, more casualties loom, warns expert

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A leading consultant has suggested that the Middle East’s construction industry is “in turmoil” and Dubai-based giant Arabtec, which is set to go into liquidation, will not be the last high profile casualty unless changes are made in the sector.

The Dubai government last week passed a new building code, aimed at reducing construction costs by streamlining building rules.

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However, Kenny Linn, partner – capital project services leader at PwC Middle East, told Arabian Business the current delivery model is not sustainable and less aligned to the ambitions of the region.

He said: “The collapse of Arabtec is symptomatic of an industry that is in turmoil. Lowest price competitive tendering, inequitable risk allocation, low profit margins, uncertain pipeline and late payments drag the construction industry down meaning that it is challenging for the sector to invest in building new skills and innovation that will boost productivity and improve delivery.”

The board of Dubai-based construction giant Arabtec has agreed to proceed with plans to liquidate the company following a meeting on Thursday.

In a filing to the Dubai Financial Market, the company said in a brief statement that the board “discussed all required resolutions and actions to proceed with the liquidation plan” on Thursday.

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Linn stressed that transformation of the whole industry is required.

Construction firms in the region have struggled for years with project delays and thin profit margins – in January, Australia’s CIMIC Group took a $1.23bn write off on its 45 percent stake in BIC Contracting and exited the Middle East.

Drake & Scull International recently revealed it had appointed a new CEO and CFO, the latest in a string of senior job announcements as the company proceeds with finalising an organisational and financial reorganisation plan.

According to a statement to the Dubai Financial Market recently, an application for its financial reorganisation process to be conducted under the supervision of the Financial Reorganisation Committee (FRC) – a body set up in 2018 under the UAE’s bankruptcy law – was accepted in May.

Creditors have also started to enforce claims against Abu Dhabi-based Al Jaber Group, in a dispute triggered by a construction downturn in the UAE more than a decade ago.

Linn said: “The concern is that the industry is very fragmented and the Arabtec collapse could potentially affect many subcontractors. Moreover many of these companies also subcontract to the other major contractors in the region and if they start to tumble this could have a significant knock-on effect across the entire construction industry.”

Five things we’re learned:

  1. The construction industry in the Middle East is currently in turmoil
  2. Lowest price competitive tendering, inequitable risk allocation, low profit margins, uncertain pipeline and late payments are dragging the industry down
  3. The sector must transform or more companies will collapse
  4. Arabtec demise could impact many subcontractors
  5. Ripple effect of Arabtec liquidation could have a ‘significant’ knock-on effect across the industry