Вы находитесь на странице: 1из 100

Dubai Campus

SUBMISSION OF COURSEWORK COVER SHEET (Individual Submissions)

Session 2008/09

COVER SHEET (Individual Submissions) Session 2008/09 Students: This sheet should be TYPEWRITTEN or completed

Students: This sheet should be TYPEWRITTEN or completed it in BLOCK CAPITALS and

submitted with each module assignment. Students must ensure that all sections of the form

Please note students must

ensure they submit the correct number of copies (in the correct format) as advised by the Module Leader. Coursework will not normally be accepted where there are missing hard or soft copies. Coursework should be submitted to the Dubai Academic and Student Services Officer.

are completed and the declaration is signed and dated.

Surname

MALIK

Forename(s)

IRSHAD ZAFAR

Registration No.

081339095

Level of Study

Undergraduate

 

Postgraduate

DEP

Please tick as appropriate

Degree Course

MSc. CONSTRUCTION MANAGEMENT

 

Year of Study

2008 - 2009

Module Code

D31ZY

Module Title

DISSERTATION

Module Leader

Professor Ammar Kaka

 

Coursework

Dissertation

Coursework due date

17 August, 2009

All students are advised to keep a duplicate copy of all work submitted for reference. All returned coursework must be kept and re-submitted when/if required.

DECLARATION

In accordance with the appropriate regulations I hereby submit this coursework and declare;

(a)

That the coursework embodies the results of my own work.

(b)

That the coursework has been composed by myself.

(c)

That, where appropriate, I have made acknowledgement to the work of others and have made reference to work carried out in collaboration with other persons.

Signature/s of student/s ………………………… Date of submission: 17 August

2009

Below this line for office use only

School of the Built Environment Heriot-Watt University Edinburgh EH14 4AS Scotland UK Tel: 0131 449 5111 Fax: 0131 451

3161

Date Stamp

Edinburgh EH14 4AS Scotland UK Tel: 0131 449 5111 Fax: 0131 451 3161 Date Stamp Irshad

CONSTRUCTION & ENGINEERING INDUSTRY IN UAE AND

ITS FUTURE PROSPECTS IN VIEW OF PRESENT CRISIS

Irshad Zafar Malik

A dissertation submitted in partial fulfilment of the requirements for the degree

of

Master of Science in Construction and Project Management

Dissertation Supervised by: Professor Ammar Kaka

Management Dissertation Supervised by: Professor Ammar Kaka School of the Built Environment Dubai Campus Dubai Academic

School of the Built Environment

Dubai Campus Dubai Academic City P. O. Box 294345 Dubai United Arab Emirates

DISSERTATION 2008/9

17 August 2009

Submitted By:

Irshad Zafar Malik Registration No: 081339095

DECLARATION

I Irshad Zafar Malik hereby confirm that this work which is submitted for the purpose of assessment, is my own and expressed in my own words. Any references made within this work from other sources or authors in any form (e.g. ideas, figures, text, tables and data’s etc.) are properly acknowledged at the point of their use. A full list of the references which has been used is included with this work.

Signed;

………………………………………

Irshad Zafar Malik

Registration No.: 081339095

Date: 17 August, 2009

Table of contents

Page

Acronym list

iii

List of tables

iv

List of figures

v

Acknowledgement

vi

Abstract

vii

Glossary of terms

viii

1.0

Chapter 1: Introduction

1.1 Introduction and scope of study

1

1.2 Aim and objective of the study

3

1.3 Main hypothesis

3

1.4 Literature review and pilot study

4

1.5 The main study; data collection and its evaluation

4

1.6 Layout and structure of dissertation; writing up

5

1.7 Conclusion and way forward

7

Literature review:

2.0

Chapter 2: Construction & Engineering Industry: Global overview

2.1 Introduction

8

2.2 Industry’s definition and its sub sectors

9

2.3 Industry’s profile and its global overview

10

2.4 Industry’s global market and its future outlook

11

2.5 Industry’s segmentation

14

2.6 Construction industry and economics

15

2.7 Impact of global financial crisis on the construction industry

21

2.8 Conclusion and summary

26

3.0

Chapter 3: UAE Construction & Engineering Industry: An overview

3.1 Introduction

28

3.2 Industry’s overview in perspective of culture

28

3.3 Industry’s vision and its overall overview in gulf region

30

3.4 UAE’s legal concepts and regulations

32

3.5 Industry’s regional market and its future outlook

36

3.6 Effects of global downturn in UAE construction industry

44

3.7 Conclusion and summary

48

4.0

Chapter 4: Construction & Engineering Industry: In perspective of competitive landscape

 

4.1 Introduction

49

4.2 Industry’s segmentation in UAE

50

4.3 Industry’s competitive landscape in UAE

52

4.4 Five forces strategy analysis

56

4.5 Strategic development process in industry’s regional market

60

4.6 Conclusion and summary

64

Research methodology and findings:

5.0

Chapter 5: Frame work of research design and data collection

5.1 Introduction

66

5.2 Pilot study

68

5.3 Research instruments

68

5.4 Data collection

69

5.5 Survey design and conducting survey

70

5.6 Ethics and confidentiality

71

5.7 Analysis and result

72

5.8 Conclusion

72

6.0

Chapter 6: Analysis of survey and results findings

6.1 Introduction

73

6.2 Analysis of individual answers

73

6.3 Awareness of UAE construction industry

75

6.4 Global crisis and it’s effect on UAE construction industry

75

6.5 UAE construction industry’s barriers and threats

76

6.6 UAE construction industry’s opportunities

77

6.7 Limitation of research analysis

79

6.8 Conclusion

80

7.0

Chapter 7: Discussion and conclusion

7.1 Introduction and summary

81

7.2 The way forward

82

7.3 Recommendation for UAE construction industry

83

7.4 Recommendation for market strategy

84

7.5 Recommendation for industry’s stakeholders

85

7.6 Conclusion

86

8.0

References

87

9.0

Appendices

Acronym list

UK

-

United Kingdom

UAE

-

United Arab Emirates

GCC

-

Gulf Cooperation Council

MENA

-

Meddle East and North Africa

RERA

-

Real Estate Regulatory Authority

CIOB

-

The Chartered Institute of Building

CIArb

-

Chartered Institute of Arbitrators

RICS

-

Royal Institute of Chartered Surveyor

SCTDA

-

Sharjah Commerce and Tourism Development Authority

PJSC

-

Public Joint Stock Company

GLA

-

Gross Land Area

GDP

-

Gross Domestic Product

SWFs

-

Sovereign Wealth Funds

KIA

-

Kuwait Investment Authority

ADIA

-

Abu Dhabi Investment Authority

ICE

-

Institution of Civil Engineers

BSE

-

Building Services Engineer

QS

-

Quantity Surveyor

BS

-

British Standard

TCQS

-

Time, Cost, Quality, Sustainability

SM

-

Strategic Management

SWOT

-

Strength, Weakness, Opportunities and Threats

DM

-

Dubai Municipality

List of tables

Table 2.1:

Industry’s sub-sectors in terms of percentage

Table 2.2:

Global Construction & Engineering Industry Value: 2003-2007

Table 2.3:

Global Construction & Engineering Industry category

Table 2.4:

segmentation: %age share by value as per 2007 Global Construction & Engineering Industry segmentation in

Table 3.1:

geographical zone: % share by value as per 2007 Overview of Dubai real estate laws

Table 3.2:

List of projects in UAE under execution or to be executed

Table 3.3:

Major retail projects in UAE by GLA

Table 4.1:

UAE Construction & Engineering Industry category segmentation: %age share by value

List of figures

Figure 2.1:

Industry’s sub-sectors in terms of percentage

Figure 2.2:

Global Construction & Engineering Industry Value: 2003-2007

Figure 2.3:

Global Construction & Engineering Industry category

Figure 2.4:

segmentation: %age share by value as per 2007 Global Construction & Engineering Industry segmentation in

Figure 4.1:

geographical zone: % share by value as per 2007 UAE Construction & Engineering Industry category

Figure 4.2:

segmentation: %age share by value Porter’s five forces model

Figure 4.3:

Seven theories of strategy

Figure 4.4:

Implementing Strategy –Key forces

Figure 5.1:

Research methodology

Figure 5.2:

Research instruments

Figure 5.3:

Data collection procedure

ACKNOWLEDGEMENT

I would like to express my sincere appreciation and gratitude to my supervisor Professor Ammar Kaka for his support, guidance, assistance, criticism and suggestions, he provided to complete this dissertation. I also acknowledge the efforts, courage, support and confidence given by Dr. Asem Al Hajj to complete my degree of MSc. Both have been the lifeline and moving sprit all the time during my study in Heriot Watt University, Dubai Campus.

This dissertation involved several discussions and information from the construction practice in UAE construction industry. I would like to thank the invaluable contribution to all respondents to my questionnaire who gave me their time for their thoughts, input and suggestion for completing my pilot study – part of dissertation.

The effort and time spent by me in completing the dissertation work would not have been possible without the encouragement and tolerance of my family. They rendered every possible help to see the dissertation to be completed in time. I shall be proud to remember sacrifices made by family, especially my wife and my daughters Aayesha & Maryam which are incredible to bear with me for this piece of work to be completed.

At last but not the least, I wish to offer thanks to the university staff particularly our teachers, librarian, IT department and security staffs without their help it would have been impossible to complete this work. My appreciation and thanks to my class fellows at Heriot Watt, relatives and friends including Hifzur, Naved and Mahender Singh Gaira in completing my dissertation.

Abstract

The construction industry is one of largest and most valuable sector, being a major driver of the world economy. The rapid economic development of UAE has fuelled an unprecedented construction boom and infrastructure development in all corners of the country that attracted investors from around the world.

However, the financial landscape is going through an upheaval period. This is one of the most chaotic times in the past 80 years. Most of the countries are clearly experiencing significant negative impact, through stock market turbulence and domestic credit stringency. And, Middle East is not exiting in vacuum.

Despite this economic slowdown, the UAE construction industry is likely to continue to grow fairly and strongly over the next few years, although its growth rate is fluctuating. Gulf’s much-discussed sovereign wealth funds (SWFs) are now more likely to invest domestically to keep local economies moving. Further, the government’s efforts to diversify from oil-based income to other industries and liberalization in policies will bring further investments.

Dubai’s aspiration to bid Olympics Games will boost up the industry in future, and further development depends on winning chances to host Olympics.

The barriers to construction industry have been analyzed, trends revealed and solutions to overcome those identified barriers to the industry have been discussed. The gaps and constraints related to the construction industry have been highlighted for the preventive action to be taken in future.

The upcoming year will be critical with the impact of the global economic downturn and low oil prices still being played out.

Furthermore better regulation of UAE, shortage of housing in UAE particularly in Abu Dhabi, record growth in hospitality markets are the strong drivers to sustain the pace of development and to roughen the ‘ripple effect’ of world economic crisis. Lastly it could be concluded that UAE market is going to correct itself by shedding of overpriced construction, demand and supply theory is about to play – demand side is at the top!!

Glossary of terms

Activity: A discrete area of action that leads towards project aim and goals. Normally subdivided into tasks and reflected by time, cost and resources to be applied. Amortization: A payment plan by which a loan is reduced through monthly payments of principal and interest. Appraisal: An expert valuation of property. Architect: One who has completed a course of study in building and design, and is licensed by the state as an architect. Assessment: A value placed on the worth of a property. Cost: The direct and indirect cost of achieving the project result. Engineer: One who will represent the project during post contract phase as a Client’s representative and he is a qualified person for the project management and having good knowledge of contract administration. Milestone: The time by which a particular deliverable has to be achieved. Network: The interdependent activities which will have to be completed and in a particular sequence for the project to be delivered. Programme: A group of activities of a project to be managed in a coordinated way. Project: A complex set of activities that related to set of targets to deliver a specific result within time and budget. Projects are temporary endeavors undertaken to create a unique product or service. Project life cycle: A collection of sequential stages or phases of a project. Result: The collective deliverables of the project in terms of quantity and quality. Scope: The size, duration and cost or other impact of a project. Stakeholder: Individual or group of individuals who might influence the project or Strategy: The plan that will guide to successful conclusion and with competitive advantages. Time: The total duration, not merely to complete a set of activities but also realizes its deliverables for the success.

1.0

Chapter 1: Introduction

1.1 Introduction and scope of study

UAE and particularly Dubai has risen from desert. Trade and tourism contribute major chunk of national economy. Concept of common currency among gulf countries further augments the investment in trade and tourism. Huge investments are coming for infrastructures and shopping malls.

The construction industry of UAE has taken many initiatives to launch various projects in the booming and flourishing market of real estate and property. Rulers of UAE are very keen to improve the eco-credentials of the cities. According to Gulf News, there are new guidelines issued by the Dubai Government which require all buildings in the emirate to be constructed as per RERA requirements and guidelines to improve the confidence of investors in real estate sector.

The construction and engineering industry is composed of civil engineering companies and large-scale contractors. The civil engineering segment was the industries most lucrative in terms of generating revenues. Having climbed steadily from 2003 to 2007, however the UAE construction and engineering industry’s growth rate is expected to decelerate slightly in the years up to 2012.

Construction and engineering industry is fragmented despite the existence of large players. Most projects are granted to players through competitive tendering, which provides buyers with a high degree of leverage over players, who can largely define the required specifications of the project, contractual terms and then choose the most favorable tender. There is significant country-specific differentiation within the industry affecting competition. For example, rapid development within China supports a lower level of rivalry and a higher threat of entrants than in Japan, where the market is mature and growth stagnant.

The UAE construction and engineering industry displays moderate buyer power. Clients are major private-sector customers, usually corporate and individuals from various countries or else government agencies of some type. The specification of the project is thus mainly defined by the buyer, although in certain tendering processes

construction companies can influence the final form. The tendering process for public-sector projects is usually governed by local and national regulations, and there may be supranational rules, such as the RERA directives or norms, to comply with. Although in some cases, just as with private-sector buyers, contracts will not be won solely on price, economic factors, such as the long-term maintenance costs, will govern the decisions of buyers. Issues such as personal taste or brand loyalty are of no account.

Also, a contractor can in principle move from non-residential construction to homebuilding since many key competencies, such as knowledge of building regulations and project management, are to be applicable to the homebuilding sector, while project-specific constructional skills may be subcontracted out in any case. Overall, rivalry in the UAE construction industry is moderate.

The Financial landscape is going through a period upheaval with some major firms folding, other operations merging. Top of this only limited number of companies being rescued either in USA or Europe. This is one of the most chaotic times in the past 80 years.

Developing countries of Asia are clearly experiencing significant negative impact, through stock market, turbulence and domestic credit stringency.

GCC countries are trying to respond the present crisis in a coordinated way. However they are not success till date. The total value of real estate under Construction in GCC is worth more than AED. 8.8 Trillion.

Opportunity for GCC and UAE According to finding of Investor sentiment survey conducted by Jones Lang LaSalle, the real estate market of Middle East will out perform all other regions. Sentiment is the critical factor when considering the health of any market. Investors remain bullish towards UAE, which is expected to show best performance over the short to medium term. However Middle East is not exiting in vacuum. It will also be affected by international crisis.

Furthermore better regulation of UAE, shortages of housing in UAE particularly in Abu Dhabi, record growth in hospitality markets are the strong drivers to sustain the pace of development and to roughen the ‘ripple effect’ of world economic crisis.

Lastly it could be concluded that UAE market is going to correct itself by shedding of over priced construction, demand and supply theory is about to play - demand side are at the top!!

1.2 Aim and objectives of the study

Aim:

To study and analyze the UAE Construction & Engineering Industry’s future prospects and it’s forecast development in 2010. Major objectives:

Some of the major objectives that are proposed to be achieved during the course of the research are to:

To analyze industry’s recent performance and its future prospects.

To analyze the key macroeconomic and demographic data affecting the market. To assess and analyze in depth view of market’s competitive landscape.

1.3 Main hypothesis

Analysis of the industries recent performance in the region as a whole, along with in depth information on development in the UAE, will give a broad indication of how the industry is performing. Delivering further, detailed examination of the non- residential and residential segments will offer practical understanding of the construction industry.

1.4

Literature review and pilot study

Stage 1: Literature review & guide line

A comprehensive review of the relevant literature which will cover text books,

journals; including a computer-assisted search will be undertaken in order to develop

an understanding of Construction & Engineering industry’s global overview and for

the UAE. The study will review the literature on the subject. It will also analyze the current scenario of UAE construction industry and their performance from previous study, trade magazines and web sites.

STAGE 2: Pilot study The literature review will be followed by a pilot study to be conducted through field survey. The survey will be conducted in the form of initially semi structured telephonic interviews of few professionals associated with the construction industry to get their feedbacks on current situation and its health for the preparation of questionnaire. Professionals of higher rank to the industry will be targeted to get an effective and comprehensive feed back. The reason behind this is to explore the threats to the industry, facing at present in these tough economic times and how to come out with this situation. The next step is to carry on with the field research; a survey is conducting by establishing a questionnaire to obtain the response from professionals involved directly/indirectly to the U.A.E. construction industry, as a quantitative analysis. To check the viability of questionnaire a pilot study shall be done before floating full fledged questionnaire on web site/or to be handed over in persons to the respondents. And amendments are to be made according to their feed backs if necessary.

1.5 The main study; data collection and its evaluation

Main Survey questionnaires

To achieve the research objectives, a questionnaire survey to be carried out to collect

information on prospective effects. Questionnaire will be developed to try to find out

all about the current market situation of UAE Construction & Engineering industry

and its future prospects, with the feed backs from industry’s professionals and to be

amended further after performing pilot study. It is intended to collect the data’s which will reflect the true picture of the market in current scenario with respect to objectives of the research.

Evaluation of data At this stage all the data’s and information’s collected from literature review and pilot study etc. are to be analyzed. These data’s and information’s will be evaluated with their pros and cons in systematic way to conclude a better and comprehensive recommendation for the industry in present crisis. And this would help in understanding, how U.A.E. Construction & Engineering industry sustain in present situation.

1.6 Layout and structure of dissertation; writing up

This stage involves the appropriate sections should also research and write up those parts to the relevant sections of the dissertation. Writing up process must ensure that the consistency and free of typing and spelling errors.

Chapter 1: Introduction

This chapter provides the introductory information on dissertation which explains the aims and objectives of the research. The relevant problems related to the construction industry in view of present crisis have been briefed to proceed further. This chapter also described research methodology, details of data collection and its evaluation and structure of the dissertation.

Literature review:

Chapter 2: Construction & Engineering Industry: An overview - Global

This chapter will provide with an overall overview and profile of construction industry. How it has been divided into subsectors, their segmentation and market’s outlook. This chapter will also explain the construction economics and how industry has been affected in this worldwide financial crisis.

Chapter 3: UAE Construction & Engineering Industry: An overview

This chapter will consist of culture, vision and overall overview of UAE construction industry in perspective of local market, particularly for the GCC region. This chapter will also provide UAE’s legal concept and its regulation for the construction industry and how industry has been affected in this global financial crisis.

Chapter 4: Construction & Engineering Industry: In perspective of competitive landscape

This chapter gives an overall picture of construction industry in the region in respect to industry’s competitors. How industry is performing in competitive landscape in this tough economic times. This chapter will also discuss the strategies to be adopted by the industry to overcome with the present situation and will be ready for future challenges after the recession.

Research methodology and findings:

Chapter 5: Frame work of research design and data collection

This chapter will describes the framework and methodologies to be adopted to carry out the research and how to collect the material for the literature review and relevant data related to the objectives of dissertation.

Chapter 6: Analysis of survey and results findings

To analyze the collected data based on hypothesis and objectives of the study and discuss the results obtained from questionnaires in detail. Further, this chapter will also discuss the findings of topics related to aim and objective of the research and conclude the results with their findings.

Chapter 7: Discussion and conclusion

At this stage results and findings will be interpreted and analyzed. And recommendations will be made for the industry leading to final conclusion of the dissertation.

1.7

Conclusion and way forward

At last dissertation will be concluded along with way forward provide to overcome with the tested barriers/threats for the UAE construction industry and suggesting industry for the strategies and policies to be adopted to rid the current market downturn successfully.

Literature review:

2.0 Chapter

Overview

2:

Construction

2.1 Introduction

&

Engineering

Industry:

Global

The construction industry is one of largest and most valuable sectors. It includes the design of buildings and infrastructure (engineering and architectural services), the manufacture of buildings products and of machinery and equipment for construction, operation and maintenance, and disposal of facilities.

The construction industry is one of a major driver of activity in the global economy. It is made up of residential buildings, non-residential buildings, and engineering construction. It includes architectural and engineering services and construction trades such as bricklaying, plumbing, electrical, etc. The construction industry is also one of major employment sector of any developed and developing countries, which requires skilled workers and professionals for various disciplines. It was anticipated that thousands of new recruits would be required each year. However, due to economic slowdown, the availability of jobs will be declined as the construction industry also facing tough time due to global economic crisis.

Construction is extremely fragmented in nature. It uses concepts developed in Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Porter referred to these forces as the micro-environment, to contrast it with the more general term macro- environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the market place. In

2.2

Industry’s definition and its subsectors

The construction and engineering industry is composed of civil engineering companies and large-scale contractors, but excludes companies involved in homebuilding. The market value is to be calculated based on revenues of those companies whose primary activity is the construction of residential, non-residential buildings and non-buildings construction (civil engineering).

The construction industry consists of the following sub-sectors:

Construction of buildings

Heavy and Civil Engineering Construction

Infrastructure, repair and maintenance works

Specialty Trade/Engineering Contracts

Construction of Buildings Construction of buildings comprising public and private housing, non-residential buildings includes; commercial buildings (e.g. offices, shopping center/malls, restaurants and hotels etc.), public property (e.g. Government offices, banks, hospitals and schools etc.).

Heavy and Civil Engineering Construction Heavy and Civil Engineering Construction includes; construction of industrial buildings with other facilities (e.g. factories, warehouses, workshops and processing plant etc.), oil and gas projects.

Infrastructure, repair and maintenance works Infrastructure, repair and maintenance works includes; roads and bridges network, water and electricity network, railways and airport facilities etc. and their repair and maintenance works.

Specialty Trade/Engineering contracts Specialty Trade/Engineering contracts includes; specialized trade such as curtain walling, district cooling system etc. and their repair and maintenance works.

2.3

Industry’s profile and its global overview

The construction industry is one of the largest and most valuable sectors of any developed and developing countries. It includes the design of buildings and infrastructure (engineering and architectural services), the manufacture of buildings products and of machinery and equipment for construction, operation and maintenance, and disposal of facilities. It is broken down into five sub-sectors and the sizes are based on number of firms as indicated in terms of percentage and figure below:

Table 2.1: Industry’s sub-sectors in terms of percentage

1)

Civil engineering (residential and non residential construction)

29%

2)

MEP (mechanical, electrical and plumbing installations)

18%

3)

Construction exterior finishing

18%

4)

Construction interior finishing

16%

5)

Others;

a) Land sub division and land development

9%

b) Construction infrastructure development

4%

c) Other specialty trade

3%

d) Construction management

3%

specialty trade 3% d) Construction management 3% Figure 2.1: Industry’s sub-sectors in terms of percentage

Figure 2.1: Industry’s sub-sectors in terms of percentage

The structure of the construction industry has remained unchanged during the twentieth century and its sector remains largely configured around the traditional project model. In this model, professionals, contractors and clients work in short-term, low-bid contractual arrangements that entails high financial risk.

Since the early 1990's, the construction industry has experienced a significant growth which increases the profitability due to strong residential construction demand and many other large capital projects. The growth has also been supported by the governments and they take initiatives to develop infrastructure to meet the requirements. However, the growth of non-residential sector was little bit effected due to showing signs of downturn, with industrial, commercial and institutional building activity all declining. The engineering construction activity is driving the industry's revenue, with oil and gas sector investments leading the way.

Further, the construction industry is one of major employment sector, which requires skilled workers and professionals for various disciplines. It was anticipated that for the next five years, an extra over hundreds of thousand new recruits would be required each year. A third of these jobs were expected to be for typical graduate roles such as architects, business process managers, construction managers and technical/engineering staff. However following the economic downturn which began in mid of 2008, the amount of jobs becoming available has actually decreased as the construction industry has been hit quite hard.

2.4 Industry’s global market and its future outlook

The strong market growth witnessed globally and particularly in Asia and Middle East regions in the construction industry in 2006 and it was expected to continue for at least the next two years. The Gross Domestic Product (GDP) of the construction industry grew by 3.5% in 2008. The construction and engineering industry has performed well in recent years, although its growth rate of the industry has been fluctuating over the past four years and this rate of growth is set to decline over the forecast period.

The construction industry market has been analyzed based on data’s collected from various sources as under;

Market analysis The construction industry market climbed steadily from 2003 to 2007, but further to market analysis the global construction and engineering industry’s growth rate is expected to decelerate slightly in the years up to 2012.

The global construction and engineering industry generated total revenues of $2,063 billion in 2007, representing a compound annual growth rate (CAGR) of 5.2% for the period spanning 2003-2007. In comparison to above, the American and European industries grew with CAGRs of 8.2% and 3.5%, respectively, over the same period, to reach respective values of $736.4 billion and $690.2 billion in 2007.

The civil engineering segment was the industries most lucrative in 2007, generating total revenues of $1,034.1 billion, equivalent to 50.1% of the industry's overall value. The non-residential segment contributed revenues of $1,028.9 billion in 2007, equating to the remaining 49.9% of the industry's aggregate revenues.

The performance of the industry is forecast to accelerate, with an anticipated CAGR of 6.2% for the five-year period 2007-2012, which is expected to take the industry to a value of $2,780.8 billion by the end of 2012. Comparatively, the American and European industries will grow with CAGRs of 8.1% and 3.9%, respectively, over the same period, to reach respective values of $1,084.6 billion and $836.7 billion in 2012.

Market value The global construction and engineering industry grew by 6.9% in 2007 to reach a value of $2,063 billion.

The compound annual growth rate of the industry in the period 2003-2007 was 5.2%.

Table 2.2: Global Construction & Engineering Industry Value: 2003-2007

Year

Value ($ billion)

Growth (% age)

2003

1,681.8

 

2004

1,731.7

3.00%

2005

1,806.1

4.30%

2006

1,806.1

6.80%

2007

2,063.0

6.90%

CAGR, 2003-2007:

 

5.2%

Source: Datamonitor

CAGR, 2003-2007:   5.2% Source: Datamonitor Figure 2.2: Global Construction & Engineering Industry

Figure 2.2: Global Construction & Engineering Industry Value: 2003-2007

Future outlook The construction industry is likely to continue to grow fairly and strongly over the next few years, although its growth rate is fluctuating and forecast suggests that, this rate of growth is set to decline for the period of next two years. The construction industry, in particular, is being boosted by government led public-sector construction projects. The fastest-growing sector is likely to be infrastructure because of the high level of investment in transport infrastructure projects under the Government's plan to the developing countries.

Looking forward, the construction and engineering industry is not expected to deviate from its current value growth position and forecast suggest that it will accelerate to an anticipated CAGR of 6.2% for the next five-year period up to 2012.

2.5 Industry’s segmentation

Market segmentation I The global construction and engineering industry primarily can be sub divided into two segments namely civil engineering segment and non-residential segments. The civil engineering segment and the other non-residential segment accounts for 50.1% and 49.9% (remaining) respectively, share of the industry’s total value.

Table 2.3: Global Construction & Engineering Industry category segmentation:

%age share by value as per 2007

Category

% Share

Civil Engineering

50.10%

Non-Residential

49.90%

Total

100.00%

(Source: Datamonitor)

49.90% Total 100.00% (Source: Datamonitor) Figure 2.3: Global Construction & Engineering Industry

Figure 2.3: Global Construction & Engineering Industry category segmentation:

%age share by value as per 2007

The global construction and engineering industry can be sub divided into three geographical zones/continents (segments) as under;

Table 2.4: Global Construction & Engineering Industry segmentation in geographical zone: % share by value as per 2007

Geographical zone

% Share

Americas

35.70%

Europe

33.50%

Asia-Pacific

30.80%

Total

100.00%

(Source: Datamonitor)

30.80% Total 100.00% (Source: Datamonitor) Figure 2.4: Global Construction & Engineering Industry

Figure 2.4: Global Construction & Engineering Industry segmentation in geographical zone: % share by value as per 2007

2.6 Construction industry and economics

Scarcity forces us to economise. We weigh up the various alternatives available and select those particular goods which yield the highest return from our limited resources. Economists use this idea to define the scope of their studies, but since there is no one definition which is complete and satisfactory. We keep ours, as simple as

possible. ‘Economics is the study of how people allocate their limited resources to provide for their wants’ (Harvey J. and Jowsey E., 2007).

The study of economics covers and become clearer if we examine certain points as follows:

Economics is a social science Economics is closely concerned with the findings of other sciences

Economics selects a particular aspect of human behavior But, in pursuing such studies, economists are facing two major difficulties as under:

1. Economists cannot experiment

2. Economists cannot directly measure welfare

Economics in perspective of construction industry The construction industry plays a powerful role in sustaining economic growth, in addition to producing structures that add to our productivity and quality of life.

The construction industry is very important to the economy of any country because of its size, the fact that it provides predominantly investment, and also this sector is one of major source of employment at all levels.

The British construction industry had a share of seven to eight per cent of the gross domestic product (GDP) in 1999 (Department of the Environment Transport and the Regions: Construction Statistics and Economics). The construction industry not only in the UK but internationally, is an important industry accounting for about three to ten per cent of gross domestic product (less in developing countries than in developed ones) and for 50 to 60 per cent of gross fixed capital formation in a majority of countries.

The public sector, is one of the major client of the construction industry has far- reaching effects on the industry and the economy because government has the means to exercise very direct control over demand on the industry and the way it is put to the industry.

The three characteristics which provide the key to the inter-relationship between the industry and the economy are; size, investment-goods industry and dependence on

government as a client. The problems e.g. business failure in the construction industry can affect the economy in general. There are also social costs of insolvencies to the owners, creditors, and employers of the firm lead the direct government intervention to aid the failing firm.

Construction economics produces a variety of materials and resources for tracking construction economic information to help contractors, owners and the public learn what is happening in regard to construction costs and its future prospects to enable the stakeholders be prepared for the upcoming challenges.

The role of economic systems for resource allocation Primarily economics deals with the individual or firm uses their resources to provide what they want. Similarly, in context of construction industry, the firms output is mainly depends on how he allocates their limited resources accordingly.

However, today’s decisions as to what shall be produced are linked only indirectly with the actual consumer. Thus if the maximum possible satisfaction is to be obtained from limited resources, there must be a link between producer and consumers. In

broad terms this is the function of ‘economic system’ and basically it consists in two parts as described under:

a) Firms – the business organizations which decide what product and services to be produce and bring together the different resources required.

b) Consumer/Households – which consume the goods or product, services and supply, such as labour, to produce them.

The market mechanism Market is laid on the freedom of the individual, both as a consumer and as the owner of resources. Consumer expresses his choice of product through the price he is willing to pay. And the owner of resources seeks to obtain as large a reward as possible. If consumer want more of the products than is being supplied at the current price, as indicated in their ‘bidding-up’ price. This increases the profit and earnings of firm. On the other hand, if consumers do not want a particular product, its price falls and producers or firm make a loss, and resources leave the industry. In short, the consumer is the king.

The same mechanism is being applicable in the construction industry e.g. between the client (consumer) and the contractor (producer).

The theory of demand and supply ‘That animal was cheap,’ remarks Phil Archer as the auctioneer’s hammer falls. ‘And no wonder,’ replies Brian Aldridge. ‘This has been a long winter. We’re now in middle of April, and the grasss is hardly growing. Hay’s running short and breeds are forced to sell sooner than expected. Old Giles is about the only farmer who’ll take the risk of buying extra cattle’ (Harvey J. and Jowsey E., 2007, p-34).

Simply we learn from Brian Aldridge’s observation that, the sale was not really determined by the final bid. In short, the price was determined by the interaction of the forces of demand and supply. The same theory can be applied in construction industry, for example at present the demand falls due to tough economic conditions which dictates the prices of real estate in the market.

Types of Market Structure In studying the market economy, it is essential to understand how price is determined. The prices in the construction industry are very much influenced by the market of construction material and supply of manpower. Therefore, type of market structure plays important role in the construction industry and we can categorize as follows:

World markets – today modern transport allows many commodities to have world market, a price change in one part of the world affects the price in the rest of the world. Examples of such commodities in the construction industry are building material, labour and skilled manpower.

Perfect and imperfect markets – the price of one commodity in one part affects its price in another part, hence the same price to be established. When price differences eliminated quickly, we can say market is a ‘perfect market’. Examples; if the client is aware about the construction process he can get similar price from the market as per his estimate or budget.

Organized produce market

In context of market structure in the construction industry can be classified in various sector as under;

1. Civil engineering – residential and non residential buildings etc.

2. Industrial building – plants and warehouses etc.

3. Infrastructure and transportation

4. Offshore engineering – oil field, mining and marine engineering etc.

Micro – and Macroeconomics

Microeconomics – Price system largely concerned with the relationship of demand to supply. It is a study of decision of individual consumers and of individual firms in a particular market i.e. small part of the economy, usually referred as microeconomics (from the Greek word mikros means small).

Macroeconomics – In addition to studying how resources are allocated to different uses, and level at which resources as a whole are being employed i.e. overall level of activity. In other way macroeconomics deals with the variables in aggregate i.e. the aggregate flow of income, aggregate investment, aggregate wages, and so on. In broader sense macroeconomics (from the Greek word makros means large) is a study of an organization or firm for its overall performance and this is widely used in construction industry for their financial analysis at corporate level.

Sustainable development Sustainable development can be defined as development that meets the needs of the present generation without compromising the ability of future generations to meet their needs.

There are differing views as to how to allocate resources efficiently and fairly over time. The free-market argues that the self-interest will ensure sustainability because, as resources become scarce, their price will rise in encouraging conservation and development alternatives. The evolution of ‘Green Building’ is one of important aspect of sustainable development in the construction industry.

Business failure and government intervention in the construction industry In general, the construction industry works on a lower profit margin than the other industries. However, low levels of working capital and profit margin can place a construction company in a vulnerable position. The traditional methods of tendering (i.e. to price the product before it is produced) and the uncertainties of weather and ground conditions all contribute to the degree of risk.

The construction industry is fragmented, very sensitive to economic cycles and highly competitive. The cost is still the key factor for the selection of winning contractor, which leads to put efficient contractors in a vulnerable and risky position.

Government policies can influence easily to the following ways;

industry’s economic cycle

in

- by raising interest rates and restricting credit

- by increasing taxes, or

- by reducing its own spending.

In addition to above, many other reasons are to be cited for the business failure in construction industry at present, few of them are listed as under:

Low working capital requirement (often negative)industry at present, few of them are listed as under: Sensitivity of the construction market to

Sensitivity of the construction market to economic cyclesas under: Low working capital requirement (often negative) Characteristics of construction contracts Insolvency

Characteristics of construction contractsSensitivity of the construction market to economic cycles Insolvency Bankruptcy Liquidation Receivership The Economy

Insolvencyto economic cycles Characteristics of construction contracts Bankruptcy Liquidation Receivership The Economy and

Bankruptcycycles Characteristics of construction contracts Insolvency Liquidation Receivership The Economy and Construction:

Liquidationof construction contracts Insolvency Bankruptcy Receivership The Economy and Construction: Measurement and

Receivershipof construction contracts Insolvency Bankruptcy Liquidation The Economy and Construction: Measurement and Manipulation

The Economy and Construction: Measurement and Manipulation The construction economics is very important to the modern construction industry, which plays a powerful role in sustaining the built environment. The construction economics can help in developing the business in competitive landscape and to achieve their objectives to sustain in the market and its future growth. Following tools and techniques are being used in the construction industry:

1.

Corporate performance

2. Internal & external appraisal

3. Forecasting of future performance

4. Final corporate plan

5. Financial planning

6. Basic budgeting in construction

7. Establishing turnover budgets

8. Financial control

9. Financial resources

10. Project level financial management

11. Cash flow forecasting of construction contracts

12. Corporate analysis

13. Investment and development appraisal

14. Investment appraisal techniques

2.7 Impact of global financial crisis on the construction industry

Introduction The current crisis in the world’s financial system has left the construction industry facing its toughest challenges for a generation and the impacts look set to get much worse before they get better. No country is immune from the impact of this crisis and much of the world, is already in, or about to enter into recession. Even buoyant construction markets of Middle-East such as the United Arab Emirates (UAE) are also effected, with construction growth rate expected to slowdown from 20% to 15% in 2009 (Al Mal Capital). The United Nations (UN) predicts world economic output will shrink by 0.4% in 2009 (UN’s World Economic Situation and Prospects Report,

2009).

These are serious times and the industry needs to be prepared to contribute to the recovery by retraining workers, maintaining the highest of standards of quality and supporting innovation. Construction professionals should continue and must follow their commitment to the issues of sustainability, health and safety, ethical business

practices and improved building standards. These will future-proof the industry and allow it to grow after the recovery of economy.

Companies seeking to find an extra edge in an increasingly competitive market are likely to employ greater innovation and techniques as they look to become more efficient. This could have benefits for the industry in the future, where innovation has never been more vital.

Impacts and challenges

Construction Output

It is clear that construction is going through a period of upheaval and entering into

deflation. Forecasts suggest that there will be a declination of 7% in output over the next three years, however this figure is depending on Government spending coming through as planned (Construction Products Association).

In the UK, construction output fell by 1.1% in the last quarter of 2008, and the UK as

a whole officially entered into recession (Office of National Statistics, January 2009).

The output of “government and other services” also fell by 0.5%, despite government pledges to use public spending to stave off the worst of the recession. In the third quarter of 2008 new order figures fell 39% below the average of the year before. Public housing orders were down 36%, and private housing orders were down 62% on the average of the year before. Private housing starts fell an estimated 43% during 2008, and it is anticipated that these will fall a further 32% in 2009.

A rapid decline in private work has been partly propped up by more public sectors

spending, however the outlook for the private sector over the next few quarters is set

to get worse. The Olympics will prop up the industry to a certain extent but the

cessation of office development will have a much greater effect.

Overall, even if all public sector funding was spent next year, the construction industry in 2009 would still see the largest percentage fall in output since the early nineties, when over 500,000 left the industry. This has been brought about by the

sharp fall in private sector investment in construction – offices, retail, entertainment, as well as private house building.

Public Sector Spending The Government’s decision to bring forward £3bn of capital spending on infrastructure was cautiously welcomed by the construction industry (Pre-budget statement, November 2008).

Given the extremely high levels of borrowing that the Treasury is expecting over the next few years, there is a risk that Government will fund later debt repayments with cuts in capital spending on construction further down the track.

There is also a risk that delays in the Government’s existing build programmes will lead to increased under-spend. Programmes such as the Building Schools for the Future Programme have already fallen behind schedule, and reports suggest that this is as a result of bureaucracy rather than a lack of funding.

Business Finance and Loss of Confidence According to the Confederation of British Industry (CBI), more than half of British firms have seen a decline in the ease of access to capital since the onset of the credit crunch; 30% of businesses have been, or expect to be refused new credit; and 78% expect business conditions to be worse next year. The Government must urgently take steps to unblock the financial markets and improve the flow of capital to business.

More innovative ways could be investigated by Government to help the industry survive, such as providing credit insurance; relaxing bonding requirements on public projects; setting up project bank accounts; and providing tax breaks/concessions for sustainable construction R&D. At present, the latter has effectively ground to a halt largely as a result of the deeply entrenched uncertainty that abounds.

Jobs & Loss of Skills Almost 400,000 jobs in the construction sector in England could be lost over the next two years. It is predicted that the worst affected area will be London, where 23% of

workers are expected to be made redundant (Public and Corporate Economic Consultants for the Local Government Association).

On the other hand, Eastern Europeans are responding to the downturn in the market by returning home, and this has eased the severity of the job situation in many instances.

Forecasts suggest that the jobs in the public sector may offer more security than those in the private sector. This reinforces the need for Government to establish how an accelerated public spending package will be implemented.

The construction Industry, in particular the house building Industry, is having to dramatically re-structure and down-size merely to survive. The loss of technical resource and therefore expertise has been considerable.

This is a real concern, particularly as the technology that underpins sustainable construction is becoming even more complex and at a time when we need experienced people if we are to meet our sustainability objectives. Furthermore, it is not something that can be addressed by short-term training and/or education.

Procurement It has been reported that the credit crunch is likely to reverse the industry’s trend towards negotiated contracts and partnering. Instead, there could be a swing back towards single stage, lowest bid tenders aimed at achieving the lowest possible outturn cost.

While single-stage tendering may be seen as a quick fix during the economic downturn, this does not take the long-term view, nor adequately consider best value for money. It does however provide a more risky financial environment which is likely to become a fertile breeding ground for claims and liquidations as contractors cut their profits to secure work in a decreasing market.

Partnering has proved itself as the most efficient way of undertaking all kinds of construction work including new buildings and infrastructure, alterations,

refurbishment and maintenance. Indeed the figures show that in the four years from 2001 to 2005, £700m of public money was saved, and the potential for two and a half billion in savings, would have been feasible had best practice been adopted across the board.

Fraud An unexpected knock-on effect of the credit crunch has been a dramatic rise in worldwide construction fraud. Evidence suggests that the average construction company’s loss to fraud has increased by 69% in the last year (Kroll Global Fraud Report), driven largely by tough economic conditions.

Most frequent types of fraud occurring in the construction industry include theft of physical assets or stock, financial mismanagement, management conflict of interest, and corruption and bribery.

Companies will need to be even more vigilant than usual to reduce fraud in the construction industry. Sustainability It is important that new buildings, not least those procured by government, are of the highest possible environmental standards. Green building can be at the heart of a low- carbon economic recovery, boosting growth and creating green collar jobs. This is particularly true in existing homes and buildings, where we need a massive programme of refurbishment to cut carbon, reduce energy bills and produce more comfortable places to live and work. By continuing to build using sustainable technologies the built environment will be preserved for future generations, and a proven record in sustainable design will be invaluable in gaining new contracts in the growing sustainable market.

Education and Training The future success of the construction industry depends on the availability of skilled professionals.

The credit crisis poses a significant threat to the number of students enrolling in graduate construction courses. Students may be apprehensive about pursuing a career

in construction in this unstable climate. This would result in a loss of specialist skills, which in turn would hinder the recovery and future development of the industry. As a result of these risks the Government is working with Construction Skills to try and secure as many positions as possible for students.

For professionals already within the industry, there is research to suggest that individuals with specialist skills or training could potentially gain a competitive advantage in the current economic climate (Consultative Committee for Professional Management Organizations). The research predicts that professional qualifications could result in an additional £152,000 in lifetime earnings. It also suggests that a working knowledge of sustainable building and other innovative methods will be a particular advantage, with major projects on the horizon requiring an extensive skilled workforce in these areas.

It is important for employers to train and encourage further development if they want to secure the future of the construction industry. This will ensure that their workforce is properly trained in up-to-date techniques and will put them in a stronger and more competitive position to win new contracts when market conditions improve. Although it may be inevitable for some to make financial cuts to survive, it is crucial to maintain a constant number of new innovative minds that will allow the industry to recovery and continue to grow.

2.8 Conclusion and summary

The global construction industry is highly fragmented with a large number of small players. However, with the adoption of new contracting practices, including design- build, bargaining power of buyers is moderately high as the builders have to take care of the interest of the buyers in the competitive market environment. Not many barriers to entry exist as the investment involved in research and development (R&D) and other activities is not very high.

However, the capital investment is subject to high risks due to the cyclical nature of the industry. Threat of substitutes is also not very high as the alternative for site-built

construction comes from the construction industry itself in the form of prefabricated buildings.

It uses concepts developed in Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Porter referred to these forces as the microenvironment, to contrast it with the more general term macro-environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace.

3.0

Chapter 3: UAE Construction & Engineering Industry: An

overview

3.1 Introduction

The United Arab Emirates (UAE) is part of south-eastern Arabian Peninsula. The country is a federation of seven emirates – Abu Dhabi, Dubai, Sharjah, Ajman, Ras Al-Khaimah, Fujairah and Umm Al-Quwain. Abu Dhabi is the capital city of UAE.

The UAE is the most dynamic and a highly emerging economy in the Middle-East, driven by its oil wealth; the country has witnessed an unmatched development and transformation over a period of time. Oil exports and foreign investments are the two important aspects which have completely changes the face of the UAE in the region.

The UAE is now one of the most competitive economies in the region when it comes to attract foreign investment. The rapid economic development of UAE has been fuelling an unprecedented construction boom and infrastructure development in all corners of the country that attracted investors from around the world. Most of the investments are directed in developing infrastructure for tourism, hospitality, retail and healthcare industry. The government’s efforts to diversify from oil-based income to other industries will drive the infrastructure investments in the country in coming years. It is anticipated that the UAE will continue to attract the bulk of investments and will emerge as the gateway to tap the emerging gulf market.

Despite the economic slowdown all over the world, the UAE seems to be committed to develop several projects in housing, tourism, industrial and commercial facilities, education and healthcare amenities, transportation, utilities, communications, ports and airports which are poised to change the face of urban landscape in the years.

3.2 Industry’s overview in perspective of culture

There are several important points to be considered, whilst conducting a business deal with Arabs. The foremost is “saving face”; typically Arabs detest being confronted, they find it rather unpleasant and in all likelihood will avoid such a person in future.

Hard sell does not always work in this region, if you compel or force an Arab into a position where he feels uncomfortable, even if you end up making the sale, there is the threat of losing future business with him.

When dealing with an Arab, precaution should be taken to leave enough maneuvering room for him or better still to allow him ample time to assess the current situation, with minimum discomfort or hurting their dignity.

Many books written on this are aptly titled “Business and Culture in the Middle East” or some other variation of above, implying that the two aspects are closely intertwined. Even when making a business deal an Arab is never in a hurry. It is always conducted giving due importance to conduct in light of their culture and customs. It is not only about dos and don’ts, although they are important, but it is also necessary to appreciate the essence of their culture, and understanding this is the stepping stone to success in business in the Middle East. The Arab businessmen generally are affluent and well traveled. Quite a high number of them are western educated and will easily recognize attempts at observing their customs, even though they may be a little awkward, and this will be appreciated and repaid in some kind.

Arabs by and large, prefer to have room for negotiations. Presentation of product or service plays an important part. To allow the purchaser to negotiate over delivery period, payments terms will enhance the possibility of closing the deal.

This also extends to construction industry, and this may be the reason of many problems relating to quality of the product, time and costs. To tell an Arab contractor he is performing inadequately, in front of his peers, even when it is obvious would be a faux pas. The client in such a case, being generally also an Arab, would not appreciate such an attempt. Enough space should be left to allow the contractor to save his face. Majority of client’s and contractor’s representatives are expatriate workers and when the problem arises, the principals will meet, and the issue discussed in a typical Arabic style away from the meeting room. Each awkward question is phrased to allow maneuverability and eventually conciliation will be made, ensuring that both parties are able to save face. During negotiations, a slow response should not be misconstrued as the inability of the client to understand the subject matter. Always

ask if there is any clarification required. Repeating questions will wrongly imply that you are thinking that the opponent is slow. Deliberation is inherent to the Arab nature.

An invitation to an Arabs’ home should be understood as an honour. Privacy is important in Arab culture, males and females are segregated. After ringing the bell, position yourself in such a manner that you don’t see into the house directly, allowing any females members to retire to female quarters. Upon welcoming one is taken to the Majlis, an area reserved for greeting non-family members where you will be served traditional gahwa with dates. Accept the drink offered even if you do not desire it and if you do not want more, convey politely by shaking the cup. Make an attempt to learn at least the formal greetings in Arabic. Remember to remove your shoes at the entrance of the Majlis if you see other guests’ shoes there, and never sit with the soles of your feet pointed towards anyone. Do not admire too much possessions of your host, he will be obliged to present them to you. It is considered impolite in Arab culture to ask about female members of their family.

Arabic hospitality roots from the old nomadic and extremely harsh environment in which they lived. Water as well as food used to be limited. Quite often travelers found themselves depending on the kindness of others, arriving at a camp they would share whatever food is available. The host would always show this courtesy because he knew that next time he might be the traveler.

3.3 Industry’s vision and its overall overview in gulf region

For the past ten to twelve years, the Gulf Co-operation Council (GCC) region, which comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE), has witnessed rapid economic, demographic and social changes. Since 1998, the GCC’s real GDP has expanded by an annual average growth rate of 5.2% and by a cumulative total of 65%. Meanwhile, the population has risen from just over 28 million in 1998 to an estimated 39 million in 2008.

Saudi Arabia is the largest in economy of the GCC, approximately 85% of government revenues and 65% of GDP are based on the oil sector. UAE, the world’s ninth-largest oil producer and arguably the most proactive of the GCC states, the picture is mixed. Dubai, the most high-profile and showy of the seven emirates which

make up the federation, is reliance on foreign investment and cyclical sectors such as tourism and property. Although only 6-7% of Dubai’s GDP comes directly from oil output, the emirate partly built its success by establishing a liberal, high-return and western-friendly business environment in the middle of a region of enormous wealth where political and economic stability often discouraged inward investment. Abu Dhabi is the capital of UAE, which controls more than 90% of the UAE’s oil reserves, despite sound growth in the non-oil sector in recent years, hydrocarbons are still the mainstay of the economy and the lifeblood of investment. A similar picture is evident in Qatar, which is being well-placed due to its gas reserves (the worlds third-largest) and remains a much undiversified economy.

The recent boom has focused world attention on the GCC economies, not only as exporters of oil and gas, but as investment destinations with major infrastructure projects, tourism and financial services sectors. As US economic growth has slowed down, therefore investors from GCC countries have begun to diversify their assets and making investments in Asia, Africa, MENA, and within the gulf region itself. Over the next decade or more, strong economic growth is to be underpinned by the GCC’s demographics and energy advantages. A range of major investments will be expected that are already underway.

According to Gulf Talent (July, 2009), Gulf economies are still expected to perform better than others due to high government spending in infrastructure projects and low exposure to risky assets. Qatar, Bahrain, Oman continues to enjoy the highest growth rate in the region due to ongoing development. The UAE, and in particular Dubai has slowdown the pace, but government efforts have improved the situation and the development, especially construction industry in infrastructure followed by other developments are back on track.

The UAE Construction Industry, including Real Estate sector, had been experiencing phenomenal growth rate in the past. The Construction Industry in the UAE had been witnessing massive investments from private, public and government-based organizations. The growth in the tourism sector was led by large number of real estate developers both local and foreign by investing in hotels, resorts and commercial projects. According to RNCOS (2009), in 2006, the total infrastructure industry stood

around US$ 11 Billion and contributed approximately 7.05% to the UAE’s GDP, and which was further increased in 2007 and was around US$ 12 Billion.

3.4 UAE’s legal concepts and regulations

The Civil Code refers to the following legal concepts:

Real property; anything of a permanently fixed in nature and which cannot be removed without damaging or altering its surroundings shall be regarded as real estate property Freehold; simply termed “ownership” and is best form of title. Holder has absolute ownership of land for unlimited duration includes ability to dispose absolutely of land and to beneficially use and exploit land Leasehold; a progressive interest in land which is limited to a period of time Usufruct; similar to “leasehold” concept. Right to occupy, use and exploit property belonging to another person, usually for up to a term of 99 years Musataha; also known as a “as a ground development lease”. Right to develop the land owned by another person for a limited period of time. Holder is deemed to be owner of the buildings constructed on the land during the period of time.

Free Zones

The Emirates of UAE are having free zone and Dubai is leading among them with having approximately 38 free zones includes JAFZA, DAFZA, TECOM and Dubai Media City etc. All free zones shares with similar type of structure and regulation such as:

Administration developed by free zone authority Businesses in free zones can have 100% foreign ownership Benefits relating to customs, currency, taxes, and recruitment etc. are offered In general, free zones are having their own regulations. However, there is no express regulation. UAE Laws and regulations are applicable few exception in Dubai International Financial Centre (DIFC) which has;

o authority to self regulate

o enacted a comprehensive real property law (establishing its own register and strata title law

Overview of Dubai real estate laws

Ownership; Amiri Decree passed in 2002 allows foreigners to acquire freehold title to land in certain designated areas. Law No. 7/2006 regulates ownership rights in Dubai (Article

4)

Table 3.1: Overview of Dubai real estate laws

UAE nationals (and Companies wholly owned by them)

GCC nationals (and Companies wholly owned by them)

Foreign nationals

The right to own land, including freehold, long lease of 99 years, right of usufruct or musataha

The right to own land, including freehold, long lease of 99 years, right of usufruct or musataha

The right to freehold title to land and to acquire usufruct or lease hold of land for a period not exceeding 99 years in certain designated areas

Regulation No. 3/2006 named 23 designated areas including Emirates Hills, Jebel Ali, World Island, Palm Jumeirah, Sheikh Zayed Road and Dubai Marina etc.

Regulation of brokers

By-Law No. 85/2006, regarding the Regulation of ‘Real Estate Brokers’ registered in Emirates of Dubai, a person cannot carry on brokerage activities unless licensed and registered. Exemption has been granted for Class A Brokers. Law imposes general obligation to comply with code of professional ethics, record of transactions and keeping documents, furnishing information as requested and responsibility for broker’s deception or mistake. Provision of penalty for breach of law includes; warning, suspensions from work for six months, listing Broker’s name on a “black list” and even cancellation of registration.

Regulation of developers

Law No. 8/2007, concerning to guarantee of Account of Real Estate Developments in the Emirates of Dubai; applicable to all developers who sell units off-plan and receive payments from purchasers or financiers before completion of the development Lands Department maintains a register of all licensed developers and account trustees all funds received by developers from their client’s or customers must be administered through ESCROW ACCOUNT controlled by a trustee and the Lands Department e.g. Lands Department retains 5% of the total funds in the account until the completion of the development. Penalty for non compliance; fine of not less than AED. 100,000 and incarceration

Landlord and tenants law

Law No. 26/2007, Regulating Relation between Landlord and Tenants of Property in the Emirates of Dubai can be summarized as under; all leases are to be registered with the Real Estate Regulatory Authority (RERA)

rent caps are to be applicable, during the first two years of the term. Subsequently rent increases can be agreed by the parties but ultimately determined and approved by RERA leases will be automatically renewed in certain circumstances Law provides mechanism for dispute resolution by arbitration

Similar arrangement for Regulating Relation between Landlord and Tenants of Property are also enforceable to other Emirates of UAE like Sharjah, Ras Al- Khaimah, Fujairah etc. but, regulated by different Government Authorities.

Strata title law

Law No. 27/2007, related to the Ownership of Joint Properties (Condominiums) in the Emirates of Dubai can be summarized as under; applicable to buildings and land in Dubai that are divided into units for separate ownership special registration system at the Lands Department requires establishment of a unit owner association defines and imposes rights and obligations on unit owners in respect of common property

Mortgage law

The Article – 35, decree issued by His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Prime Minister and Vice President of UAE, and Ruler of Dubai. According to this law, mortgage contracts must be registered with the Lands Department. Further, to registration all the information related to finances, including amount of loan, payback schedule i.e. period of repayment and the value of the property to which loan is linked are must be furnished to Lands Department. Both financiers and borrowers also need to provide full documents at the time of mortgage. However, property granted by the government to the nationals comes under exception (Gulf News, August 20, 2008).

Green building regulation in Dubai

Green building regulation in the Emirates of Dubai can be summarized as under;

a draft of green building criteria is under preparation with the Dubai Municipality (DM) which will be reviewed by a special committee before its enforcement Environment Health and Safety (EHS) regulatory arm of Dubai World has drafted and implemented ‘Green Building Regulations’ in 2007 for Dubai World Developments. This regulation known as EHS Green Regulations. minimum requirements are based on the US Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system What makes a building green according to EHS Green Regulations are;

o

minimum disturbance to site conditions

o

efficient use of water and water recycling

o

use of renewable energy source (minimum 35% of a building’s electricity consumption)

o

use of recycled and environmental friendly building material

o

effective controls and Building Management System (BMS)

In practice, the EHS Green Regulations are making their way into various

development contracts.

3.5 Industry’s regional market and its future outlook

UAE is the most proactive state of the GCC states, have a potential and a promising market of the construction industry in terms growth of market. Dubai is the most high-profile and showy of the seven emirates. The rapid economic development of UAE has been fuelling an unprecedented construction boom and infrastructure development in all corners of the country that attracted investors from around the world.

Despite the economic slowdown all over the world, the UAE seems to be committed to develop several projects in housing, tourism, industrial and commercial facilities, education and healthcare amenities, transportation, utilities, communications, ports and airports which are poised to change the face of urban landscape in the years. The construction activates are slightly brighter in the neighboring emirate of Abu Dhabi. However, other Emirates have slow down significantly the construction activities. A

similar picture is evident in neighboring state Qatar, which, despite being well-placed to see out the downturn due to its gas reserves (the world’s third-largest).

The projects in UAE currently are being executed or to be executed are tabulated for the reference purposes as given below.

Table 3.2: List of projects in UAE under execution or to be executed

     

MAIN

VALUE (US $ MN)

 

PROJECT TITLE

CLIENT

CONSULTANT

CONTRACTOR

STATUS

     

China State

   

City of Lights –C10, C10a & C11

Tamouh

Palm & Turner Architect

Construction &

101

- 250

Project Under

Investment

 

Construction

   

Engg. Corporation

Royal City Seasons Hotel in Abu Dhabi

City Seasons

James Cubitt & Partners

Tae Young

101

– 250

Project Under

Group

Contracting

 

Construction

 

Dubai

       

Ritaj Mixed-Use Complex in Dubai

Investment

Al Jabal

Robust

 

155

Project Under

Real Estate

consultants

Contracting

 

Construction

 

Company

NCC Harmony Tower, Dubai

NCC Urban

Islamic Architects

Al Mubarakia

 

408

Project Under

Contracting

 

Construction

   

Al Torath

El Seif Engg. & Contracting Company

   

Al Falah Development in Abu Dhabi-2000 Villas

Aldar

Project Under

Properties

Engineering

251-500

Construction

 

Consultants

Synergy Tower in Shams on Reem Island, Abu Dhabi

Sanaya

Adnan Saffarini,

Not Appointed

51-100

Project Under

Investment

Dubai

Design

Union Co-operative Hypermarket, Al Barsha, Dubai

 

Arch-dome

     

Union Co-

Bu Haleeba

Project Under

operative

Consulting

Contracting

 

33

Construction

Engineers

 
   

Consulting

     

Yasmin Tower in Ras Al Khaimah

Asteco

Engineering

Jog Union

Engineering

 

14

Project Under

Construction

Group

 
 

Bin

       

Arjaan Hotel Apartment, Abu Dhabi

Hamoodah

GA Architects & Engineers

Not Appointed

51-100

Project Under

Properties

Design

Yas Hotel In Yas Island, Abu Dhabi

Aldar

 

Al Futtaim

 

Project Under

Tike, Abu Dhabi

 

400

Construction

Properties

Carillion

 

Frankfurt Sports Tower, Dubai

Memon Real

Al Hamty Design & Engg. Consultancy

   

Bidding

Estate

Not Appointed

 

92

Underway for the Main Contract

The Villa Dubai- land

Dubai

Shadeed

Al Shafer General

51-100

Project Under

 

Ph-3, Dubai

Properties

Engineering

Contracting,

 

Construction

 

Dubai

     

Abou Seif

   

Lilies Tower in Emirates City

Building

Project Under

R Holdings

Adnan Saffarini

Contracting

87

Construction

 

Company

 

Al Jazeera

       

Al Habtoor

Project Under

Al Jazeera Club Tower

Capital Real

Atkins

Engineering

35

Construction

Estate

Sea View Club Hotel and Apartments

Das Real

Al Wasl Al Jadeed Consultants

   

Bidding Underway for the Main Contract

Estate

Not Appointed

51-100

 

Mixed-Use

Solanki

       

Developments On

Holdings &

Kassian (Canada)

Not Appointed

2450

Project Under

Design

Marjan Island

Investments

   

Dimensions

Saquer Engg. & Contracting Enterprises

   

Sami Business Tower In Business Bay

ACI Real

Engineering

51-100

Project Under

Estate

Construction

 

Consultants

Sandoval Townhouse & Residences in Jumeirah Village

   

Al Sayegh

 

Project Under

Bavaria Gulf

Diar consultant

Contacting

101-250

Construction

Al Gurm Complex in West Abu Dhabi-Banyan Tree Hotel

Aldar

Dar Al Handasah

Not Appointed

101-250

Project Under

Properties

Construction

 

AB

       

Bhatia General

Valencia Park at the Jumeirah Village

Properties

Federal

Project Under

(Aspiring

Engineering

Contracting

51-100

Construction

 

Brilliance)

Company

 

Mohammed

City Space

   

Project Under

32

Villas in Al Barsha

Engineering

Moal contracting

51-100

 

Al Nasser

Construction

Consultant

Le Diamond Tower at Waterfront

Darvesh

Aedas

Not Appointed

409

Project Under

Group

Design

 

Altitude Tower in Emirates City

BL

Adnan Saffarini

Mehwal Building

44

Project Under

Properties

Contracting

Construction

99

Villas in the Flame Tree Ridge at the Jumeirah Golf

         

Leisurecorp

Mott Mac Donald

Al Nekhreh

101-250

Project Under

Contracting

Construction

 

International

Wimberley Allison Tong & Goo

     

The Kingdom of Sheba Resort in Jumeirah Palm

Financial

Dubai Contracting

251-500

Project Under

Advisor,

Company

Construction

 

Dubai

 

New Building For

Sharjah

Art & Design

Globe

41

Project Under

Sharjah Municipality

Municipality

Engineering

Constructors

 

Construction

The Binary in Business Bay

Omniyat

Dubarch

Dutco Balfour

150

Project Under

Beatty

Construction

Source: Construction Week (July 03, 2009)

Industry’s future outlook

The UAE Construction Industry, including real estate sector, had been experiencing phenomenal growth rate in the past. The Construction Industry in the UAE had been witnessing massive investments pumped from private, public and government-based organizations. The growth in the tourism sector was led by large number of real estate

developers both local and multi-national organizations by investing in hotels, leisure’s & resorts and commercial projects which requires infrastructure as well other

facilities; transportation (road, rail and air) etc under;

Few of them are described briefly as

Tourism industry UAE has been one of the most emerging and fastest growing tourism industries in the part of middle-east, and particularly in the GCC region in the past. According RNCOS (2009) in 2008, UAE was on the top of the list of 11 countries in the region in terms of the travel and tourism sector. The UAE tourism sector has contributed 22.6% to GDP followed by other ME states Jordan at 19% and Lebanon at 18.7%.

The Government is promoting the tourism sector in order to diversify its economy to other non-oil based economy. The various departments such as Dubai Department of Commerce and Marketing, Abu Dhabi Tourism Authority and Sharjah Commerce and Tourism Development Authority are also promoting tourism at regional level to develop UAE as an international tourist place.

The growing tourism industry is creating opportunities and ample demand for infrastructure and tourism projects in the country. Due to current turbulence in economy of the world has also affected the tourism industry. However, government is optimistic about the development of country’s tourism sector and several new projects have been announced to tap the opportunity created by the growing demand of hotels and leisure’s.

Future and under construction projects in tourism and leisure industry

According to RNCOS (2009) the following developments are expected to come into existence by 2009-2012.

The AED 280 Million (US$ 216.2 Million) Star Gate theme park, in Zabeel Park would be operational in 2009.

The AED 800 Million (US$ 216.2 Million) amusement park expected to give a jolt to Ras Al Khaimah’s economy and would be operation by the end of 2009. The first phase of the WOW RAK park, for the value of AED 140 Million (US$ 37.8 Million) Snow-Themed Ice Land Water Park would open its gate for visitors in 2009.

Dubai – based developer Ruwad Holdings has shortlisted three locations for its themed destinations with a tie-up with California based film studio Paramount Pictures.

The Universal Studios will develop for a value of US$ 2.2 Billion theme park in Dubai, UAE and the 22 Million sq-ft long theme parks will be constructed within Dubai land.

Indian entertainment house Yash Raj Films (YRF) entered into a multi million dollar joint venture with investment firm Dubai Infinity Holding (DIH) to create an entertainment district. It would comprise theme park attractions, a movie place, unique hotel concepts and Indian entertainment concepts. The first phase of the project would be completed by 2012.

The construction of these leisure’s and theme parks will be undertaken in phases. Obviously the current economic crises have impacted the planning which is currently underway. The preliminary designs for the future plans are underway and the first phase is expected to be completed by 2012.

Hospitality industry

The UAE hospitality industry has also emerged as the fastest growing industry in the GCC region. The number of ongoing and planned projects has increased the investments in the past which have given a new dimension to the UAE’s hospitality

industry. According to RNCOS (2009) the hospitality industry had contributed substantially and it is changing the infrastructure landscape of the UAE in the region.

The massive development potential of the travel and tourism industry in UAE continues to be recognized with record level of investment in hospitality and its infrastructure projects. It is anticipated that the investment in the hospitality industry would increases to US$ 20 Billion by 2012, driven by the increasing number of projects to be announced, aiming to tap the growing potential in the industry.

Moreover, it is the government’s commitment, which is driving the investment in the country. The legal framework, are more favorable for the hospitality and its infrastructure development projects as compared to any other destination. Establishment of a facilitative business environment that encourages investors to put their wealth to productive and attracting the foreign investments has been an important aspect of the government’s policy towards the development of this sector.

According to RNCOS (2009), among individual emirates of the UAE, the city of Dubai would add 50,237 new rooms by the end of 2012. The Dubai consists of 31% of all the projects and Abu Dhabi, the capital city of UAE comes to next, has embarked on its emirate-wide development programme. Although, the tough and turbulent economic environment, slowdown the construction pace and their future planning. Abu Dhabi would be the next to Dubai in the development of hospitality sector in the country. Besides the UAE government efforts, emirate’s own developers would play a key role in the infrastructure development. Most of the new hotel in Abu Dhabi would come from the category of five star hotels, followed by hotel apartments. The rooms in the five star hotels would account for 52% of the total supply by 2010.

Sharjah is the third largest emirates of the UAE, is also witnessing a sustainable growth in number of tourists. Sharjah is considered as one of the most prominent regional destinations for GCC tourists, especially from Saudi Arabia and Oman accounted for 30% of the total tourist influx into the emirate. According to SCTDA & RNCOS (2009), the total number of hotels and hotel apartments has been increased to 103 by 2008 compare to 74 in 2007.

Future and under construction projects in hospitality industry

According to Zenath Real Estate (2009), the following projects are currently under construction.

AED 60 Million (US$ 16.2 Million) Landmark Inn, a 4-star hotel, Al Rigga Road, Dubai.

AED 150 Million (US$ 40.5 Million) Landmark Palace Hotel, Al Rigga Road, Dubai.

AED 150 Million (US$ 40.5 Million), 4- Start Hotel, Salahuddin Road, Dubai Investment Park.

AED 150 Million (US$ 40.5 Million), 4- Start Hotel, Corniche, Abu Dhabi.

AED 175 Million (US$ 47.3 Million), Dubai Deluxe Service Apartment in Sharjah-Ajman corniche.

Retail; malls and business complexes

UAE, particularly Dubai has risen from desert. Trade and tourism contribute major chunk of national economy which exhibiting the most vibrant retail scene in the Middle-East. Concept of common currency among GCC countries further augments the development of retail-businesses. Huge investments are coming for infrastructures and shopping malls. The country’s retail sector was mainly boosted by increasing house hold consumption and affluent population, supported by large no of expatriates comprising tourists and professionals flocking to the UAE’s booming tourism, trading sectors as well as modern shopping malls anchoring state of the art hypermarkets those were highlighting the Dubai on international arena. The recent world economic crisis has affected the level of tourist inflow in the UAE and the job cuts have further reduced the buying power of the customers. However government is optimistic about the market and it is expected that market would bounce back in due course of time.

In GCC region, Dubai will have the highest per capita retail mall GLA as compare to other emirates and GCC states. Further, large no of retail projects are under construction and by completion of these projects, Dubai is expected to account for approximately 25% of total GCC investments and more than 40% of the UAE investments by 2010.

Major future retail projects and its area

According to Colliers International (2009) the Dubai’s cumulative supply of shopping mall GLA would increase by almost 50% during 2008 to 2010. Some of the future retail projects are given below.

Table 3.3: Major retail projects in UAE by GLA

Project

Year

GLA

(Square Meter)

MBZ City Mall

2009

23,200

Rotana Khalifa Park

2009

11,000

Mirdiff City Centre

2009

183,000

Dubai Marina Mall

2009

77,000

Mall of Arabia (Ph-1)

2010

400,000

Darwish Island City

2010

70,000

Al Reem Island

2010

130,000

Source: Colliers International (2009)

Healthcare sector

Despite the likely effect of the economic downturn the healthcare sector is continuing to grow across the GCC, with a wide range of public, private and joint-ventures initiatives from GCC as well as from other developed countries.

According to Vijay Sharma, Director of Crescent Investments (2009) UAE is one of the fastest growing and most lucrative healthcare markets in the world, particularly in the middle-east due to its demographic feature in the MENA region. The healthcare market has seen a rapid growth in the past by increasing number of expatriate, growing demand for health services, especially from adjacent GCC and other Mena

region countries. The government is committed to improve the facilities and making all efforts to develop the best healthcare infrastructure.

For example the Dubai Healthcare City has ensure that the adequate services are being provided and making all efforts to attract the world’s best chain healthcare facilitators to serve this region and particularly to their own nationals. The compulsory medical insurance system is also one of the government commitments towards healthcare of all UAE residents and expatriate work force.

Major projects in healthcare sector According to RNCOS (2009) the Dubai Healthcare City is one of the biggest healthcare infrastructure projects, in the GCC region, with a total estimated investment of approximately US$ 3 Billion. The project is expected to complete by 2010, however, it may be delayed due to global financial crises.

Furthermore, according to RNCOS (2009) there are various projects to this sector come in to existence are as under.

Cleveland Clinic Abu Dhabi is a state of the art 360 beds hospital which would be completed and open by 2011.

National Reference Lab, a fully automated reference laboratory would be open in 2010.

Arzanah Wellness & Diagnostic Centre, a multi-specialty centre that is located in the mixed use development surrounding Zayed Stadium, Arzanah, is schedule to open in 2010.

Abu Dhabi Spine Centre anticipated to get opened in Arzanah in 2010.

Mohammed Bin Rashid Al Maktoum Academic Medical Centre expected to open in 2010.

3.6 Effects of global downturn in UAE construction industry

The current global gloom and recent developments in the MENA region have not made for good reading. Financial and credit crisis which began to engulf western

markets from late 2007, the Arab world is being increasingly dragged into the worldwide economic downturn and slumping demand for it’s most valuable export:

oil. During first quarter of 2009 (February 2009) crude oil prices were hovering around US$ 40 per barrel, having plummeted from an all-time high of US$ 147 in July 2008. For the Middle East’s major oil producers, this has not only decimated government revenues but also shattered confidence in stock markets, held back ambitious infrastructure plans and slashed overall growth prospects. However, for non-oil based economies the impact is different but arguably just as difficult, with the entire region’s key growth driver shuddering to a halt. But the region still looks set for solid growth in 2009 and new opportunities – particularly in the many under-explored countries and sectors – will arise.

The six GCC countries of Saudi Arabia, Bahrain, Kuwait, the United Arab Emirates (UAE), Qatar and Oman would appear to have most to lose from the dramatic fall in global oil demand.

In the UAE, the world’s ninth-largest oil producer and arguably the most pro-active of

the GCC states, the picture is mixed. Dubai, the most high-profile and showy of the seven emirates which make up the federation, is struggling to cope with the global downturn due to its previous reliance on foreign debt and cyclical sectors such as tourism and property, both of which are in crisis. Although only 6-7% of Dubai’s GDP comes directly from oil output, the emirate partly built its success by establishing a liberal, high-return and western-friendly business environment in the middle of a region of enormous wealth where political and economic stability often discouraged inward investment. However, things are slightly brighter in the neighboring emirate of Abu Dhabi, which controls more than 90% of the UAE’s oil reserves. The government has built up sizable reserves which can be deployed to sustain spending, while the pace of growth over the past few years was less breakneck and perhaps more realistic than that of Dubai. But, despite sound growth in the non- oil sector in recent years, hydrocarbons are still the mainstay of the economy and the lifeblood of investment.

A similar picture is evident in Qatar, which, despite being well-placed to see out the

downturn due to its gas reserves (the world’s third-largest) remains a much undiversified economy.

Outside of the GCC region, the situation is different. Not all middle-eastern countries are dependent on oil for their income, and for economies such as Syria, Tunisia or Jordan there may actually be some positive effects from the downturn. Inflation is set to ease sharply across the MENA region in 2009, despite remaining at extremely high levels by the end of 2008 in countries like Egypt (18-19%) or Syria (8-9%). This slowdown will therefore provide much-needed respite for both consumers and governments. But a sharp slowdown in growth is unavoidable. Inward foreign investment into countries such as Jordan or Syria was heavily reliant on flows of capital from the GCC, often in the form of over ambitious mega-projects in real estate or tourism.

In view of above, dozens of grandiose tourism, real estate and infrastructure projects are now being shelved, as credit shrivels up and buyers of off-plan property disappear. On other hand the positive side, the Gulf’s much-discussed sovereign wealth funds (SWFs) are now more likely to invest domestically and keep local economies moving. This is not only for political and strategic reasons, but also because many have lost heavily on international investments. The Kuwait Investment Authority (KIA), for instance, is believed to have losses of around 80% of its US$ 5 billion investments in Merrill Lynch and Citigroup, while assets at the Abu Dhabi Investment Authority (ADIA) are thought to be 25-30% over than they were six months ago.

Amidst all the doom-saying, there will be certainly opportunity for firms looking to do business in the GCC region, especially in the UAE. Swollen government coffers tend to erode motivation to diversify new areas of the economy and liberalizations in regulations, improve the business environment or offer better incentives for foreign investors. Due to under-valued stock markets and falling real estate prices, especially in countries like the UAE, might also raise opportunities for brave investors, though many will prefer to watch and wait over the course of the year.

The UAE is now one of the most competitive economies in the region and rapid economic developments has been fuelling an unprecedented construction boom and infrastructure development in all corners of the country that attracted investors from around the world. Most of the investments are directed into developing infrastructure for tourism, hospitality, retail and healthcare industry. The government’s efforts to

diversify from oil-based income to other industries and liberalization in policies will drive further investments in the coming years. It is anticipated that the UAE will continue to attract the bulk of investments and will emerge as the gateway to tap the emerging gulf market.

Despite the economic slowdown all over the world, the UAE seems to be committed to develop several projects in housing, tourism, industrial and commercial facilities, education and healthcare amenities, transportation (surface, rails and airports etc.), utilities, communications, and ports which are poised to change the face of urban landscape within the years.

According to ‘Emirates Business’ and a study of Kuwait National Bank (quoting ‘Meed’ project database), reported that the UAE is carrying out projects in construction and other sectors with a total value of nearly $929 billion (AED 3.4 trillion), which is around 45 per cent of combined value of projects planned or being carried out in the GCC totaled around $2.1 trillion (AED7.7 trillion) at the end of the second quarter of 2009, more than four times the estimated value of projects in June 2005, an annual growth of nearly 50 per cent.

“The UAE accounts for by far the biggest share of project activity, and affirming its position as the leading GCC country in attracting capital investment. Some 81 per cent of the UAE projects are in the construction sector.”

"Indeed, the construction sector dominates in every GCC country, though to a lesser degree… while the total value of projects in the UAE is far higher than anywhere else, Saudi Arabia has a much larger base of non-construction related projects – some $224bn, which is 28 per cent larger than in the UAE. This probably reflects the larger size of the Saudi economy in absolute terms, necessitating a greater degree of industrial diversification.”

"The overwhelming balance of non-construction-related projects in other GCC countries comes in the oil and gas, power and utilities sectors, with the latter reflecting the region's growing domestic power needs," the study added.

Markets to watch in 2009

The year 2009 will be critical for all countries in the MENA as well in GCC, with the impact of the global economic downturn and low oil prices still being played out. All markets will face both challenges and opportunities. However, government led funds will boost the confidence in the market.

3.7 Conclusion and summary

The UAE construction industry is likely to continue to grow fairly and strongly over the next few years, although its growth rate is fluctuating and forecast suggests that, this rate of growth is set to decline for the period of next two years. The construction industry, in particular, is being boosted by government led public-sector construction projects. The fastest-growing sector is likely to be infrastructure because of the high level of investment in transport infrastructure projects under the Government's.

Looking forward, the construction and engineering industry is not expected to deviate from its current value growth position and forecast suggest that it will accelerate to an anticipated CAGR of 6.2% for the next five-year period up to 2012.

4.0 Chapter

perspective of competitive landscape

4:

Construction

&

Engineering

Industry:

In

4.1 Introduction

Due to rapid changes into the professional competition in all over world, built environment requires construction sector stands successfully through technological development and according to market requirement. Therefore construction industry requires strategies and its implementation for the successful business and to compete with their rivals in today’s business environment. Strategy development is essential part to enhancing the performance of an organization and requires careful planning and strategic thinking to achieve their business goals in competitive environment. And strategic management is a development, about taking decision today, based on uncertain information to improve the chances of success and competitiveness in future.

According to Ansoff (1994), strategic management is a systematic approach to position and relate the firm to its environment in a way which will ensure its continued success and make it secured from surprises. Strategy is to be understood as

a guiding map for the organization to achieve its clear intention for development and

growth. As per Chandler (1962), strategy is to ascertain long term goals and objective

of any organization and devising a way and a course of action to achieve these goals and allocating necessary resources to bring these plans to reality.

As argued by Mintzberg (1994), most of the organizations need strategy to set direction for them and to outsmart the competitors; a company can outperform the

competitors only if it can establish a difference it can preserve. The assumption here

is that the company with better strategy will win or the competitor with clear strategy

will outperform the one that has none. Alfred Sloan (Sloan, A.D, 1963) supports this idea and justifies the strategy developed at General Motors under his leadership:

“some kind of rational policy was called for …it was necessary to know what one was trying to do”. This idea can also be implemented into construction industry. Finally, strategy not only defines the organization but also gives a direction and identity to the people working in the organization.

In context of UAE construction industry, only few international and local companies have separate department for strategic management. It indicates that higher management is not giving enough significance to strategy within their organization. Many strategic decisions are taken in contracting companies by higher management based on experience and understanding of built environment rather than theories & practices.

4.2 Industries segmentation in UAE

The construction and engineering industry of middle-east, particularly in GCC primarily can be subdivided into segments as under:

A. Construction sector

B. Non-construction sector

Construction sector

In context of GCC countries market structure, particularly in UAE, the construction sector can be classified as under;

1. Civil engineering – residential and non residential buildings etc.

2. Industrial building – plants and warehouses etc.

3. Infrastructure and transportation

1. Civil engineering

Civil engineering sector includes; residential non residential construction buildings. Further non residential buildings includes; shopping malls, commercial complexes, office buildings, hospitality and healthcare etc.

2. Industrial buildings

Industrial

buildings etc.

building

includes;

industrial

plants,

warehouses

and

other

ancillary

3. Infrastructure and transportation Infrastructure and transportation sector includes; road network, bridges, water and electricity network, storm water and sewerage system, telecommunication and civil aviation.

Non construction sector

In context of GCC countries non construction sector is one of the major sector for oil producing countries which includes; the petrochemical, power and utilities sectors.

As per recently published report in ‘Emirates Business’, the UAE is carrying out projects in construction and other sectors with a total value of nearly $929 billion (AED 3.4 trillion), which is around 45 per cent of combined value of projects planned or being carried out in the GCC totaled around $2.1 trillion (AED7.7 trillion). Further, Kingdom of Saudi Arabia is on top for the non-construction-related projects, stems largely from the petrochemical, power and utilities sectors. The value of the Kingdom's projects in those sectors is about 35 per cent larger than in the UAE.

Table 4.1: UAE Construction & Engineering Industry category segmentation:

%age share by value

Category

% Share

Construction sector

81%

Non construction sector

19%

Total

100.00%

(Source: Emirates Business, 2009)

Figure 4.1: UAE Construction & Engineering Industry category segmentation: %age share by value 4.3 Industries

Figure 4.1: UAE Construction & Engineering Industry category segmentation:

%age share by value

4.3 Industries competitive landscape in UAE

In context of UAE construction and engineering industries, competitive landscape can be classified as under:

1. Real estate developers

2. Contractors

3. Project Management and Engineering Consultants

The major competitors in the present UAE’s Construction & Engineering Industry are as follows and few of them are briefly described.

Real estate developers

§ Emaar Properties

§ Nakheel

§ Mubadala Development

§ Aldar

§ Tourism Development & Investment Company (TDIC)

§ Damac Properties

§ Union Properties

Contractors

§ Arabtec Construction

§ Al Nabodah Contracting

§ Al Futtaim Carillion

§ Al Habtoor Engineering

§ Guangsha Group

§ Pivot Engineering and General Contracting Co.

Project Managers and Engineering Consultants

§ Turner Construction

§ Hill International

§ WS Atkins

§ WSP Middle East

Emaar Properties PJSC

Emaar is a Dubai, UAE based public joint stock company (PJSC) and they working in real estate properties investment and its development, property management, education, healthcare, retail and hospitality sectors of businesses. In addition to these services they are also working in the field of financial service providers. Emaar is one of the world's largest real estate companies and is rapidly evolving to become a global provider of premier lifestyles. Its major projects include Burj Dubai, Marina, Ranches, The Lake and The Views etc.

Emaar was established in 1997 and contributing to Dubai's rapid growth by not just building homes, but develops value-added, master-planned communities. In view of its vision for 2010, Emaar is growing with a strategy of expansion to their business in all segments. Due to its success in Dubai, Emaar is extending its expertise to international markets and at presently working in over 36 countries of MENA, Pan- Asia, Europe and North America regions.

Nakheel

Nakheel is one of the world’s largest privately managed holding companies and doing business across five continents encompasses to nearly 100 countries in the real estate

development and a key player in the vision of the Dubai for the 21 st century. Nakheel has developed many innovative and landmark projects in Dubai namely The Palm Jumeirah, The Palm Jebel Ali, The Palm Deira, The World, Waterfront and Dragon Mart etc. Nakheel is the key entity within Dubai world.

Their investments includes in hotels and resorts in New York, Washington DC, Los Cabos, Mexico and in the MENA region.

Mubadala Development

Mubadala PJSC was established in 2002 in the oil rich emirate Abu Dhabi, in the field of economically diverse portfolio of commercial initiatives. It was created to diversify and expand the emirate’s interests beyond domestic resources of oil and gas and it is fundamentally based on long term investments that deliver strong financial returns.

The company manages several multi-billion dollar projects in the local, regional, and international market of investments. Due to its investment and development projects, they become an icon for Emirate of Abu Dhabi as a catalyst for, and a reflection of economic diversification. Its impact is evident in domestic as well as in international market in various sectors such as energy, aerospace, real estate, healthcare, technology, infrastructure, and other services.

ALDAR

Aldar was launched in 2005 in the emirates of Abu Dhabi as a premier real estate developer and investment company, and owned by leading Abu Dhabi institutions, stakeholders and investors.

Aldar Properties has a key competitive advantage due to its financial standing, resources, management expertise and the most important Government’s support to the Emirate’s booming property industry. Currently they are involved in various major development projects within the Emirate of Abu Dhabi includes; Al Yas Island, Al Raha Beach, Central Market, Nareel Island and Noor Al Ain etc.

Arabtec Construction LLC

Arabtec is a leading construction firm in the UAE as well in other parts of GCC. The firm has created a unique characteristic of construction environment which relates to their success in the past few years by adapting proper strategy and thinking to attain its leading position in the market.

Arabtec was established in 1975 and since their creation; they have executed numbers of major and prestigious projects in all sectors with “Quality & Value”. At present, the company have equipped with modern plants and equipments. They have employed

a multi-national team of more than 52,000 staff at different levels. They have

integrated its construction expertise in other sectors like property, investing in other

businesses and by providing total solution to their clients. By making strategic JV’s and partnering, they have entered into international market and looking business opportunities in other regions.

In view of present economic recession throughout the world, and the GCC in particular UAE also hit badly where the company have main businesses. But the Arabtec’s strategic business policies and their expansion to other region, minimizes the likely effect of crisis.

Pivot Engineering & General Contracting Co.

Pivot Engineering was established in the emirates of Abu Dhabi in 1978 and at present they have a strong and multi cultural work force of more than 5000 employees

at different levels. Its continuous growth is not restricted to a particular sector or

territory, their services for wide range of projects from substations, desalination plants, high rise buildings, commercial and residential complexes, entrainment parks and shopping malls throughout the Middle East.

4.4

Five forces strategy analysis

Porter’s five forces

Michael Porter’s five forces model, reflects the competitive intensity and value or attractiveness of the industry. This model is considered as outside-in strategic technique and is widely used to study and analyze the five competitive forces. Porter (1980) suggests that competition in an industry consists of five main competitive forces. These are the level of threat that the new competitors will enter into the market, the threat posed by substitute products and the bargaining power of both the suppliers and buyers. These in turn affect the fifth force, the intensity of rivalry between the existing competitors. This framework can be utilized on the UAE Construction Industry to perform a profit analysis. This model also provides useful data for SWOT analysis.

The rivalry among firms in the industry.

The bargaining power customer in the industry.

The impact of the suppliers on firms.

The threat of new firm entering in the industry.

The threat of substitute products in the industry.

POTENTIAL ENTRANTS

(1)

(Threat of New Entrants)

POTENTIAL ENTRANTS (1) (Threat of New Entrants ) INDUSTRY COMPETITORS (5) RIVALRY AMONG EXISTING FIRMS

INDUSTRY COMPETITORS

(5)

RIVALRY AMONG

EXISTING FIRMS

INDUSTRY COMPETITORS (5) RIVALRY AMONG EXISTING FIRMS SUBSTITUTES (2) ∑ (Threat of Substitute Products or

SUBSTITUTES (2)

(Threat of Substitute Products

or Services)

SUPPLIERS (3)

(Bargaining Power of

Suppliers)

BUYERS (4) (Bargaining Power of Buyers)

of Suppliers) BUYERS (4) (Bargaining Power of Buyers) Figure 4.2: Porter’s five forces model (Source:
of Suppliers) BUYERS (4) (Bargaining Power of Buyers) Figure 4.2: Porter’s five forces model (Source:

Figure 4.2: Porter’s five forces model (Source: Porter’s, 1980)

However there is certain limitation to Porter’s five forces model, it does consider

internal strengths of the company (inside-out strategy). This model primarily deals

with single individual business and does not cope with the complexities of large

corporations.

In order to beat the competitors, the organisation must analyse the competition and

establish a clearly defined marketing strategy in order to provide superior customer

satisfaction.

Bargaining power of buyers

Increasing raw material prices reduce bargaining power of builders

UAE’s cement industry is highly integrated with high barriers to entry. Most of the

companies are vertically integrated, operating for example ready-mix concrete

companies, construction companies and aggregate businesses. Besides, as the costs of

construction materials like steel and concrete have been rising, it has been putting

pressures on the builders to pass some of these costs on to the customers in order to

proceed with the projects. Compounding the pressure of the fuel surcharges levied by

gravel, lumber and concrete suppliers as diesel prices have soared. Thus the builders

are left with little bargaining power in the run. Over the last several years, increases in

high-rise construction costs have been steadily absorbed by developers fighting to

preserve market share in a fiercely competitive environment. However, due to recent

financial crisis, costs of diesel has been gone down and due to slow down of

constriction activity the demand of construction material is also reduced.

Canada Shortage of skilled workforce

The UAE construction industry is generally marred by the shortage of skilled labor

during the boom period of construction. UAE has traditionally obtained much of its

labor supply from other countries, particularly from Asian countries. The sector works

on the basis of having a ‘pool of human resources’ available to projects teams.

The private sector relies on external sources or other countries from medium to higher

level and trained the workforce internally and made available for their, job

requirements. Locally available workers are generally seen to be costly. Among the

foreigners, westerners are seems to be costly but providing better quality of workmanship and professionalism. Although increased automation of the building process and intelligent building technologies may reduce some of these impacts, the increasing pull of the high-tech and service industries exacerbates the skills shortage issue. As a result, skilled labor is a valued asset in the industry and hence enjoys higher bargaining power.

Bargaining power of suppliers

Construction firms serve the changing requirements of buyers

Construction activity in UAE was booming during the past five years and the demand for all types of housing particularly in the Emirates of Dubai and Abu Dhabi is set to surge ahead over the next few years. Strong affordability levels and lower borrowing costs, and government’s regulations for the expatriates, besides changing demographics are seen as the factors fuelling the market performance. A significant change in the demand is likely to come from the baby boomers moving into their prime ownership years in this decade. The increasing trends towards UAE population and influx of expatriates are expected to lead to increased demands for specialized facilities and improved building automation. Builders have to develop “maintenance free” communities for the peoples of UAE and provide more and sophisticated amenities. The boomers are defining what they want and in the process leading the construction companies to customize houses according to their requirements. This generation looks favorably at communities which provide an active lifestyle and a secure environment. With the competition increasing and customer preferences changing, condominium developers are also following a trend to incorporate housing upgrades as standard features. Construction Industry in Canada

Competitive rivalry in the industry

Highly fragmented industry

The cyclical nature of the construction market has had an immense impact on the industry’s structure. The result has been an industry that is highly fragmented, specialized and comprising primarily of small companies. There are many small companies, associations and agencies developed only during the boom period of

construction in the market at dispersed at local and national levels. Small subcontracting companies comprising a considerable size of the construction businesses. Construction is considered primarily to be a domestic activity. Geographically, most of these firms are based in three Emirates, Dubai, Abu Dhabi and Sharjah. In order of importance, Dubai has the largest number, and with the important Emirates driving the construction growth in the country. It is followed by Abu Dhabi and Sharjah. The largest numbers of these companies operate in the residential construction, electrical, plumbing and equipment installation, exterior finishing and interior finishing sectors.

Very few UAE firms provide the full range of services required to carry out the entire construction process (e.g., development, design, engineering, construction). However, with the adoption of new contracting practices, including design-build, vertical and horizontal consolidation of companies is taking place gradually. There are some indications that both these types of consolidation are likely to accelerate in the mid- term. However, it is expected that international companies are likely to penetrate in the market lead to more competitive market in near future.

Thus, although the UAE construction industry is highly fragmented with a large number of small players competing fiercely for market share, the industry is moving towards consolidation gradually.

Low differentiation increases competition

Most construction work is project-oriented involving a unique design, site and team setup to perform the work. The majority of construction work is carried out at a building site rather than in a factory to produce a custom designed and often complex product. Although the final constructed product is often unique, standard processes and methods can be employed to develop designs, manage projects and deliver products that meet customer requirements. Besides, most work is procured at a fixed price and awarded to the lowest bidder. Thus the competition for price becomes intense and intensifies rivalry.

Industry in Canada

Threat of new entrants

Project-based hiring makes entering and exiting easy

Given the cyclical nature of the construction industry, labor force and hiring practices in the industry are subject to the boom-bust cycle. Most workers are hired on a project-basis, and only a small number of key employees are employed for the long term. As a consequence, firms are able to expand and contract their operations (and enter and exit the industry) in a relatively easy manner in response to changing business conditions.

Uncertainty may deter capital investment

Although the R&D expenditures in this industry are low, capital investment involves high risk and uncertain returns due to cyclical nature of demand in the industry. The construction sector is considered to be three times more volatile than the service sector. Firms are inhibited by the substantial upfront costs involved in bidding on prestigious and international projects and in establishing a presence in the markets. Companies often find it difficult to access financing and investment capital and to assemble the necessary financial packages.

Threat of substitutes

Increasing popularity of prefabricated structures

Factory-built housing has been coming up as an alternative for site-built construction. Factory-built housing includes – pre-engineered, panelized, modular and manufactured.

C

4.5 Strategic development process in industry’s regional market

Success of strategy in the Built Environment depends on a formulation of path or framework as discussed below;

Strategic management thinking and its analysis

The sources of competitive advantage are: organization resources and capabilities, excellence in strategy implementation, quality, time, innovation and creativity (Fearer

and Chaharbaghi, 1997). However, many scholars argued that the best source of sustainable competitive advantage is the organization’s ability to learn.

Porter (1980) analyzed the structure of an industry in terms of five basic forces which are buyers, suppliers, potential competitors, substitutes and competitive advantage. And competitive advantage is the most important force which shapes the market environment. It is a combination of factors that makes an organization more successful than others.

Organizations internal strengths, weaknesses threats and opportunities

Chinowsky & Meredith (2000), states that the formulation of strategy related to built environment businesses being represented by seven theories of strategy as shown below;

represented by seven theories of strategy as shown below; Figure 4.3: Seven theories of strategy (Adapted

Figure 4.3: Seven theories of strategy (Adapted from Chinowsky & Meredith, 2000)

On other hand, the key external forces of the organization should be identified and compared with their strengths and weaknesses. This is one of important exercise for the strategist to enables them to make a strategic decision. SWOT (Strength, Weakness, Opportunities and Threats) analysis is generally used for this purpose and this technique forecast the futures which find a match between organization’s capabilities and opportunities in the competitive landscape. Further, according to Argenti (1990), this stage is the most important for the organizations to generate strategic choices based on SWOT analysis or other similar techniques.

Strategic alternatives

Ansoff (1994) has presented a matrix that focuses on existing and potential products and its market for the organization. This can be explained as if a developer is losing by developing luxury villas due to lack of demand while there is a good opportunity to develop low cost villas with better margin or profit. If the developer feels the market is promising for this, obviously he will go for developing the low cost villas.

In next step of strategic development process is to evaluate the available alternatives and select the best option based on conditions as described under:

1. The strategy must give a chance to the organization to meet their targets and protect it from risks that might drag its performance below target levels.

2. The strategy must utilize the most impressive strengths of the organization and to correct all major weaknesses.

3. Finally, it must reduce the impact of threats and exploit all high potential opportunities (Fellows et al., 2002).

Argenti (1990) argued that there will be one permutation of strategies that will come closer than any other to meet the above conditions.

This argument appears true as the evaluation of strategy options or alternatives are governed with a lot of parameters. And the evaluation report should be prepared in consideration of these parameters such as market conditions, resources, calculation of projected turnover and profit, and optimistic and pessimistic assumptions.

Implementation of strategy

Once a strategy has been analyzed and selected, the next task is then how to implement it into organizational action.

“Resources and capabilities can originate different areas of the organization and it is the task of strategists to identify those who can be used to differentiate the organization from its competitors” (Rainer Feurer & Kazem Charbaghi, 1995, p

15&16).

The

next task is how to implement the selected strategy into organizational action.

The

implementation of strategy is an administrative process which requires a balance

between the selected strategy and way the organization operates.

the selected strategy and way the organization operates. Figure 4.4: Implementing Strategy –Key forces (Adapted

Figure 4.4: Implementing Strategy –Key forces (Adapted from Cole, 1997)

Mc Kinsey’s 7’s Model may deal in succession for the implementation of any

strategic changes. This model consists of seven factors that help the strategists in understanding the extent of change required in implementing strategy are:

The top 3Ss, termed as ‘Hard Ss’ are described as under:

1. Strategy; the direction and scope of company for long term.

2. Structure; basic organization, area of expertise and responsibility of company and how to inter-relate.

3. Systems; formal and informal procedures that govern day to day working which covers from management information systems to the system at the point of contact with the customer.

The other 4Ss or ‘Soft Ss’ are described as under:

1. Skills; the capabilities and competencies which exist within the company.

2. Shared values; the values and belief of the company, which guide employees towards, ‘valued behavior’.

3.

Staff; the company’s people resources and how the have been developed, trained and motivated to meet the company’s objectives and goals.

4. Style; the leadership approach of top management and company’s overall approach towards day to day business.

Monitoring and review of performance

The final stage of SM process requires a continuous and effective monitoring system for the tracking of strategies and its plan of action. The purpose of review process is to check whether the adopted strategy is working in the right direction or not. Hence a certain methodology is required to develop for this purpose and the performance of the organization needs to be analysed according to their targets and objectives of business.

This process can be performed at three different levels: operational, commercial and corporate level. Rescue measures, in the form of effective and proper decisions are to be taken if performance doesn’t meet the requirement and objectives of the organization.

On other hand, SM is a process of continually changing, if management realized the strategy does not fulfill the requirement and not producing the anticipated results then necessary changes required to be adjusted into the strategy and their plan. Here the term change indicates for introducing new ideas or plan in the system.

4.6 Conclusion and summary

Construction in UAE is primarily focused on the domestic market and is extremely fragmented. It uses concepts developed in Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Porter referred to these forces as the microenvironment, to contrast it with the more general term macro-environment.

However, the capital investment is subject to high risks due to the cyclical nature of the industry. Threat of substitutes is also not very high as the alternative for site-built construction comes from the construction industry itself in the form of prefabricated

buildings. Commercial environment has also been transformed into a competitive one. Therefore, strategy development is essential part to enhancing the performance of an organization and requires careful planning and strategic thinking to achieve their business goals in competitive environment.

Another critical part of SM process is monitoring and reviewing of performance in accordance with the established criteria. Monitoring and reviewing the whole process can improve the chances of success in the business.

If the selected strategy does not attain its target then some radical changes may be needed to modify the old strategy, in order to stand and compete with the competitors in the existing market condition.

Research methodology and findings:

5.0 Chapter 5: Frame work of research design and data collection

5.1 Introduction

The Financial landscape is going through a period upheaval due to present crisis and the construction industry is also facing its toughest challenge of the generation. Top of this only limited number of companies being rescued either in USA or Europe. Developing countries of Asia are clearly experiencing significant negative impact, through stock market, turbulence and domestic credit stringency. This is one of the most chaotic times in the past 80 years.

GCC countries are trying to respond the present crisis in a coordinated way. However they are not success till date. UAE and particularly Dubai construction industry is also going through a period upheaval.

There are limited researches into the factors that may act as barriers to achieving sustainability. However, recently many reports have been published on the present crisis relating to construction industry and facts finding data has been published for the industry at present.

Conceded that, researchers have paid more attention to the financial aspects rather than facts finding issues on barriers or threats to the industry. In case of UAE and particularly for Dubai construction industry there is limited research till date on barriers to the industry. Therefore this study focused on both quantitative and qualitative research approach in order to understand the barriers to the industry at present crisis and how to minimize its likely effect. The survey data was used to confirm or deny the perceived validity of assumed barriers interview data was used to further test the perceived barriers and to find out ways to over come those barriers.

In short two phase study was conducted The first phase of study involved a revision of a variety of literatures regarding construction industry and its overview in present economical crisis, testing tools barriers to the construction industry and its implementation. Documents included research papers, journals, government policies, construction industry journals, case studies and various web sites such as Arabian Business, Frontier Middle East RICS and CIOB etc.

The second phase of the methodology consisted of web based survey with questionnaires related to aim and objectives of the research. And semi structured interviews in person for the industry health checks with key professionals and represented a variety of discipline industry, Architects, developers, project managers. Care was taken to include diversity in order of perspective be obtained.

Literature Review

Perceived Barriers

be obtained. Literature Review Perceived Barriers Web Based Surveys Semi Structure Interviews Tested Barriers
be obtained. Literature Review Perceived Barriers Web Based Surveys Semi Structure Interviews Tested Barriers

Web Based Surveys

Semi Structure Interviews

Barriers Web Based Surveys Semi Structure Interviews Tested Barriers Barrier Analysis Result Figure 5.1: Research
Barriers Web Based Surveys Semi Structure Interviews Tested Barriers Barrier Analysis Result Figure 5.1: Research

Tested Barriers

Barrier Analysis

Semi Structure Interviews Tested Barriers Barrier Analysis Result Figure 5.1: Research methodology Irshad Zafar Malik,

Result

Figure 5.1: Research methodology

5.2

Pilot study

To validate the content of the survey, a pilot survey for the questionnaires was sent to two professionals, related to the construction industry with the research data to get their opinions and comments on threats/barriers discovered in literature review for the UAE construction industry. The survey questionnaires have been amended as per their comments; feedback and suggestions which are relevant to the objectives of research to be achieved.

The instrument as well as the methodology with survey questionnaire was sent to the dissertation supervisor for his suggestions and approval. Once approval was granted and target professionals was identified the survey questionnaires was sent to the professionals for their opinion and suggestions through web designed survey on web site; www. Free online.com as well few of them were contacted personally with a hardcopy of questionnaire for interview.

Scales and Measurement

This research was designed based on assumed barriers to web based survey was done. Assumed barriers to the UAE construction industry was tested using likert-scale questions (Wilkson & Birmingham 2003).

5.3 Research instruments

There are two kind of research instruments namely qualitative research instrument. This research initialized both methods for the sole purpose of testing the assumed barriers and collecting possible solutions to overcome those barriers.

Instruments

Instruments Quantitative Trend of Population Qualitative Possible Solution Analyze Result Figure 5.2: Research instruments
Instruments Quantitative Trend of Population Qualitative Possible Solution Analyze Result Figure 5.2: Research instruments

Quantitative

Trend of Population

Qualitative

Possible Solution

Analyze

Trend of Population Qualitative Possible Solution Analyze Result Figure 5.2: Research instruments 5.4 Data collection

Result

Figure 5.2: Research instruments

5.4 Data collection

According to Wilkson & Birminghom (2003) electronic, self administered surveys give good and better response. Hence survey was done using internet survey questionnaire and were sent to the target interviewers through email with a web based link was provided.

Once participants were finished survey, they were asked to click finish button and their responses were automatically transferred to the researcher on his survey account. All survey data were collected & entered into a spread sheet for analysis as discussed and attached in part of analysis.

Qualitative survey was done by contacting individual professionals for mini interview. Interviews were recorded for the analysis.

Develop Interview Protocol and Procedure

Develop Interview Criteria

Develop & document of Interview

Identify Interviewees

Develop & document of Interview Identify Interviewees Select Interviewees Document Interview Protocol Conduct

Select Interviewees

Document Interview Protocol

Interviewees Select Interviewees Document Interview Protocol Conduct Interviews Create Data Base Create Fuzzy Logic

Conduct Interviews

Interviewees Document Interview Protocol Conduct Interviews Create Data Base Create Fuzzy Logic Structure Proceed with

Create Data Base

Interview Protocol Conduct Interviews Create Data Base Create Fuzzy Logic Structure Proceed with Test of Program

Create Fuzzy Logic Structure

Interviews Create Data Base Create Fuzzy Logic Structure Proceed with Test of Program Work Figure 5.3:

Proceed with Test of Program Work

Figure 5.3: Data collection procedure

5.5 Survey design and conducting survey

The type of data needed were derived by identifying the most common barriers to

UAE and particularly for Dubai construction industry by using a wide range of

journals, magazines, articles from daily news papers on current topics related to

construction industry, review of previous & current case studies on construction industry literature and research data.

Questionnaire was design to test those assumed barriers through web based questionnaire was based on principles out linked by Wilkson & Birmingham (2003).

The first section of questionnaire was designed for general information such as type of organization, position, experience in UAE and in general to the construction industry etc

Second parts of questionnaires were based and designed for tested to awareness of construction industry and for the testing of assumed barriers, opportunities and opinions to the industry’s health in present situation and their impact on industry.

And lastly an open ended question was designed so that respondent could give their suggestions beyond the box. It was assumed that open ended question would give an opportunity to respondent to put forward their innovative ideas and opinions for the industry.

5.6 Ethics and confidentiality

All participant correspondence and research tools were assumed to be reviewed by dissertation supervisor. All survey respondents were notified that their input would be kept confidential and it will be used only for dissertation purpose, their identification would remain anonymous, their participles would be voluntary and optional.

Interviewer was informed that their name would be disassociated from the records and hand written notes.

All responses have been treated in the strictest confidence. There is no reference in any summary data or the body of the dissertation to any particular project, individual or company. All respondents will therefore remain anonymous.

Any personal details will remain private and will not be used for marketing or released to the third parties. All data was kept at secure place.

5.7

Analysis and result

At this stage all the data’s and information’s collected from literature review, pilot study, survey and interview etc. are to be analyzed. These data’s and information’s will be evaluated with their pros and cons in systematic way to conclude a better and comprehensive recommendation for the industry in present crisis. And this would help in understanding, how U.A.E. Construction & Engineering industry sustain in present situation.

5.8 Conclusion

This chapter describes the framework and methodologies were adopted to carry out the research and how to collect the research and relevant data related to the objectives of the dissertation. Quantitative and Qualitative research methodologies and their logic of selections were discussed how it has been implemented for the data collection. Identification of interviewers and professionals for the answering to the survey questionnaires were established. Ethics and confidentiality was discussed and upheld.

6.0

Chapter 6: Analysis of survey and results findings

6.1 Introduction

Within this chapter the collected data from survey and other resources during literature review will be presented and in depth analysis with interpretation will be done. The assumed barriers such as social, economical and market environment will be clubbed together for the ease of reference and similar tested solutions will be discussed. The collected data will be analyzed, based on hypothesis and objectives of the study and the results obtained from questionnaires will be discussed in detail.

Further, this chapter will also discuss the findings of topics related to aim and objective of the research and conclude the results with their findings. Any gap and constraint related to the construction industry will be highlighted.

6.2 Analysis of individual answers

The survey questionnaire has been prepared by short listing sixteen (16) questions. The first section (Section A) of questionnaires comprising four (4) questions was designed for general information such as type of organization, position, experience in UAE and in general to the construction industry etc.

The second part (Section B) of questionnaires were based and designed for tested to awareness of construction industry and for the testing of assumed barriers, opportunities and opinions to the industry’s health in present situation and their impact on industry.

And lastly an open ended question (Section C) was designed so that respondent could give their suggestions beyond the box. It was assumed that open ended question would give an opportunity to respondent to put forward their innovative ideas and opinions for the industry.

The survey questionnaires have been sent to approximately 120 target professionals from various disciplines within the construction & engineering industry for their

opinion

and

suggestions

through

 

web

designed

survey

on

web

site;

www.

Freeonline.com.

In

addition

to

above

a

request

has

been

posted

on

qs_dubai@yahoogroups.com a Dubai based ‘Indian Quantity Surveyors Forum’, an organization of professionals of Indian sub-continent working in UAE construction & engineering industry organization for their opinion and suggestions through web designed survey on web site; www. Freeonline.com. Out of above professionals, only 55 participants have responded to date of analysis of the survey and some of them indicated their unwillingness to respond due to their own busy schedule or citing other reasons.

Further, few of key professionals representing from various disciplines of the industry were contacted personally with a hardcopy of questionnaire for the interview. Details of answers are presented against the individual questions are as follows:

6.3

Awareness of UAE construction industry

Based on responses to the survey questionnaire and personnel interview with the construction professionals working in the UAE construction industry, we conclude that majority (above 60%) of them are aware the construction process. However, in terms of health of the market and strategies relating matters to check the likely effect due to present crisis falls below average (approx. 50%).

The response to the question related to the awareness of present financial crisis and its likely effect on construction industry, proved interesting. The majority of respondents approximately 73% are aware about the effect of financial crisis to the industry, which is evident in the construction sector due to projects are on hold and job cuts. However, awareness of 27% (approx.) respondents is average, which indicates may be they were not very much affected. The reason may be they comes from other indirect construction industry like suppliers of material and or may be they belongs from less effected emirates of UAE as compare to Dubai.

Further, if we talk about the technological advancement and its application to the industry off course the response is not very exciting. The main reason, firms and their higher management realizes the importance of application of technologies and required to be prepared, but very few of them spending on technological advancement and R&D. On other hand majority of the firms, involved in UAE construction are small to medium level and they were developed during the past 5-6 years. However, they made good profit during the construction boom in the region but lacking far behind with proper strategy and long term targets and goals.

6.4 Global crisis and it’s effect on UAE construction industry

The financial crisis in the worlds has left the construction industry facing its toughest challenges and the impact of this crisis, is already enter into recession. As per survey about two third (above 66%) professionals working in UAE construction industry have agreed with the opinion that the crisis will get worse in future.

The current global crisis and recent developments in the MENA region have not made for good reading. Financial and credit crisis which began to start from western markets, the Arab world is also being increasingly dragged into the worldwide economic downturn and slumping demand for it’s most valuable export of oil. Even buoyant construction markets of Middle-East such as the UAE are also affected; with construction growth has been slowdown.

We conclude that on the basis of research and opinions of professionals of UAE construction industry, these are serious times and the industry needs to be prepared to contribute to the recovery by retraining workers, maintaining the highest quality and supporting innovation. Companies seeking to find an extra edge in an increasingly competitive market are likely to change their strategy towards their future business plans and techniques as they look to become more efficient.

Furthermore better regulation of UAE, shortages of housing in UAE particularly in Abu Dhabi, record growth in hospitality markets are the strong drivers to sustain the pace of development and to roughen the ‘ripple effect’ of world economic crisis.

Lastly it could be concluded that UAE market is going to correct itself by shedding of over-priced construction, demand and supply theory is about to play - demand side are at the top!!

6.5 UAE construction industry’s barriers and threats

Weaknesses

§ The UAE currency is pegged to the US $ which is reducing its control over monitory policy and further reducing its ability to tackle inflationary pressure. According to survey results approximately 60% peoples are agreed with the opinion that the UAE construction market affected due to the declining value of US $ in international market.

§ The state’s location is strategically very important for countries like US and other western countries, their concern about regional militant group and Iran nuclear programme could affect investors.

Threats

§ Decline in demand level because of oversupply in the UAE, particularly in Dubai. According to survey results approximately 65% professionals are agreed with this opinion that the UAE construction market, particularly Dubai is on the verge of maturing. Further approximately 74% peoples are agreed with the opinion that the declination in demand level because of oversupply.

§ Legal framework which must provide clarity and enforceability; According to survey, the majority of respondents approximately 82% are agreed with this opinion and as per interviews with the professionals, they said, clarity and enforceability is important for the investors.

§ Speculative market fuelled by short term investment must adjusted; According to survey, the majority of respondents approximately 70% are agreed with this opinion and as per interviews with the professionals, they said that this is one of the reason of failure in the real estate and it must be corrected.

§ Product specifications must be prepared as per end users requirement not to be dictated by the developers in order to satisfy their requirement and to make the ‘Quality and Valued’ products in the market.

§ Heavy subsidies on utilities, agriculture and an old taxation system have contributed to persistent fiscal deficits in the past which was covered by rising oil revenue in the recent years (prior to crisis).

6.6 UAE construction industry’s opportunities

Based on literature review, researches, survey and reports published on various journals, we present following are the opportunities available for the UAE construction industry:

§ Strong economy:

UAE has been considered as fastest growing economy

globally and particularly in the middle-east region supported by following

factors;

- Growth rate of GDP per capita

- Human Development Index (HDI) ranking: According to the researches, UAE’s HDI world ranking in 2005 was 41, this ranking indicates UAE is in the list of high human development countries

- Energy consumption per capita

Further, as per results of survey questionnaires approximately two third majorities of respondents are agreed with this opportunity for the UAE construction industry.

§ Free Hold Property Law: Supported by RERA Regulation.

§ Government’s reforms to attract foreign investments: According to survey results approximately 77% professionals are agreed with this opinion for the UAE construction market.

§ Consumer spending power and socio economic stability: According to survey results approximately 77% professionals are agreed with this opinion for the UAE construction market.

§ High rental yield; ranging 7 to 10 % - higher than other regions, approximately 70% peoples are agreed with this opinion

§ Construction cost: UAE construction cost is low as compare to developed countries e.g. US, UK, Japan and other western countries. However, professionals of UAE do not agreed with this opinion. It is evident that majority of respondents are belongs from South East Asian countries like India, Pakistan, Sri Lanka etc. and comparatively the construction cost is much cheaper than UAE to their own country.

- Financial institutions: UAE Central Bank regulation allows banks to finance the real estate project and reality development of infrastructure through financing to JV’s. However, due to present crisis the banks are vigilant to support those organizations that are already in debts.

Strengths

Furthermore, in addition to above investors can consider additional advantages and strengths and few of them are described as under:

o

Rulers of UAE are very keen to improve the eco-credentials of the cities

o

Investors remain bullish towards UAE, which is expected to show best performance over the short to medium term

o

The government’s efforts to diversify oil based economy to gas, tourism services and high-tech industry which offers some protection against volatile oil prices.

o

Oil prices are expected to stay high which would further boost the UAE’s economy.

o