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WITH PREPA­RA­TIONS FOR THE 2022 FIFA WORLD CUP IN FULL SWING, THE CON­STRUC­TION SEC­TOR HAS BEEN WIT­NESS­ING A LOT OF AC­TIV­ITY, WITH DOHA LOOK­ING LIKE A GI­ANT WORK-IN-PROGRESS.

Qatar Today - - INSIDE THIS ISSUE - BY APARNA SHIVPURI

With prepa­ra­tions for the 2022 FIFA World Cup in full swing, the con­struc­tion sec­tor has been wit­ness­ing a lot of ac­tiv­ity, with Doha look­ing like a gi­ant work-in-progress.

Qatar's projects mar­ket saw a growth of 26%, with the projects awarded in­creas­ing by 21% be­tween 2012 and 2013. Ac­cord­ing to MEED, from 2008 to 2013, Qatar's project mar­ket ac­counted for 12% (QR349.44 bil­lion) of the to­tal projects awarded in the GCC.

The con­struc­tion sec­tor's con­tri­bu­tion to the econ­omy has also grown since 2013. As we can see from the graph in the next page, the sec­tor is poised to con­trib­ute 12.1% in 2014 as com­pared to 10.5% in 2013.

This comes as no sur­prise, as in an­tic­i­pa­tion of the FIFA World Cup Qatar plans to in­vest QR509.6 bil­lion in the next five years to build its trans­porta­tion sys­tem. At­ten­tion is also be­ing paid to build­ing af­ford­able hous­ing in the run-up to the event.

Sheikh Mo­hamed bin Faisal Al Thani, Vice Chair­man of the Aa­mal Group, speaks about the growth in the man­u­fac­tur­ing sec­tor, which has fed into the con­struc­tion sec­tor boom. He at­tributes this growth to the con­cen­trated ef­forts of the govern­ment and its vi­sion.

“In the decade up to 2013 the value of Qatar's man­u­fac­tur­ing out­put rose from QR12.4 bil­lion to QR32.9 bil­lion (in con­stant 2004 prices). Dur­ing those years, the va­ri­ety of in­dus­trial man­u­fac­tur­ing en­ter­prises also in­creased con­sid­er­ably. Prod­ucts such as ready mix con­crete, ca­bles and pipes – all es­sen­tial to the coun­try's devel­op­ment – ei­ther be­gan to be made in Qatar or saw their pro­duc­tion rise,” he says.

He adds that man­u­fac­tur­ing com­pa­nies in Qatar ex­pect that the burst of in­fra­struc­ture work over the next five to eight years will boost prof­its and jus­tify their share­hold­ers' in­vest­ment. “Ce­ment out­put will go up from 6 mil­lion tons per year in 2010 to 10 mil­lion tons per year be­tween 2015 and 2018. About 15% of in­fra­struc­ture spend­ing over the next five years will be on pipes alone, rang­ing from wa­ter and sew­er­age pipes to mas­sive pipes for the metro and rail­way. There­fore, we be­lieve the in­dus­trial man­u­fac­tur­ing sec­tor of­fers at­trac­tive in­vest­ment op­por­tu­ni­ties.”

“Ce­ment out­put will go up from 6 mil­lion tons per year in 2010 to 10 mil­lion tons per year be­tween 2015 and 2018. About 15% of in­fra­struc­ture spend­ing over the next five years will be on pipes alone, rang­ing from wa­ter and sew­er­age pipes to mas­sive pipes for the metro and rail­way. There­fore, we be­lieve the in­dus­trial man­u­fac­tur­ing sec­tor of­fers at­trac­tive in­vest­ment op­por­tu­ni­ties.” SHEIKH MO­HAMED BIN FAISAL AL THANI Vice Chair­man Aa­mal Group

“Since the tran­si­tion to power of Heir Ap­par­ent HE Sheikh Tamim bin Ha­mad Al Thani, and the sub­se­quent ap­point­ment of HE Ab­dulla bin Nasser bin Khal­ifa Al Thani as the Prime Min­is­ter a year ago, we have seen many changes in key po­si­tions and a will­ing­ness to take im­por­tant de­ci­sions to drive progress.” CHRIS SCU­D­AMORE Ad­vi­sory Part­ner Pricewater­house Coop­ers

Ac­cord­ing to re­ports, Qatar's project mar­ket in 2014 will wit­ness sig­nif­i­cant ac­tiv­ity with in­fra­struc­ture and trans­port con­tract awards ex­pected to peak at QR87.36 bil­lion.

Talk­ing about the buoy­ant at­mos­phere in Qatar, Chris Scu­d­amore, Ad­vi­sory Part­ner, Pricewater­house Coop­ers, says: “The value of con­tract awards has in­creased sig­nif­i­cantly in 2014 com­pared with the pre­vi­ous year, driven by the rail and road projects in par­tic­u­lar. Since the tran­si­tion to power of Heir Ap­par­ent HE Sheikh Tamim bin Ha­mad Al Thani, and the sub­se­quent ap­point­ment of HE Ab­dulla bin Nasser bin Khal­ifa Al Thani as the Prime Min­is­ter a year ago, we have seen many changes in key po­si­tions and a will­ing­ness to take im­por­tant de­ci­sions to drive progress.”

Robert Kidd, Man­ag­ing Direc­tor of Muehlhan Qatar, a Ger­man com­pany in­volved in ma­jor projects, echoes the same sen­ti­ment about the boom in Qatar's econ­omy and at­tributes it to the con­struc­tion sec­tor. How­ever, he is quick to add a word of cau­tion and says that Qatar needs to be care­ful and learn its lessons from coun­tries such as the UAE and Malaysia, which faced chal­lenges be­cause of this sud­den growth.

Farouk Soussa, Head of Mid­dle East – Eco­nom­ics at Citibank, holds a dif­fer­ent view­point. “The con­struc­tion sec­tor will be a strong source of non-oil eco­nomic growth in the com­ing years, but could also re­sult in im­bal­ances in the non-oil econo- my as the risk of over­sup­ply in hous­ing, of­fice and leisure prop­erty is very real. These im­bal­ances could cause sig­nif­i­cant volatil­ity in the real es­tate sec­tor, which will have a neg­a­tive im­pact on the econ­omy through its ef­fect on con­struc­tion and also on the bank­ing sec­tor, which will be­come in­creas­ingly ex­posed to prop­erty,” he says.

The work log

Doha alone has a con­sid­er­able back­log of work to ex­e­cute be­tween 2014 and 2019, with as­so­ci­ated con­trac­tor and third party op­por­tu­ni­ties val­ued at QR327.6 bil­lion, in­clud­ing QR145.6 bil­lion worth of roads, ports and rail work as well as QR69.16 bil­lion in con­struc­tion projects.

In ad­di­tion, the Qatar Tourism Au­thor­ity plans to in­vest close to QR72.8 bil­lion on in­fra­struc­ture, since the num­ber of tourist ar­rivals is pro­jected to reach 3.7 mil­lion by 2022.

A num­ber of projects, such as those by Lu­sail Real Es­tate Devel­op­ment Com­pany have been launched, which will in­crease the num­ber of res­i­den­tial units. With The Pearl al­ready of­fer­ing a ca­pac­ity of close to 20,000 such units, the ques­tion is will it all lead to an over­sup­ply?

Dr Tarek Coury, Se­nior Econ­o­mist at Si­lat­ech, doesn't seem very wor­ried about it. Ac­cord­ing to him, the pop­u­la­tion of Qatar is ris­ing, and this in­cludes the higher end of the so­ci­ety as well and to fill these 20,000 units would only re­quire about

50,000-60,000 peo­ple, which is pos­si­ble. He adds that if more projects such as Lu­sail came up, then there might be an over­sup­ply of such projects and cause po­ten­tial risk to The Pearl.

Be­sides com­plet­ing the re­quired sta­dia, in­fra­struc­ture and hos­pi­tal­ity fa­cil­i­ties for the FIFA World Cup, Qatar is pur­su­ing mas­sive ur­ban devel­op­ment projects with around QR1.27 tril­lion projects cur­rently in the plan­ning or con­struc­tion phase and another QR618.8 bil­lion worth of projects ex­pected to be awarded over the next few years.

The chal­lenges are many

How­ever, as al­ways, the road to growth is never an easy one and it is no dif­fer­ent in Qatar. There are nu­mer­ous chal­lenges in terms of com­pe­ti­tion for ma­te­rial and labour, both skilled and un­skilled. In­fla­tion is another cause for con­cern. Ac­cord­ing to a re­port by EC Har­ris, Qatar must take ac­tion to avoid con­struc­tion in­fla­tion in the coun­try from reach­ing 18% a year from 2016 to 2019.

The de­mand for ma­te­ri­als is in­creas­ing steadily, lead­ing to an in­crease in price. This could lead to a de­lay in projects. There is also the is­sue of meet­ing the in­creas­ing de­mand for wa­ter and elec­tric­ity for all these projects.

Ac­cord­ing to in­dus­try ex­perts, there is a need to stream­line the sup­ply chain and en­cour­age lo­cal providers and in­ter­na­tional busi­nesses to work to­gether.

Dr Coury elab­o­rates on this point and says that it's not only the cost of raw ma­te­rial which is a cause of con­cern. For a real es­tate de­vel­oper, a ma­jor cause of con­cern is the high price of land, which will have a neg­a­tive im­pact on them.

“Land price can be as much as 50% of the gross devel­op­ment value (GDV) in Qatar. There­fore, this in­fla­tion of land price can be bur­den­some for real es­tate de­vel­op­ers, es­pe­cially those who are cater­ing to mid-level clients. From a lo­cal com­pany's per­spec­tive the main chal­lenge is the in­abil­ity to cover the mar­ket needs and match the rapid pace of de­vel­op­ments,” Dr Coury says.

Haytham Sadeq, Gen­eral Man­ager of Seero Engi­neer­ing Con­sult­ing, says: “We are fo­cus­ing on traf­fic engi­neer­ing re­quire­ments for the new projects but we are also re­ceiv­ing more de­mand from cur­rent build­ings to help them im­prove their traf­fic op­er­a­tions.”

He also adds that they need more flex­i­bil­ity from the govern­ment in at­tract­ing skilled hu­man re­sources to work in Qatar.

So how does the fu­ture look? While the view is one of op­ti­mism, it comes with a note of cau­tion.

Scu­d­amore points out that they are see­ing a strate­gic fo­cus on the devel­op­ment of the Qatar econ­omy, rather than over­seas in­vest­ments.

“We are also see­ing govern­ment's will­ing­ness to im­prove the busi­ness en­vi­ron­ment for for­eign firms want­ing to start their of­fices in Qatar.” The con­struc­tion sec­tor will con­tinue to grow and reach its likely peak in 2016-17 based on cur­rent spend­ing plans, he adds.

Farouk Soussa echoes the same sen­ti­ment and says that there will be more vis­i­ble signs in the com­ing months that Qatar is adapt­ing to at­tract for­eign in­vest­ment.

He fur­ther adds that the one pos­si­bil­ity that Qatar should be pre­pared for is the in­evitabil­ity of a "sud­den stop" – when all is built and ready, and the fu­ture pipe­line dries up. At this point, the con­struc­tion sec­tor col­lapses and an ex­o­dus of pro­fes­sion­als in that and re­lated in­dus­try would ex­ac­er­bate over sup­ply con­cerns.

To con­clude, Qatar will wit­ness an ex­po­nen­tial in­crease in con­struc­tion ac­tiv­ity in the next three years. While this of­fers busi­nesses, both for­eign and lo­cal, tremen­dous in­vest­ment op­por­tu­ni­ties, what needs to be seen is whether Qatar can keep up with the chal­lenge of main­tain­ing a steady sup­ply chain of raw ma­te­ri­als and keep in­fla­tion in check

“Qatar needs to be care­ful and learn its lessons from coun­tries such as the UAE and Malaysia, which faced chal­lenges be­cause of this sud­den growth. We are fo­cus­ing on traf­fic engi­neer­ing re­quire­ments for the new projects but we are also re­ceiv­ing more de­mand from cur­rent build­ings to help them im­prove their traf­fic op­er­a­tions.” HAYTHAM SADEQ Gen­eral Man­ager Seero Engi­neer­ing Con­sult­ing “Land price can be as much as 50% of the gross devel­op­ment value (GDV) in Qatar. There­fore, this in­fla­tion of land price can be bur­den­some for real es­tate de­vel­op­ers, es­pe­cially those who are cater­ing to mi­dlevel clients. From a lo­cal com­pany's per­spec­tive the main chal­lenge is the in­abil­ity to cover the mar­ket needs and match the rapid pace of de­vel­op­ments.” DR TAREK COURY Se­nior Econ­o­mist Si­lat­ech

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