Title: Canadian construction in the Middle East
By Peter Diekmeyer
Canadian construction companies are taking advantage of opportunities in the fast-growing Gulf Cooperation Council (GCC) states and the tourist-rich Caribbean islands.
Hosting the world’s tallest free-standing structure has long been a coveted honor among the world’s up-and-coming metropolises. For a long time New York had bragging rights. So did Toronto. Other projects on the books or under construction in cities such as Shanghai, Taipei and Kuwait have at one time or another also had pretensions.
But at about 190 stories high, Burj Dubai stands to be the tallest
building in the world when completed in January 2009.
And Montreal-based GSM Group landed the contract to provide
visitors to Burj Dubai with a unique multimedia environment.
GSM specializes in the design and production of high-end exhibits
for museums and entertainment facilities.
The Burj is just one of the many developments currently underway in Dubai, which is part of the United Arab Emirates. Like other Gulf Cooperation Council members (Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman), the UAE and Dubai in particular, are using their increasing flows of petro-dollars to help diversify their economies through massive investments into such areas as finance, trade and tourism, in preparation for the day that the black gold runs out.
Although the UAE has almost 10 percent of the world’s oil reserves and is a major producer, Dubai’s share is modest. As a result, both public and private sector players are investing a lot of money to position the emirate as a regional financial and tourist hub. “The development is stunning in scale,” says Vincent Brie, president of GSM Build, one of GSM Group’s four divisions. “There has been a building boom going on for several years and many predict that it will go on for many more.”
In fact the GCC and the Middle East in general are now attracting a key share[TB1] of global construction dollars. According to some estimates, Dubai alone now ranks second after Moscow in terms of the scale of construction activity on its soil, with some 24 million square feet of commercial office space being built. One statistic speaks volumes: the emirate is said to host as many as one fifth of the world’s cranes.
On the other side of the world, another Canadian construction sector company is also playing a key role in helping a regional player develop its potential. Hyprescon, a division of Louisbourg Group has just finished exporting 112 kilometers worth of concrete pressure pipes for use in a water line in the Dominican Republic.
According to the company’s CEO Lisa Arcuso, the Caribbean nation, which has been an increasingly popular tourist destination, is currently more known for developments along the northern coast. But that’s about to change. “The Dominican Republic has some great potential that has yet to be fully exploited. However to accommodate the new hotels and developments, the infrastructure needs to keep pace,” says Arcuso. “And water flows are a key element.”
The Canadian construction industry: strong, but poised for growth
The GSM Group and Hyprescon initiatives highlight the vast potential that Canadian companies have on the international stage.
“The construction industry has seen a real boom in recent times, particularly in the Western provinces,” says Marie-Claude Erian, EDC Sector Advisor for infrastructure. “There are huge projects going on right here. But that boom won’t last forever and businesses need to prepare for that eventuality.”
According to Erian, EDC has targeted both the Gulf Cooperation Council and the Caribbean regions as areas in which Canadian construction sector related companies can make an impact. “Last year we did close to $8 billion worth of insurance and bonding to some 800 companies in the construction supply chain,” says Erian. “But despite developments in those two regions, they accounted for only a small share. So there is a lot of room for growth.”
Construction is one of the key drivers of the Canadian economy. So naturally almost any sector initiative is going to involve big dollars. Here in Canada, the industry produces $170 billion worth of goods and services, which works out to close to 12 percent of the country’s GDP. Exports alone, which are slated for some 125 international markets, comprise $34 billion of that total.
The range of those exports is impressive, though defining precisely what constitutes “construction” is not always easy. While most experts agree, that just about any good or service targeting residential and commercial institutions and public works qualifies, the range is quite broad. For example exports to the GCC and the Caribbean include traditional engineering and architectural services, project management, as well as manufactured goods such as control systems, building material and even construction equipment.
But exports also include semi-processed raw materials such as crushed stone, wood and cement. According to Erian, some of these items are actually available in the GCC and Caribbean, though not always in the quantities and prices which Canadian suppliers can deliver on. The bottom line is that the range of Canadian construction companies that can benefit by boosting their presence in these key markets is fairly broad-based.
Despite their differing geographic profiles, the GCC and Caribbean have similarities. Both are part of integrated regional economies located within strategically important bodies of water. Both are fast-growing, emerging markets comprised of independent nation/states, which share similar characteristics. Neither region is dominated by one economy, (though Saudi Arabia comes close in the GCC). That means exporters doing business in one country in either region, often use it as a base to build their presence in others.
That said, according to Erian, the differing legal and social structures, cultural preferences, religious nuances, and languages spoken in the individual countries, merit that both regions be looked at separately.
The Gulf Cooperation Council: an oil-inspired boom
The benefits that rising oil prices have brought to the GCC are hard to understate. GDPs throughout the region have shot straight up and regional confidence has sky-rocketed. These trends have spurred government spending which has in large part driven an unparalleled investment boom. According to one expert, a staggering USD 1.1 trillion worth of construction projects are currently in various stages of development in the region.
“The growth has been impressive,” says Jean-Francois Croft, EDC’s Regional Manager for Africa, Europe and the Middle East. “It’s a strong mix of both private and public sector projects. The skyscrapers and towers are more visible. But these also need general infrastructure capacity to support them, so roads, metros, power plants, schools and hospitals are also being built.”
Not surprisingly, Canadian firms, about 30 of which currently have a presence in the region, are more than aware of the many lucrative potential contracts. According to GSM’s Brie, one of the attractions is the vision that key regional players have. “Everybody wants to be number one at whatever they do,” says Brie. “That means they can be very demanding on their suppliers.”
For example, GSM’s client on Burj project, Emaar Properties, has the largest market capitalization of any real estate company in the world. Not only is the company developing the world’s tallest building, but the structure will sit atop the 14 million square-foot Dubai Mall which is slated to become the world’s largest shopping center, topping out at close to three times the size of Canada’s West Edmonton Mall.
In addition to the tower’s observation deck, GSM will design the interior, concepts, story line and exhibits for the visitors’ center. After buying tickets to the Burj Dubai’s observation deck, tourists travel along a half-kilometer moving sidewalk and are whisked up on speedy elevators. During the journey, they will be entertained by a multi-media experience comprised of screens, videos and sound.
Dubai’s quest for excellence means that local players want to deal with suppliers that are the best in the world at what they do. As a result, says Brie, Dubai purchasing personnel are very open to doing business with foreigners. Yet despite the fast growth and lucrative opportunities in the GCC, there are challenges. “You cannot get away with treating the region like it was the Klondike,” says Brie. “Clients expect you to have a long-term local presence.”
The path that Canadian companies need to take to get contracts depends in large part on their area of expertise. “The only procurement that we do ourselves is (hiring) consultants and project managers, some of which could be Canadian companies,” says Haiyan Mujarkech, Chief Officer, Business Development, at Dubai Properties, which has extensive holdings in the region. “Material purchases are handled directly by our project managers.”
According to Mujarkech, companies that wish to do business with Dubai Properties directly need to get qualified first. “The usual process is to send along a company profile along with a list of executed projects and references, along with a company financial statement,” says Mujarkech. “If they meet our criteria, then they will be invited in for tenders.”
While Dubai’s emergence has captured the attention of media and the business community, according to the EDC’s Croft, the emirate represents only the tip of the iceberg in the region. “Dubai is all people talk about,” says Croft... “But there is a lot of other stuff going on in the GCC. In Saudi Arabia they are building six complete new cities and investing hundreds of billions of dollars in infrastructure too. Qatar is booming and so is Kuwait.”
The Wadi Hanifah restoration project
In fact in few GCC areas is the development more rapid than in Saudi Arabia itself. The kingdom, which holds 22 percent of the world’s proven oil reserves, is faced with the task of integrating a fast growing and demanding younger population into its increasingly urbanized workforce. The metropolitan area around Riyadh, its capital, today hosts 5.5 million people, compared to just 30,000 in 1950. And the population is expected to double again by 2020.
This rapid growth has put enormous strain on local ecosystems, particularly on the Wadi Hanifah River, which runs through the city center.
“Over the years the local population has been dumping a lot of waste into the system. As a result, the river silted up and it did not have a constant flow and slope. This resulted in a lot of stale lakes forming in the 120 kilometer long system. About 3 million cubic meters worth of garbage has been pulled out of the system so far,” says Ajon Moriyama, a partner in Moriyama and Teshima, a Canadian architect and landscape planning company that has been working alongside a British engineering firm Buro Happold to help clean up the system.
Moriyama and Teshima got involved with the project, which has been called the biggest water reclamation initiative ever, after George Stockton, the head of one of its subsidiaries, wrote a paper on the Wadi Hanifa, which become the basis of further study of the system. Like many experts regarding the region, Moriyama attests to the importance of building a local presence and reputation gradually. “We did design work on Saudi Arabia’s first national museum about ten years ago. That opened a lot of doors for us,” says Moriyama. “As a result, we became halfway accepted in a different culture.”
According to Croft, the opportunities for Canadian construction companies in the region are not limited to service sector players. Suppliers of goods such as building materials have a role too. “But if you are a contractor or developer, you are often faced with shortages of material and construction equipment. There is a big demand for things such as wood, wood frames and high-end materials.” That said, despite the distances involved, shipping to the GCC is not a problem due to the fact that the region is transportation hub, says Croft.
Getting skilled workers is also a big challenge for companies doing business in the GCC. The region’s red-hot economy has created reams of new high-paying jobs, which has absorbed a good part of the local workforce. As a result, many GCC countries have imported significant quantities of guest workers.
However, when it comes to doing business in the GCC region, for Canadian companies the positives clearly outweigh the negatives, adds Croft. “Clients there are huge, often global in scale. And if they like what you do, they will often be very loyal. A company like Emaar properties has holdings around the world. If you do business with them, like GSM is in Dubai, you stand a very good chance of getting contracts with them in other place where they are active.”
The Caribbean: Canadian construction companies can’t just go as tourists
One of the key differences between the GCC and Caribbean regions is that in the former, business development tends to be broader-based. Construction-related opportunities in the Caribbean are centered predominantly around the tourism sector. Cuba and the Dominican Republic alone each attract about 4 million tourists a year to the region. The Bahamas pulls in another 3 million visitors.
According to one expert, visits to the Caribbean were less affected by the events of 9-11 than those to other regions. “There are a lot of hotels going up, but residential tourism, in which people buy homes there, is also increasing,” says David Goldfield, EDC Regional Manager for Latin America. “Those projects are also generating infrastructure demand. Airports, roads, waste management projects and water delivery systems are also being built.”
Canadian companies looking to expand their presence in the region have several advantages says Goldfield. “On a personal level many Canadians love to travel to the region. We send a lot of tourists and many Canadians like to retire there. Not surprisingly, we have a large pool of businesspeople with strong familiarity in the area.”
North American tourists want North American comforts
The fact that the Caribbean attracts so many North American tourists means that many of the projects currently under way are built being with their tastes in mind. For example, in addition to its 3,000 hotel rooms, when completed, the Atlantis Resort, located near Nassau, in the Bahamas, will also host a casino, lagoon and water park.
Canadian companies operating there have advantages beyond just familiarity with the region. “There is a lot of talk there about the relaxed attitude of “Caribbean Time” says Barry King, Vice-President of DCM Erectors, which is making and installing many of the structural components on Atlantis project. “But for the large scale projects, developers want work done according to “North American Time,” and to North American standards.”
DCM, which has a long tradition doing high level export work in the United States on projects such as the new Freedom Tower, is a big backer of EDC’s Caribbean initiatives. “Local developers don’t always have access to the same financing pool that North American companies do,” says King. “That means initiatives such as EDC’s $25 million loan to Kerzner International, which is developing the Atlantis Resort project, are looked upon very favorably.”
Alex Hazoury, Vice-President of Finance at Grupo Abrisa, which owns Sinercon, the Dominican Republic’s largest construction company, agrees. Grupo Abrisa is currently developing the massive Cap Cana project, a 120 square kilometer project which includes eight kilometers of prime beachfront property in the eastern part of the country. The fact that the project was partially financed by EDC has been yielding some benefits for Canadians exporters, says Hazoury.
“Because we are closer to the United States, we have traditionally looked to them first as a prime supplier, when we cannot purchase locally,” says Hazoury. “But lately we have also purchased a lot from Canadian companies, including doors, windows, street lighting equipment and various materials.”
According to Hazoury, financing is a key challenge facing developers in the Dominican Republic. “Local banks don’t have the same depositor bases as Western banks do,” says Hazoury. “They are thus not able to issue loans in the amounts that major developers require. We have had to turn to international bond markets for some of our financing,”
Engineering firm R.A. Murray International is currently involved in a massive $50 million project to design and build several highway bridges in Jamaica. Before starting on this latest project, President Richard Murray had been doing work on the island for close to 40 years and had lived there for 12, and he does not shy away from talking about the challenges.
“One of the most striking features is the sharp differences in the various parts of the Caribbean,” says Murray. “Roads can be poor. Some local companies have not adopted modern construction methods. For example the aging concrete form systems still in use in many places can take a long time to assemble. But then you’ll see areas which have leapt ahead, by for example, replacing old phone systems with cellular technology.”
The challenges of tackling many diverse markets
Despite the lucrative export potential of both the GCC and Caribbean regions, neither market should be taken lightly says the EDC’s Erian. “One of the biggest challenges facing Canadian construction companies on the international stage is their size,” says Erian. “Even firms such as SNC Lavalin, which are giants here in Canada, have large international competitors. That means successful Canadian companies are often those who tackle riskier or niche markets.”
The risks involved in doing business in the Caribbean and the Gulf Cooperation Council range as widely as do the cultures, political structures and other differences in the individual countries. “The political and payment risks vary depending on which country you are talking about,” says Erian.
These differences are exemplified in the regions’ differing legal systems. For example some Caribbean countries are former British colonies and have well-established court systems with common law traditions. Others are more recent democracies in which the rule of law is tenuous.
Though most business people and government officials in the regions speak some English, common languages spoken in the Caribbean range from Spanish to Creole to French. The upshot, says Erian, is that is pays companies wanting to do business in the region, to partner with a local players. Partnering with a local player in the GCC is also important and can in fact yield even bigger benefits, especially for newcomers, due to the strong importance of personal relationships in region says Erian.
Leveraging EDC’s resources
EDC can help companies to overcome some of the construction sector’s export challenges in the GCC and Caribbean regions.
“We use our financial resources to leverage new business for Canadians by opening doors either on or own, or by working with partners such trade commissioners, the CMHC and so on,” says Erian. “Often this consists of identifying needs within potential clients in export markets and arranging introductions for Canadian companies that can help meet those needs.”
Meanwhile back in the UAE, construction on the Burj Dubai advances towards the 123rd floor, where GSM will insert its observation deck. “This building is just growing and growing. And the region is too,” says Brie. “It is so exciting and we are just glad to be a part of it.”
In fact, a final sign of Dubai’s strength and growing importance on the world stage lies in the fact one of the pretenders to challenging the Burj’s position as the world’s tallest free standing structure, is slated to built right on the other side of town. Tentatively labeled “Al Burj,” reports say that this competitor tower could—if the project ever gets off the ground—rise a stunning 1.2 kilometers in height, which would make it twice as high as the CN tower.
And judging by their success there and in the Gulf region on the other side of the globe, there is no reason that Canadian companies should not be going along for the ride too. They may not end up rising as high as the Burj Dubai. But they will certainly find growth opportunities.
Overview: The Gulf Cooperation Council
§ Includes Saudi Arabia, Oman, Bahrain, Kuwait, UAE and Qatar
§ Windfall oil profits are driving regional growth. GDP of USD 750 billion (2006), is forecasted to hit USD 790 billion in 2007
§ Much of the region’s oil profits are reinvested domestically. Planned private and public infrastructure projects total USD 1.1 trillion and include major outlays in finance, trade, tourism
§ In terms of “Ease of doing business,” the region ranks ahead of both India and China.
Overview: The Caribbean
§ Includes the Dominican Republic, Jamaica, Trinidad and Tobago, the Bahamas, Cuba and many micro-economies
§ Regional infrastructure development, airports, roads, hospitals etc, is primarily tourism driven, though the larger islands have more diversified economies
§ Canada has a long history in the region and is generally well respected. Key players include SNC-Lavalin, Dessau-Soprin, Ellis Don, PCL, Genivar
§ Exports to the Caribbean and Central America totaled $103 million in 2005.
§ Major export categories: concrete products, cabinets, counter tops, valves, construction machinery
§ Key challenges include strong foreign competition, exacerbated by the rising loonie
The following people provided help, advice and council for this story:
EDC, Sector Advisor, Infrastructure
EDC, Regional Manager, Latin America
EDC, Regional Manager,
Africa, Europe & Middle East
Vice-President, DCM Erectors
President, R.A. Murray International
President, Moriyama and Teshima Architects
President, GSM Build
Chief Projects Officer, Dubai Holding
|© 2005 Peter Diekmeyer Communications Inc.|