Dubai construction firms bullish on year ahead

Construction firms in Dubai remained strongly optimistic regarding the 12-month outlook as business conditions in Dubai’s non-oil private sector economy continued to strengthen in February, at a similar rate to January, according to latest data provided by Emirates NBD Dubai Economy Tracker.

Construction, a key sector in Dubai, continued to report growth of new contracts in February. The rate of expansion accelerated from January’s 27-month low, but was still weaker than in any other month over the same period, and much slower than the rise in total construction activity, the report said. Although sentiment slipped from January’s record high, it was still among the highest on record. Growth of construction activity accelerated for the second month running in February, to the fastest since the record pace achieved last November. The seasonally-adjusted Business Activity Index was the fifth highest on record.

“Workforce growth at construction companies was maintained in February. The seasonally adjusted Employment Index eased since January to 50.7, however, indicating only a marginal rate of job creation,” said the report.

The data continued to point to subdued cost pressures in Dubai’s construction sector. The seasonally-adjusted Input Costs Index rose from January’s seven-month low of 51.0 to 51.8, but still signaled a weaker rate of inflation than the long-run series average. According to analysts, with the deadline for completion of several projects before Expo 2020 Dubai looming, construction activity is set to pick up. According to Lodging Econometrics’ year-end Global Construction Project Trend Report, Dubai had a pipeline of 168 hotel construction projects with 49,950 rooms as of 2018, ranking it second in the list of global cities with the largest hospitality pipelines, only behind New York City’s 171 hotels with 29,460 rooms.

“Prices charged by construction companies rose for the second month running in February, but at a rate which remained only marginal. Previously, charges had fallen throughout the last four months of 2018,” said the report. Total business activity in Dubai rose at the fastest rate in nine months, while new business increased at a pace that remained above the 2018 average despite easing since January. Employment, however, fell at the fastest rate since the survey began in 2010. The seasonally-adjusted Emirates NBD Dubai Economy Tracker Index was unchanged from January’s seven-month high of 55.8 in February, signalling a strong improvement in business conditions that was faster than the trend for 2018. While companies in the wholesale and retail sector reported the firmest volume growth in February – although with greater price discounting than in January – travel and tourism firms in Dubai remained strongly optimistic regarding activity levels over the next 12 months in February. The headline index for the wholesale and retail sector rose to an eight-month high of 58.1, above the comparable figure for the travel and tourism sector (56.8, a nine-month high). The third key sector monitored – construction – also registered a stronger performance in February (54.0).

Khatija Haque, head of Mena research at Emirates NBD, said the growth in the volume of output and new work has been underpinned by continued price discounting, particularly in the wholesale and retail trade sector.

“Firms’ margins continue to be squeezed as selling prices have declined on average for the last 10 months, while input costs have increased over the same period. As a result, rising new orders have not translated into increased hiring and job growth in the private sector. Indeed, employment declined at the fastest rate on record in February.”

The report said the data signalled a rise in business activity in the non-oil private sector. Moreover, the rate of expansion accelerated to the fastest since May 2018. Wholesale and retail posted the strongest growth among the three key sectors.

“However, the rate of contraction in workforce was the strongest registered since the series began in January 2010, despite faster activity growth,” it said.

Saudi Arabia to start first phase of Neom project

Construction on Saudi’s $500bn (SAR1.9tn) Neom gigaproject will start in Q1 2019, officials announced on 16 January, 2019.

The Neom Founding Board, chaired by Saudi Arabia’s Crown Prince HRH Prince Mohammed bin Salman bin Abdulaziz, approved the strategic concept of the master plan for Neom Bay, the first urban area to be developed within Neom, as reported by Saudi Press Agency (SPA).

The board gave “gave instructions to complete preparations and start construction work in the first quarter of 2019”, the state-news agency added.Work on Phase 1 of Neom Bay will be completed in 2020. It is expected that a number of key facilities will be completed by the end of this year, including the current airport at Sharma, which will be upgraded to become a commercial airport operating regular flights between Riyadh and Neom.

Speaking on the news, Nadhmi Al-Nasr, chief executive officer of Neom, said 2019 will be “milestone” in the megaproject’s journey.

He added: “The strategy of developing Neom Bay will rely on four key pillars that will be ingrained in the entire project development, with sustainability at the heart of aspect of the project.

“The first is to provide a living experience and an ideal quality of life for families; the second is to create a high-end lifestyle and a luxurious tourist destination; the third and fourth pillars are to support both innovation and creative centers in order to achieve Neom’s economic goals.”

Earlier this week saw another first at Neom when a Saudi Arabian Airlines (Saudia) flight, carrying 130 of its staff, landed at Neom airport in Sharma, located in the Tabuk region.

Backed by Public Investment Fund, which is led by Saudi Arabia’s Crown Prince HRH Mohammed Bin Salman, Neom maps the kingdom’s long-term aspirations through 16 economic sectors.

Stable prices of construction materials offer respite to UAE builders

Saudi Arabia’s Prince Turki unveils multibillion-dollar Asir projects

According to Saudi Press Agency (SPA), Prince Turki said the projects cover sectors such as health, transport, and municipal services.

Major transport projects announced include the construction of the Asir-Jazan road at a cost of $1.6bn (SAR6bn); and the $1bn (SAR4bn) expansion of the coastal road between Jeddah and Jazan, which will link Asir to Makkah and Jazan, providing shorter journey times.

Among the recently progressed Saudi Arabia construction projects is the expansion of Abha Airport’s terminals to increase its capacity from 1.1 million passengers a year to 2.5 million. Plans also include increasing the number of boarding gates for domestic flights to four and for international flights to two.

According to an Arabic-language report by SPA, another significant completed project in Asir is the 1,000-bed King Faisal Medical City, which features a specialised hospital, a cardiac centre, a tumour centre, and a centre for neurological sciences for children. The facility will reportedly serve Asir and the Baha, Najran, and Jazan regions.

The projects follow directives by Saudi Arabia’s Crown Prince, Vice President of the Council of Ministers, and Minister of Defence, HRH Mohammed bin Salman bin Abdulaziz, to raise the quality of medical services and the efficiency of road and air traffic in the kingdom.

The news comes amid of flurry of infrastructure announcements from the kingdom’s senior leadership. Last month saw King Salman bin Abdulaziz Al Saud, Custodian of the Two Holy Mosques approve 1,281 cross-sector development projects in Riyadh.

UAE launches $8.7bn housing project plan

HH Sheikh Mohammed bin Rashid al Maktoum, the UAE Vice President, Prime Minister and Ruler of Dubai, has announced the launch of a massive plan that will see more than 34,000 residential units built across the country within the next six years.

Developed for the local Emirati population, the project has had funds worth $8.7 billion allocated to it, and it is expected to be completed by 2025, a report by WAM said. It added that Sheikh Mohammed had also given directives to raise the value of the salary ceiling of beneficiaries obtaining support from the Sheikh Zayed Housing Programme from AED10,000 to AED15,000.

He also issued a directive to raise the value of housing loans for citizens in government residential neighbourhoods from AED800,000 to AED1.2 million as a maximum loan amount, depending on the value of the premises.

The decisions came in the wake of an inspection tour conducted by Sheikh Mohammed bin Rashid, during which he visited a number of housing and road infrastructure projects in Ras Al Khaimah, the report said.

“We have pledged, from the beginning, to ensure that every UAE citizen is provided with a home, and that no area is left undeveloped,” he said during the tour.

“The quality of housing across the country is of a unified standard,” he noted, adding that housing services for UAE citizens are also unified.

“We want higher levels of competitiveness between government sectors for the benefit of Emiratis. The Sheikh Zayed Housing Programme holds a special value providing necessary services to Zayed’s children,” he added.

HyperloopTT to start construction on Dubai-Abu Dhabi border in Q3 2019

Manitowoc to unveil new cranes and lifting solutions at bauma 2019

Manitowoc, one of the leading global manufacturers of cranes and lifting solutions, has announced the debut of six new models from its Grove and Potain lines at bauma 2019 in Munich, Germany. T he company will also present a technology pavilion, highlighting a wide range of customer-focused innovations. Apart from the six new cranes, Manitowoc will display more than 10 new cranes during the show from 8-14 April 2019.

At the company’s stands FS 1201, FS 1202 and FS 1302/1, several new Potain cranes will be on display including those from its topless tower crane and self-erecting Hup ranges.

For Grove, Manitowoc will introduce new cranes from its all-terrain and rough-terrain lines. The company will also present new technologies for the industry, with one highlight involving a recent advancement in telematics.

Commenting on the world’s leading construction equipment trade fair, Barry Pennypacker, president and CEO of Manitowoc, said, “bauma 2019 will be a great opportunity for us to connect with a large number of Manitowoc customers, which will enable us to gather the information necessary to continue our strategy of adding tremendous value to our customers.”

Sources

https://www.khaleejtimes.com/business/economy/dubai-construction-firms-bullish-on-year-ahead

https://gulfnews.com/business/property/stable-prices-of-construction-materials-offer-respite-to-uae-builders-1.62552780

https://www.constructionweekonline.com/projects-tenders/169895-saudi-arabias-prince-turki-unveils-multibillion-dollar-asir-projects

http://www.technicalreviewmiddleeast.com/events/eventnews/manitowoc-to-unveil-new-cranes-and-lifting-solutions-at-bauma-2019

https://www.constructionweekonline.com/168736-saudi-arabia-future-super-city-neom-construction-start-in-2019

https://www.arabianbusiness.com/uae/406731-hyperlooptt-to-start-construction-on-dubai-abu-dhabi-border-in-q3-2019

UAE launches $8.7bn housing project plan

At the beginning 2018 United Arab Emirates and Saudi Arabia introduced Value Added Tax (VAT) of 5% on most purchases across various sectors. There have been speculations on how VAT would impact the economy as a whole, the growth of different industries, future investments and the employment.

According to the UAE Government website, Value Added Tax or VAT is a tax on the consumption or use of goods and services levied at each point of sale. VAT is a form of indirect tax and is used in more than 180 countries around the world. The end-consumer ultimately bears the cost. Businesses collect and account for the tax on behalf of the government.

It continues by stating, businesses will be responsible for carefully documenting their business income, costs and associated VAT charges.

Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.

In this article, we will review the impact of VAT on different industries in the region, we will then look into its impact on the construction sector in the region.

Why do countries introduce VAT?

According to World Bank, empirical studies have shown the interlinks between the VAT performance of a country and its level of development.   The revenue gains from VAT are likely to be higher in an economy with higher level of per capita income, lower share of agriculture, and higher level of literacy.  VAT proves to be an efficient tool for revenue collection; its performance, therefore, has direct impact on fiscal mobilization, macroeconomic stability, and development.

Compared with alternatives in indirect taxation, the VAT has more revenue potential:  it is generally more broad-based and entails a trail of invoices that helps improve tax compliance and enforcement.

According to The National, The introduction of value added tax had a positive impact on economic growth and development in the GCC in its year of implementation, a report said, as the UAE and Saudi Arabia come up on its first anniversary and Bahrain prepares to roll out the levy in 2019.

Once implemented, a GCC-wide VAT could generate revenues of between 1.5 per cent and 3 per cent of the six-country economic bloc’s total non-oil gross domestic product from next year, the report from the Federation of GCC Chambers said, citing earlier figures from the International Monetary Fund.

Impact of VAT in the United Arab Emirates

Most countries have introduced VAT, and it has proven to have a positive impact on the economy. According to a study conducted by Entrepreneur Middle East, here are some of the benefits of VAT in the UAE:

1. Boost to government coffers
   The new tax is expected to bring a significant new revenue stream to the UAE government. According to His Excellency Younis Al Khouri, Undersecretary at the Ministry of Finance, the measure is expected to raise around AED 10bn to AED 12bn in the first year of implementation alone. This revenue will go into creating a more stable economy, which can’t help but have a positive knock-on effect on local businesses.
2. Improved infrastructure
   Not only will the revenue help to stabilize the economy, but it will improve the country’s infrastructure, making it easier and less expensive to do business in the UAE. Investment in infrastructure often has a significant effect on economic development because of multiplier effects, which means that for every AED 1 invested the impact on GDP is even higher. What’s more, value-creating tax strategies can give you a competitive advantage compared to other countries in the region, although in the UAE’s case this will be neutralized by the fact that all six GCC countries will eventually implement the same measure.
3. Non-financial benefits
   As demonstrated by a number of successful global implementations, tax regulation can bring many non-financial benefits to an economy. The most important of these is improved liability management. The introduction of taxes, particularly VAT, can play an important role in enhancing government accountability and democracy. Official taxation records, properly managed, result in faster and more informed decision-making, and reduce the incidence of civil fraud, corruption and waste.

   Impact of VAT on the construction sector – regionally

   According to an Article on Khaleej Times about the impact of VAT on the construction sector in the UAE,” The UAE’s construction industry has not been impacted by the recent introduction of 5 per cent value-added tax (VAT) and it will witness over 10 per cent expansion in 2018, the second-fastest growth rate in the world, according to industry executives and research reports.

   The industry executives believe that Expo 2020 is not the end for the construction sector. Rather they are pinning hopes on multi-year plans such as Vision 2021 which would drive the industry in the post-Expo 2020 era.

   “I see good potential for the construction sector. I would say VAT has not impacted us that much; however, there is a pressure on cash flow but people are getting used to it,” said Ravi Murthy, chief financial officer, Arabtec Construction”

   As for the real estate sectors, industry leaders have a similar feedback. “Matthew Bate, CEO, Engel & Volkers, told Khaleej Times that there was no impact of VAT and first quarter of 2018 was its biggest operating quarter during the last three years.

   “VAT didn’t really have any impact because five per cent is negligible, considering some of the rates that exist in a lot of economies. With the way VAT works with input and out taxes, it has got very little effect on developers. I think VAT probably if affects anything is it is from cash flow position. But if you got a nice sustainable business, then VAT has little impact,” he said.

   Bates noted that “the government is behind a lot of construction activity and obviously Expo 2020 is a major factor. But it is a lot beyond that. I don’t’ think any developer or industry is focusing feasibility studies and returns on investments are just based on 2020. It is the whole 2021 plan, and beyond that as well.”

   Future of construction sector and VAT

   If there is one message for businesses to take from the implementation of VAT in 2018 is that a conservative approach to VAT collection and recovery is advisable.

   While the market is getting used to the concept of VAT, a conservative and risk-averse approach to filing VAT returns seems likely to be the most cost-effective in the long run. For areas of ambiguity it is vital that businesses have a clear paper trail to support any decisions which may be examined during any audit.

   For the construction industry the long project timelines, complex supply chains and phased payment programmes are all compounding the challenges of adjusting to the new tax regime. The most crucial issues for the businesses represented revolved around getting clarity on exactly when they should be collecting and reclaiming VAT.

   Processes to narrow the gap between raising invoices and actual payment are much needed in order to prevent businesses having to carry the VAT burden for an unreasonable period. As the four remaining GCC states go live with their VAT systems in the coming years, demand for clear and consistent processes across the region will grow.

   Manitowoc posts positive results

   Crane manufacturer Manitowoc reported full-year orders for 2018 of $1,910.7 million – a three percent increase on 2017’s figure. Manitowoc also reported its full-year revenue for 2018 increased by 17 per cent year-over-year (YOY), from $1,581.3 million in 2017 to $1,846.8 million in 2018.Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was $116.2 million, and 6.3 percent of net sales.

   The company’s 2018 results were boosted by its fourth quarter figures, where net sales were $515.3 million versus $481.5 million in the comparable period in 2017. Manitowoc primarily attributed the YOY increase to improved demand in the Americas, driven by higher shipments of cranes for the commercial construction and energy end markets – although this was partially offset by lower demand in the Benelux countries and the Middle-East, coupled with unfavorable changes in foreign currency exchange rates.

   “The Manitowoc team again delivered excellent results in the fourth quarter, marking the seventh consecutive quarter of year-over-year adjusted EBITDA percentage improvement,” commented Barry Pennypacker, Manitowoc president and chief executive officer.

   Fourth-quarter orders, however, of $485.7 million for 2018 decreased 22 percent from the comparable period in 2017. Backlog totalled $670.6 million at 31 December 2018, an increase of 11 percent, from the prior year ending backlog of $606.6 million.

   Looking ahead to 2019, Manitowoc said it expected revenue to increase from approximately $1.85 billion to $1.95 billion and for adjusted EBITDA to increase from approximately $125 million to $145 million. “Our results and outlook demonstrate how our strategic priorities are delivering ever-improving results,” Pennypacker added. “We will continue to provide our customers with the type of cranes they need to increase their return on invested capital. This will be evident with our new product introductions at the Bauma trade show in April 2019.”

   Sources:

   http://guyanachronicle.com/2018/11/27/vat-credits-for-electricity-and-water

   https://government.ae/en/information-and-services/finance-and-investment/taxation/valueaddedtaxvat

   http://www1.worldbank.org/publicsector/LearningProgram/PracticalIssues/papers/Value%20added%20taxation/Value%20Added%20Taxation.doc

   https://www.entrepreneur.com/article/307462

   https://www.saifaudit.com/blog/2015/10/28/vat-in-dubai-how-vat-can-affect-uae-competitiveness/

   https://www.khaleejtimes.com/business/real-estate/No-VAT-impact-on-construction-sector-in-UAE

   https://www.bromheadco.co.uk/insights/construction-drawn-into-vat-reverse-charge-process

   https://mena.thomsonreuters.com/en/articles/the-impact-of-vat-on-the-gcc-construction-sector.html

   https://www.americancranesandtransport.com/american-cranes-and-transport/manitowoc-posts-positive-results/137041.article