Almost all countries and industries are seeing the undeniable impacts of the new coronavirus today. With economic activities at a halt due to quarantine and social distancing laws set by governments, new financial strains are developing every day. The construction industry is not exempted from these impacts. Some of the biggest infrastructure projects have been affected and have been put on hold. The future of the pandemic remains uncertain. The current situation in the construction sector has raised questions over the effectiveness and the validity of contractors’ insurance policies in the time of coronavirus. However, with all the uncertainty, some countries have loosened the restrictions on the industry which has allowed site to re-open following a new standard of normalcy: 86% of sites now open in England and Wales and Singapore is set to re-open its sites on June 2^nd as long as sites are labeled: ‘Covid-Safe and restart ready’

Following Rules: Following rules is particularly important for regions and projects where work has not entirely halted, like the UAE. Strict social distancing regulations need to be followed by workers. Taking place in more open areas as compared to enclosed spaces, it becomes relatively easier to follow these rules on project sites.  Along with ensuring workers wear masks and constant workplace sterilization, social distancing rules need to be communicated to the workers. It would be ideal to maintain 1.5 metres distance between every worker at all times. To make site social distancing successful, one needs to ensure that limited workers are working in one area, and a well-structured work schedule is followed so that there are not too many workers on-site at the same time.  A bonus to all this would be planting sanitisation areas on job sites and encouraging workers to wash their hands frequently. It becomes the employers’ responsibility to provide its workers with ample safety gear as well as make sure the frequency of sharing equipment between workers is reduced.

Up safety measures: In the UAE for example, the Municipality has intensified monitoring and inspection of construction sites to ensure all preventive and precautionary guidelines are implemented and instructions in circulars are followed. A total of 50,000 inspection visits were conducted in 12,331 under-construction buildings in the last two months, apart from visits conducted in response to emergency reports in Dubai. Mandatory precautionary measures in construction sites include: wearing protective masks and gloves, providing sterilisation equipment in multiple locations at the site, measuring the temperature of workers before entering the site, maintaining physical distancing and avoiding gatherings, ensuring workers keep a safe distance between each other while travelling in and disembarking from buses, conducting continuous sterilisation of work sites and project extensions, avoiding overcrowding in temporary and permanent elevators, providing dedicated waste containers on site, providing protective clothing for workers in project warehouses, distributing timings for workers’ breaks to ensure physical distancing, ensuring office workers at the site maintain physical distancing, and providing disposable plates and cups. The civic body has issued a set of circulars and guidelines for preventive steps and intensified cleaning and disinfection procedures in construction sites and workers’ accommodations. The Municipality stressed the need to abide by the circulars to ensure the highest security and safety for all construction workers and members of the community. The circulars also include guidelines on transport and movement controls to and from construction sites and the procedures to be followed inside workers’ buses. They also outline the protocols related to the prohibition of workers’ movement outside the project site and the categories within the construction sector that are exempt from movement restrictions

Communication is key: Whether or not your construction projects are continuing during this period, make sure you keep your clients, stakeholders, and staff up to date with the status of the projects. It is not just them who need to be up to date. Construction companies always need to keep updated with policies that are being introduced by their respective governments. Governments are continually working on lessening the impact on industries and reviving the economy.

Being a vital sector, you can rest assured that the construction industries will be presented with policies that could work in their favor and stay up to date.

Risk aversion and a conservative approach: A number one priority for contractors’ would be to preserve liquidity by ensuring the number of unnecessary expenditures is limited. You can limit cash flow in areas ranging from corporate costs to petty cash on projects. The uncertainty from a regulatory and business perspective has prompted companies to make decisions in the short term which has booted the focus on Rental.

Flexible Business Models: Businesses need to adopt agile operating models in the medium term if they want to be resilient. Companies need to replace fixed costs with variable costs for all operations. They can lower base salaries and push variable costs aligned to performance. Regularly revisit decisions over which capabilities should be retained internally and which should be outsourced. Ideally, businesses should retain core activities like project management and control internally but can outsource activities such as secondary support to reduce fixed costs.  

Digital transformation is a necessity: There could be no better time to invest in digital technologies to remain agile and better understand market fluctuations. Advanced technologies can make tasks such as workforce deployment, scheduling, and overall logistics processes faster and easier. They can also play a helping hand in reducing workforce costs. This helps contractors’ become efficient, productive, and less dependent on manual labour.

Fully embracing digital tech in the construction industry seem to be the options contractors and construction agencies will be turning to post COVID-19. This industry is one of the few sectors which have lagged in adopting modern technology. The new coronavirus outbreak has made opting digital technology is now a necessity and less of an option for the construction industry. Traditional construction methods are no longer viable in today’s day and age. The United Nations predicts that the world’s population would jump up to almost 10 billion by the year 2050. This means that the need for housing and upscale construction projects will increase. To reduce the manual workforce, pressure on essential labour, and increase efficiency, the industry needs to keep up with technological developments.

As time passes, both development and innovation are inevitable.

Digital technology has now allowed architects to become more imaginative and creative in designing their buildings. With the increase in the complexity of projects, it would not be viable for the industry to continue with their current methods. It is only by implementing digital technologies will the construction sector be able to complete future projects. Fortunately, increasing numbers of companies recognise the importance of digitisation and how it can transform the industry for the better.  An example of such companies is Italy-based tracked platform manufacturer Palazzani who has called for a greater focus on digital infrastructure, including 5G telecommunications to help stabilise the economy, as it delivers a 52m platform suited for this type of work.  Serena Mingardi, sales and marketing at Palazzani, said, ”The fallout from the Covid-19 pandemic will be severe for the economy of the most developed countries and, consequently, for the whole world. The magnitude of the global recession that lies ahead derives above all from the duration of the infection and from the way in which the financial authorities will respond to the health and social disaster. Mingardi, adds, ”The most direct and effective way to fight the economic downturn remains the construction and maintenance of infrastructures and this is the only solution to stabilize growth, employment, unlock the potential growth and improve long-term competitiveness; the construction of infrastructure increases GDP and creates jobs, while their availability can increase productivity and promote both competition and cooperation.” Mingardi, continued that in particular, infrastructure investments should be directed towards 5G telecommunications, artificial intelligence, ’industrial Internet’, smart cities, education and health care. Di Primio’s Palazzani XTJ52C in Abruzzo model has an outreach of 19.5m, which is being increasingly required in Italy. The main applications are for the installation of 5G masts. The model’s Can Bus system automatically controls movements, leading to time and fuel savings of more than 20%, said the company. 

In addition to using digital for product development, entities such as the CECE – the Committee for European Construction Equipment are using the internet to continue scheduled events and conference. For the first time ever, the CECE will hold a virtual version of its annual congress. In association with the Swedish association, SACE, CECE will livestream its 2020 congress to remote delegates on 8 October, from a TV studio in Stockholm.

New emerging opportunities are increasing in the construction industry with some start ups capitalizing on the need to be online. An example of that is the MENA region’s first electronic store: Rafeeg Store. Rafeeg App founder, Mr.Khamis Al-Sheryani opened this store that specialises in construction, maintenance and decoration projects in the UAE. Through Rafeeg Store, customers can browse the designs of the best international engineers and decorations. They can also easily compare the rates of local contractors who are willing to design their homes. This opening aligns perfectly with the UAE government’s vision to follow through the best environmental practices in various fields, including contracting, maintenance, and design. The online store is now expanding its services in cooperation with a series of trusted international brands to help the market more sustainably in light of the new coronavirus outbreak.

Technology is also being used to improve existing business processes. Indeed, some contractors in Europe as using GoPro technology to film progress on site, which is uploaded to Microsoft Teams to show latest developments, pause and ask questions. In addition, Motion activated voiceover systems are being used to remind people to abide by social distancing on site

Hopefully, the ongoing epidemic will end soon. However, the massive disruption caused by the COVID-19 will push companies to adapt into the “new normal” way of business and only those who can adapt will survive.

End.

Sources

https://www.cbnme.com/news/dubai-municipality-enforces-building-control-measures-to-boost-precautionary-protocols-against-covid-19/

https://www.khl.com/access-international/palazzani-focuses-on-digital-infrastructure/144255.article

https://www.khl.com/construction-europe/constructions-new-normal/144094.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+21st+May+2020&utm_term=C%26C

https://www.khl.com/construction-europe/cece-announces-dates-for-virtual-2020-congress/144166.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+21st+May+2020&utm_term=C%26C

https://www.khl.com/international-construction/construction-to-resume-in-singapore/144106.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+21st+May+2020&utm_term=C%26Chttps://www.khl.com/construction-europe/86-of-sites-now-open-in-england-and wales/144207.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+21st+May+2020&utm_term=C%26C

In an increasingly fast-moving, complex, and uncertain economic environment, it can be incredibly difficult to make sense of the rapidly changing forecasts provided by individual analysts and commentators – all of which are published at different times and reflect different circumstances, interpretations and scenarios.

To overcome this, GlobalData has developed a consensus-based forecasting methodology for its key macroeconomic indicators, which combines and standardizes inputs from 32 different contributors to provide a concise view of prevailing opinion on future economic performance in any given week. Prior to the outbreak of the coronavirus (COVID-19), GlobalData had predicted that there would be an acceleration in the pace of growth in the global construction industry, to 3.1% from 2.6% in 2019. However, given the severe disruption in China and other leading economies worldwide following the outbreak, the forecast for growth in 2020 has now been revised down to 0.5%. The current forecast assumes that the outbreak is contained across all major markets by the end of the second quarter, following which, conditions would allow for a return to normalcy in terms of economic activity and freedom of movement in the second half of the year. However, there will be a lingering and potentially heavy impact on private investment owing to the financial toll that inflicted upon businesses and investors across a wide range of sectors. Growth in 2021 will be marginally higher than previously expected owing to the projected rebound (and high year-on-year growth rate) in the first half of next year. In the event that the spread of the virus continues into the second half of 2020, further downward revisions to the growth outlook are likely.

The global economy faces a severe economic downturn as the COVID-19 epidemic spreads around the world. Data from Johns Hopkins University shows that over 585,00 cases had been recorded worldwide and around 26,00 people had died as of March 27th. In early March, the IMF announced that it expected global economic growth to fall below the level recorded in 2019, of 2.9%. It had previously forecast that growth would accelerate in 2020 to 3.3%. Since then, the situation has worsened markedly, particularly in the US and EU, and the IMF has predicted that the global economy would go into a recession in 2020 with an expected recovery in 2021 contingent on countries’ containment measures and strengthened healthcare infrastructure.

With extreme quarantine measures including lockdowns of entire countries as well as international travel restrictions being imposed across many major economies, the supply shock is expected to dampen economic activity. The direct impact on construction has been the halting of work with labor unable to get to sites or because of disruption in the delivery of key materials and equipment. Reflecting these issues, the direct impact of the COVID-19 on construction has been extensive in the worst-hit countries, namely China, Italy, South Korea and Iran. Official data that would reveal the extent of this impact has yet to be published, but anecdotally it is evident that although projects may not necessarily have been formally classified as being on hold or cancelled, progress will have been severely affected.

More generally, the construction industry will be heavily affected by the expected widespread disruption to economic activity and a likely drop in investment, with planned projects being delayed or cancelled. GlobalData foresees particular struggles in the commercial and industrial sectors; businesses in these sectors are most at risk from the severe drop in economic activity, domestically and globally, and their immediate priorities will be on staying afloat and rebuilding their core operations, rather than expanding and investing in new premises or capacity. The residential sector also will struggle as economic activity weakens and unemployment rises, despite low interest rates and direct government support. There is a high risk that a considerable proportion of the early stage projects in these sectors will be cancelled or at least pushed back, with few new projects starting in the second quarter of 2020 as firms review their expansion plans.

Governments and public authorities will likely be aiming to advance spending on infrastructure projects as soon as normality returns so as to reinvigorate the industry. This will be spread across all areas of transport infrastructure and energy and utilities. With interest rates falling to record lows, borrowing costs will be at a minimum, but the success of government efforts to spend heavily on infrastructure will be dependent in part on their current financial standing. Moreover, with most governments prioritizing cash hand-outs, particularly to the economically weaker segment, their capability to invest in the infrastructure segment is likely to be constrained, especially in countries with high debts.

• Amid worsening economic conditions as a result of the COVID-19 outbreak, the construction industry is set for a year of contraction across Western Europe. The COVID-19 virus outbreak will bring severe disruption to the industry, as the strict quarantine measures imposed across the region will lead to ongoing projects being temporarily halted and new projects being delayed. The major markets including Germany, France, Italy and the UK are all set for negative growth in 2020, with a further downward revision likely if the situation worsens. As a result, GlobalData has revised its forecast for the Western Europe construction industry, with a contraction of 1.9% expected in the region. The outlook for the Eastern European construction industry is more positive than in Western Europe, as the region has thus far not suffered to the same extent as major markets such as Italy, France and Spain. While the impact has so far been limited, the health situation is expected to deteriorate in the coming months. GlobalData forecasts the Eastern Europe construction industry to grow by 1.4% in 2020, however, this is contingent on the virus being contained by mid-2020.

• Prior to the outbreak of the coronavirus (COVID-19), GlobalData was predicting a mild recovery in the pace of growth in construction in North America in 2020 thanks to a rebound in the housing market, on-going infrastructure investments and the recent trade truce between the US and China. But as COVID-19 continues to spread rapidly across the region and national authorities take drastic actions to contain the disease, developers, especially, homebuilders are expected to face a sharp slowdown in new construction projects as economic activity weakens and unemployment rises.

• Already with one of the world’s slowest economic growth and rocked by street protests and issues such as corruption scandals, high levels of crime and rising inequality, Latin America is now bracing for the prospects of going further backwards as the number of coronavirus cases rises quickly across the region. Due to its high-commodity export dependence and direct trade exposures to China, the US and the EU, the region’s economy and construction industry will be severely impacted by slower global demand, and significant commodity price declines. As a result, GlobalData has revised down its construction growth forecast for the region as a whole in 2020 to -0.3% from a previous growth forecast of 2.3% in the Q4 2019 update.

• GlobalData has sharply revised downwards its forecast for construction output growth across North-East Asia in 2020, to 1.4% from 4.2% previously, reflecting the fact that China’s industry has been severely affected, and other major markets in the region, notably South Korea and Japan, are also suffering a heavy impact. China is suffering an unprecedented decline in economic activity owing to the widespread and lengthy lockdowns since mid-January. Forecasts for economic growth in China are now being slashed; the China International Capital Corporation, for example, now predicts growth of 2.6%, down from 6.1% previously, while China Beige Book, data analytics firm, has revealed that its latest survey of more than 3,300 Chinese businesses points to a contraction in GDP of 10-11% in Q1 2020.

• The South and South-East Asia region is among the most vulnerable to virus outbreak from both the direct and indirect impacts. For South Asia, a WHO model predicts that the region could see a GDP reduction of 2% in case of a global influenza pandemic, while South-East Asia has a high dependence on trade with China and is heavily exposed to fluctuations in global trade. Governments across the region are trying to combat the economic strain brought as a result of the COVID-19 outbreak by announcing fiscal stimulus packages, particularly supporting the tourism and airlines industry, and adopting accommodative monetary policy with interest rate cuts. Prior to the onset of COVID-19 outbreak, GlobalData had expected the region to regain some of its growth momentum in 2020 to post an expansion of 6%; however, in view of the region’s close trading and economic ties with China, and the impact on key markets in the region, the forecast has been cut to 3.1%, with further downward revisions possible.

• Australia’s construction industry has been on a severe downturn, which in 2020 will be compounded by the outbreak of COVID-19 and the negative impact on the economy. GlobalData had been expecting only a marginal increase in construction output in 2020, rising by 0.6%, following a drop of 7.5% in 2019, but the forecast for 2020 has now been revised to a contraction of -2.3%, with growing concerns over the potential for a further rise in the number of construction firms going into administration. However, an expansion in infrastructure investment will provide support in the medium term. New Zealand’s construction industry will also succumb to the impact of tight measures implemented to contain the spread of the coronavirus.

• GlobalData has cut its construction output growth forecast for Middle East and North Africa (MENA) region for 2020 to 1.4%, down from the previous projection of 4.6% (Q4 2019 update) in light of the outbreak of the coronavirus (COVID-19) and the recent sharp drop in oil prices. Activity in the construction sector throughout the region is expected to slow down with the outbreak of Covid-19 as lockdown measures have been implemented across the region along with targeted support measures, such as monetary easing through interest rate cuts and fiscal stimulus measures to support the private sector and avoid a severe economic downturn. Saudi Arabia remains the largest construction market in the MENA region. Prior to the outbreak, Saudi Arabia’s construction sector had posted growth for the first time in five years, expanding 4.6% for 2019 in real terms. However, amid the worsening situation with regards to Covid-19 outbreak and the decline in oil prices, GlobalData has cut its forecast for construction output growth to 2.9% in 2020 and 3.2% in 2021.

• GlobalData has cut its construction output growth forecast for Sub-Saharan Africa (SSA) in 2020 to 3.6%, down from the previous projection of 6.0% (Q4 2019 update). The revision reflects the impact on the region’s economic activity and investment growth stemming from the wider global slowdown and the outbreak of COVID-19 in the region. COVID-19 outbreak presents a downside risk for short-term growth in the region, and its impact on the region’s economy is expected to be strong given the continent’s exposure to China, particularly in Ghana, Angola, South Africa, and Nigeria, which are reliant on China’s demand for their commodities exports. South Africa, will continue to struggle to generate growth drive as it falls into recession.

Construction and COVID-19 Survey of Construction Industry Executives

GlobalData recently surveyed industry executives globally to gauge the extent to which they have been subject to the impact of COVID-19. Notably, 68% agreed or strongly agreed that the COVID-19 outbreak had led to a halt in construction work, while 79% agreed or strongly agreed that it had led to delays in the commencement of new projects. With the initial round of the survey being concluded on March 24th, there had yet to be an overwhelming view that containment measures had greatly impacted the supply of materials and equipment. Nevertheless, globally 33% of respondents agreed that there had been issues relating to shortages of equipment, 42% with shortages of key materials, and 54% with shortages of labor.

The main challenge for the industry in the short term is that projects that are under construction are being delayed, resulting in a range of legal and financial ramifications for contractors. The risk of project cancellations is also high. The survey shows that 49% of respondents agreed or strongly agreed that COVID-19 had resulted in project cancellations, whereas 78% agreed or strongly agreed that contract awards were being delayed as a result of the outbreak and its impact on investor confidence and general operations.

In the event that the lockdowns are not prolonged beyond a few weeks, and that containment measures are effective in terms of controlling the spread of COVID-19, project owners, key contractors and other firms, should they still be in business, will aim to restart projects quickly and accelerate delivery where possible to avoid lengthy delays to completion. However, if the lockdowns are extensive, and companies do not get the support they need, at best there could be delays while new funding is secured or new contracts tendered and awarded, but at worst there is a high risk of companies failing and projects being cancelled outright or left partially completed.

Although at this point in the crisis period there is still considerable uncertainty as to how events will unfold and the extent to which the global economy will be affected, the general assumption among the industry executives is that the crisis will continue for up to nine months.

Saudi Arabia is cutting allocations for a number of its Vision 2030 initiatives and mega projects

Saudi Arabia is cutting allocations for a number of its Vision 2030 initiatives and mega projects Saudi Arabia is implementing a range of austerity measures following the announcement on May 11th that the Kingdom posted a US$9 billion budget deficit in the first quarter of 2020. The central bank’s foreign reserves fell in March to their lowest since 2011, while oil revenues in the first quarter fell 24% from a year earlier to US$34 billion, dragging total revenues down 22%.

Amid the worsening situation with regards to the COVID-19 outbreak and the decline in oil prices, the government decided to raise value added tax (VAT) from 5% to 15%, effective July 1st, and to suspend cost of living allowance paid to state workers starting from June 1st, according to Saudi Press Agency (SPA). According to the ministry of finance, the tax increase will not have much impact on revenue for 2020 because people are spending less under the curfew, but it will shore up the government purse for the coming years as the world recovers from the pandemic crisis. The Kingdom is rationalizing its
spending due to the unplanned fiscal and monetary policies to support the health sector and the overall economy and mitigate the economic effects of the pandemic and plunging oil prices. Earlier in May, authorities announced that they will reduce spending in non-priority areas of the 2020 budget by SAR50 billion (US$13.3 billion), accounting for 2% of GDP, to accommodate some of the initiatives announced in response to COVID-19 so that overall spending for 2020 remain close to what was planned. To further improve spending efficiency, a ministerial committee has been established to study the
financial benefits paid to all employees, contractors, and entities that include the Vision 2030 programs, and present its recommendations within 30 days.
Delayed capital spending The Saudi government’s revenues will suffer from the low oil prices and this will likely impact the government’s economic spending program and mega infrastructure projects in the pipeline. In the short- to medium-term, the government’s diversification drive will be severely disrupted. Saudi Arabia will cut some allocations for Vision 2030, with a total cost of SAR100 billion (US$26.6 billion). Delays in awarding contracts among other tough measures could push back the execution of high-ticket projects under Vision 2030. The construction of both the tourism hub on the Red Sea and the Neom entertainment city outside of Riyadh will have their timelines extended as announced by the finance ministry. Social
infrastructure and oil and gas projects now have the highest priority in terms of investments, but the pace of spending will slow.

Construction on major commercial work, especially in the hospitality sector, is likely to face delays or cancellations. Religious tourism suffered a setback when the Kingdom took the decision to close off the holy cities of Mecca and Medina to everyone, thus barring Umrah during the holy month of Ramadan and the high likelihood of cancelling the annual Hajj pilgrimage. Tourism generates very high revenues (almost 4 million tourists per year), due in particular to the Hajj. The Kingdom’s tourism ministry announced that it expects the tourism sector’s revenues to decline by 35%-45% this year, compared to 2019, due to the containment measures taken by the government to fight the pandemic. Reflecting these developments, major religious-tourism expansionary projects are at most risk, notably the third phase of the Grand Mosque in Mecca has been paused. The entertainment sector will also have a set back as social distancing gets prolonged. One of the main goals of the country’s Vision 2030 is to increase Saudi household spending on domestic entertainment from 2.9 to 6% of total expenditure. There are 140 cinemas planned to open in 30 malls across the Kingdom, with the contagion going on, construction will be slow in this sector. Saudi Arabia plans to diversify its oil-dependent economy through tourism, with the sector expected to contribute to 10% of gross domestic product by 2030. GlobalData has cut its forecast for construction output growth for the Kingdom to -0.6% in 2020 (with a possibility of further cuts if lockdown is extended longer and the fiscal situation worsens). Prior to the outbreak, Saudi Arabia’s construction sector had posted growth for the first time in five years, expanding by 4.6% in 2019 in real terms; an outturn that was better than had been expected. A key pillar of its Vision 2030 program is increasing non-oil economic growth, which accelerated at the fastest pace in four years in the second quarter of 2019.

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Source: 

GlobalData Plc | Registered Office: John Carpenter House, John Carpenter Street, London, EC4Y 0AN, UK Registered in England No. 03925319

The new coronavirus outbreak has hit the economy hard. With businesses closing, city curfews, manufacturing shutdowns, there has been a detrimental effect on the global economy.  Here’s a summary of the report issued by Global Data on April 8^th 2020.

Prior to the outbreak, UAE’s construction sector had posted growth of 3.3% in real terms in 2019 and was expected to grow by 4.3% in 2020, given various government initiatives such as the Energy Strategy 2050, the Sheikh Zayed Housing Programme and the Dubai Tourism Strategy. However, amid the worsening situation with regards to the COVID-19 outbreak and the decline in oil prices, GlobalData has cut its forecast for construction output growth to 0.5% in 2020 and 4.1% in 2021. This central forecast is based on a positive scenario that the outbreak will mostly be contained in the second quarter of 2020, such that restrictions on travel will be eased thereafter.  Infrastructure projects are a key part of the UAE’s economic expansion, but there are risks to investment growth owing to weakness in the oil sector, which poses a downside risk to the forecast. Sheikh Mohammed bin Rashed Al Maktoum, Vice President, Prime Minister and Ruler of Dubai is intent on going ahead with the implementation of all planned national projects and value-added initiatives.

People who work on construction projects in Dubai are exempted from the 24-hour Sterilisation Programme but are subject to obtaining a permit from Dubai Municipality and the Permanent Committee for Labour Affairs.  However, Dubai-based Emaar, the biggest developer in the Emirate, has suspended construction work on various projects and introduced a new salary structure amid the economic disruption caused by the novel virus and lockdown policies in place. Work has been suspended on projects in Downtown Dubai, Dubai South and Dubai Creek Harbour. The government’s economic and fiscal policies will continue to be partly guided by global oil price movements, as the emirate of Abu Dhabi, which funds a major share of federal spending, is still heavily reliant on oil revenue.

ADNOC, the state run oil company of Abu Dhabi, has notified contractors and suppliers that it will review existing deals to find ways to cut costs due to the steep slide in oil prices. ADNOC announced it would raise its oil supply to a record 4 million bpd in April, about 1 million bpd more than current output as it speeds up production capacity expansion projects. Italian E&P oil major ENI, one of ADNOC ‘s main partners in major upcoming projects, has recently declared plans to review all ongoing projects in the Middle East. It has announced to reduce 2020 and 2021 capital expenditure by US$2.2 billion and about US$3 billion, equivalent to 25% and 30% of its initially planned amount, respectively.

Construction in the energy and utility sector will feel the brunt of plunging oil prices. Abu Dhabi’s energy department postponed the announcement of winning bids for a solar power plant and is monitoring energy prices and supply chains. A plan by the Abu Dhabi National Oil Company (ADNOC) to launch a new benchmark for its flagship Murban crude oil grade may be delayed beyond June as it awaits regulatory approvals amid current uncertain market conditions, this constitutes a hit for the energy market in Abu Dhabi.

Investment activity is likely to slow in the UAE as investors react to uncertainty, with the retail and hospitality sectors being the most affected. The commercial sector in Dubai, the region’s most diversified economy, has been hit hard by the disruption to global travel, with tourism expected to lose 5%-6% of GDP this year if virus containment measures were to last for another three to four months. Expo 2020, which Dubai is to host, is also in doubt after the event’s organizers backed a proposal to postpone it for a year due to the pandemic. However, postponing the event for 2021 could be positive as many construction companies would then have more time to complete their projects and the pandemic should have passed with the world being ready to emerge from extended periods of lockdown and social distancing. It would also give the Emirate ample time to repurpose the event, to coincide with the 50th anniversary of UAE as a nation, with leaders planning to deliver a road map for the next 50 years in all sectors from infrastructure and economy to health and education.

Abu Dhabi’s hospitality sector, which has been a hub for hosting various types of events in 2019, attracting tourists and boosting the sector in the city, will also face the brunt of the contagion. The demand for hospitality sector in Abu Dhabi is expected to severely be impacted as new upcoming events, such as the F1 Grand Prix, and festivals scheduled for the year 2020 will be cancelled, which will affect the commercial sector in the city and potential derail future investment plans.

The residential sector in the UAE will be hit hard as a result of the outbreak. The sector has been facing headwinds in recent years, which GlobalData expects to intensify 2020, affecting investment flows into real estate from the wider region. The effects of this will be felt heavily in Dubai. Prior to the outbreak, the Dubai government had taken steps to limit future supply, with the formation of a new Real Estate Planning Committee in Q3 2019 to study the real estate market, evaluate all future projects and control the pace of projects. Developers are launching fewer new projects, which will be further re-assessed in light of the outbreak and focusing on the sale of existing inventories.

End.

Source: https://construction.globaldata.com/Analysis/details/covid-19-sector-impact-construction—uae

The new coronavirus outbreak has hit the economy hard. With businesses closing, city curfews, manufacturing shutdowns, there has been a detrimental effect on the global economy.

With social distancing and stricter stay at home policies being rolled out to contain the spread of COVID 19, the construction industry, across the globe, has been indirectly affected amidst this pandemic. Where some private construction sectors have implemented remote working which will result in impacting essential administrative procedures for site work to progress, others continue functioning ‘as usual’ in the UAE.

Amid the worldwide spread of the coronavirus (COVID-19) and the drastic measures taken by authorities to restrict travel and economic activity, confidence levels among construction industry executives have plummeted, according to GlobalData’s latest confidence survey. The Construction Confidence Index (CCI) in Q1 2020 fell to 34.6 points, down from 56.9 in Q4 2019. This marks the seventh consecutive decline in the CCI score, and is the lowest level recorded over the past four years. Confidence levels were already steadily declining, having dropped steadily over seven successive quarters, but this is the first time since the survey started (in 2014) that the CCI score has actually dropped below the 50-point mark, which implies that industry executives are pessimistic about the opportunities for growth in the coming six months. Also for the first time, confidence levels with regards to prospects of growth at the company level have dropped below the that recorded for prospects at the industry level, reversing the previous trend of respondents’ perception bias possibly overstating the company’s relative competitiveness.

Given the severe disruption in China and other leading economies worldwide following the COVID-19 outbreak, GlobalData’s forecast for construction output growth in 2020 has been revised down to 0.5%, compared to the previous forecast of 3.1% growth (in the Q4 2019 update).
This is provided that current forecast is based on a relatively positive central scenario that the outbreak is contained across all major markets by the end of the second quarter, further cuts to the growth forecast are likely.

The impact on the industry in the short term will be reflected in the halting of projects in execution, in terms of shutdowns and lack of materials and other issues relating to supply chain disruptions, as well as severe delays in progress on projects at pre-construction stages, given likely delays in processing of building permits, tendering and contract awards.
GlobalData recently surveyed construction industry executives globally to gauge the extent to which they have been subject to the impact of COVID-19. Notably, 68% agreed or strongly agreed that the COVID-19 outbreak had led to a halt in construction work, while 79% agreed or strongly agreed that it had led to delays in the commencement of new projects. The risk of project cancellations is also high. The survey shows that 49% of respondents agreed or strongly agreed that COVID-19 had resulted in project cancellations.

The UAE Scheme

Global economic activity has slowed sharply following the rapid spread of the virus. The pandemic has caused business closures, city curfews, travel bans, financial market upheavals and manufacturing shutdowns in major global economic hubs. To aid industries, the Central Bank has introduced an AED100 billion Targeted Economic Scheme. This scheme aims to “to contain the repercussions of the pandemic COVID-19”. Out of the AED100 billion, 50 billion DHS will be set aside for all UAE banks at zero-cost so that they can boost their lending capacity.

This package is intended to support banks and businesses during the Coronavirus crisis for up to six months. Experts in the field say this package will be beneficial for the local construction sector, which includes small and medium-sized design and contracting enterprises.  The UAE government has managed to suspend social activities without a severe effect on economic output. In the construction sector, remote working, which some private sector employers in the UAE have voluntarily offered, could impact administrative procedures that are essential for site works to progress, such as sign-offs and schedule management.  Meanwhile, even though cargo travel currently faces fewer restrictions than passenger flights, supply chain disruptions are likely to deepen in the weeks ahead. China – the world’s largest exporter and the epicentre of COVID-19 – has only just begun a slow recovery after its factories were shut down for almost two months to curb the spread of the virus.

What about Expo2020 starting this October? The Expo 2020 Dubai has addressed in an official statement – concerns about its plans and preparations – amid the novel coronavirus outbreak. Expo 2020 Dubai Steering Committee stated that it is exploring the possibility of pushing the big show by one year: “While everyone involved in Expo 2020 Dubai remains firmly committed, many countries have been significantly impacted by COVID-19 and they have expressed a need to postpone Expo’s opening by one year, to enable them to overcome this challenge”, adding that it closely monitoring ongoing developments and taking all sensible precautions to manage and mitigate the risk to all those involved while adhering to the guidelines issued by the Dubai Health Authority, Ministry of Health and Prevention (MoHAP), and World Health Organisation, with due diligence.

Workers Safety is nothing new

All construction sites have undertaken the necessary precautionary measures such as maintaining hygiene and adding hand sanitiser stations throughout the sites, some sites are even checking people’s temperatures before entering as well as maintaining proper PPE. Since most workers are working outside, this should be the safest means of work. However, caution needs to be taken in camps, bus and rest areas.

Churning out Solutions 

Despite the levels of uncertainty, steps are being taken by all contractors and businesses to be as prepared as possible for the future effects of the crisis.  Construction sectors are working closely with stakeholders to identify the greatest risks and coordinate their efforts to prevent the impacts that may arise. Much stricter hygiene and sanitisation regulations are being implemented by all firms to keep their workers safe on site. Some firms are testing smaller groups of workers present on the sites at a time.

Solutions such as asking workers to maintain a set amount of distance amongst themselves, cleaning out job-site trailers on a regular basis daily, and hiring commercial cleaners to clean and disinfect areas of the project can prove highly beneficial when it comes to flattening the curve while still going forth with regular construction activities.

Online communication applications such as Microsoft Teams and Zoom are an added perk since firms do not have to put a complete halt to their meetings with clients, subcontractors, and other business partners.

It is anticipated that the timeline will  be at least 10 months away, meaning that hygienic and exposure-control measures will continue to be the first line of defense for most governments.  In many countries around the world, hospitals or care facilities are emerging over night as the number of infected cases increased.

The Chinese Scheme

China has resumed construction on just under 90% of ‘key projects’ according to an official with the National Development and Reform Commission (NDRC). Construction of 89.1% of 11,000 key projects is ongoing – although this figure does not include the Hubei Province which suffered large numbers of people being infected with Coronavirus. About 60% of workers have gone back to the construction sites, but that does not mean they’re all working. Because of the logistical problems facing the industry, construction materials cannot be delivered to sites. Less than 50% of tower cranes are operating because not enough skilled workers have come back to work. In Shanghai, for example, less than 80% of projects have started back up for local contractor Shanghai Construction Group. For other contractors, it’s less than 50%. Dealers have been struggling with a lack of cash flow for the last two months. But to cope with the return of the market, in particular the excavator sector, in March a number of excavator dealers have been recruiting additional staff. With the encouraging policies for construction activity, the dealers are more confident and in a better position than businesses in other industries.

The European Scheme

Almost one third of CECE (Committee for European Construction Equipment) members included in a survey are being “significantly affected” by the COVID-19 pandemic with 30% already closing factories, a new survey published by the CECE on March 23 and 27. The CECE represents the interests of national construction equipment manufacturer associations in 13 European countries including some 1,200 companies that employ approximately 300,000 people directly and indirectly. The flash Barometer survey carried out between 23^rd and 27^th March shows clear concerns amongst CECE member companies with 32% of respondents being significantly affected by the crisis and 30% already closing factories. The report states that “the COVID-19 pandemic challenges the customer-related issues, namely shutdown of construction sites and cancellation of projects. With 40% of respondents foreseeing between 10% and 30% decrease in sales one thing is certain: the COVID-19 crisis is affecting and will affect the construction equipment sector.

Manitowoc has suspended production in some of its factory namely in Europe and China and notified partners that: ”[they] may experience disruption to the supply chain which could impact our performance to you.  We will continue to work to ensure there are no disruption to our operations, but as you will appreciate we can’t guarantee this, so please be prepared for possible delays to deliveries.”.

Terex on the other hand had issued a statement regarding COVID-19 on March 18, stating that “production is still occuring but steps have been taken to ensure the safety of its team members, customers and communities. At Terex, our top priority is safety. As a global organization, we have manufacturing and support sites in many parts of the world, including some greatly impacted by coronavirus COVID-19 – China, Italy and locations in Washington State (U.S.)”

Nonetheless, the CECE survey adeed that, “as there was a solid demand for construction machinery before the crisis and many projects were shut down but not cancelled, CECE is optimistic about the possibility for the industry to recover as soon as the virus is defeated.”

The UK Scheme

The UK’s Civil Engineering Contractors Association (CECA) said today it had received government advice that construction in England can continue if it can be done safely and in accordance with Public Health England (PHE) guidance. The UK’s Construction Leadership Council (CLC) and three of the main building and construction bodies in the UK have urged that construction sites remain operational during the COVID-19 crisis. In a letter to the prime minister Boris Johnson, the Council said keeping construction working would avoid many thousands of job losses and prevent the closure of thousands of businesses and delays and cost increases on important projects: ““If construction activity comes to halt, given the scale of employment provided by our sector, there would be an immediate need for the Government to provide emergency financing to keep the construction industry operational and prevent irreversible damage to the economic security of millions of people.”

The US Scheme

The Associated General Contractors of America (AGC) has been urging the Department of Homeland Security (DHS) to declare construction an essential industry. With this declaration, construction projects can continue to support critical infrastructure and economic activities, in a way that protects workers and the general public from the spread of coronavirus.  Meanwhile, the AGC launched a survey on March 27th which reported that 39% of contractors had been affected by project owners holding or cancelling current construction projects amid deteriorating economic conditions.  In addition, 45% of the 1,640 respondents reported experiencing project delays or disruptions. Shortages of material, parts and equipment, including vital personal protective equipment for workers such as respirators, were reported by 23% of respondents, while 16% said projects were delayed by shortages of government workers needed for inspections, permits and other actions. A total of 13% said delay or disruption had occurred because a potentially infected person had visited a jobsite. Association officials warned these cancellations mean massive job losses are likely soon unless Congress passes targeted recovery measures to boost infrastructure funding, compensate firms for lost or delayed federally funded work and provide needed pension relief. An example of government support is the decision to expand unemployment benefits as nearly 10 million Americans have lost their jobs because of the coronavirus, and this number is expected to grow as the pandemic expands in the US.

The new coronavirus is said to be a health and an economic virus. It is a time for unity, cooperation, and solidarity. Being an evolving situation, the industry has to ensure that they are up to date on decisions by public officials in the regions where construction projects are still ongoing. As construction work continues to go on amidst the fear and panic, workers and businesses will need to be flexible in their approach. The Covid-19 pandemic will force businesses,governments and communities to adjust their existing processes, and will forever change the current construction landscape.

End.

Sources:

https://www.khl.com/international-construction/construction-and-covid-19-rolling-news-update/142849.articlehttps://www.khl.com/access-lift-and-handlers/terex-issues-covid-19-statement/142874.articlehttps://www.khl.com/construction-europe/uk-construction-wants-sites-to-remain-open/142869.articlehttps://www.khl.com/construction-europe/german-construction-continues-through-crisis/143046.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+25th+March+2020&utm_term=C%26Chttps://www.khl.com/international-construction/china-speeding-up-construction/143022.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+25th+March+2020&utm_term=C%26Chttps://www.khl.com/construction-europe/uk-construction-can-continue-if-safe/143043.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+25th+March+2020&utm_term=C%26Chttps://www.khl.com/international-rental-news/coronavirus-rental-news-round-up/143012.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+25th+March+2020&utm_term=C%26Chttps://www.constructionglobal.com/sustainability/covid-19-set-reshape-uae-constructionhttps://gulfnews.com/photos/news/photos-temporary-hospitals-being-built-around-the-world-to-fight-covid-19-1.1585140561317?slide=1https://construction.globaldata.com/Analysis/TableOfContents/construction-confidence-report—q1-2020https://construction.globaldata.com/Analysis/details/the-coronavirus-action-plan-will-it-help-contain-covid-19-94916-94916https://gulfnews.com/uae/coronavirus-uae-sterilisation-drive-against-covid-19—residents-must-stay-home-1.1585207044856https://www.khl.com/international-construction/exclusive-chinese-crane-owner-on-the-construction-recovery/143122.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+30th+March+2020&utm_term=C%26C https://www.khl.com/international-construction/new-federal-guidance-suggests-us-construction-could-continue/143155.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+30th+March+2020&utm_term=C%26C https://www.khl.com/news/exclusive-how-is-chinas-construction-equipment-sector-recovering/143179.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+31st+March+2020&utm_term=C%26C https://www.khl.com/international-construction/deep-impact-of-covid-19-revealed/143174.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+31st+March+2020&utm_term=C%26C 

https://www.khl.com/international-construction/us-coronavirus-relief-package-now-covers-self-employed-contractors/143269.article?utm_source=newsletter&utm_medium=email&utm_campaign=Construction+and+Coronavirus+-+3rd+April+2020&utm_term=C%26C

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

There have been many talks in recent years in the GCC and primarily in the UAE about the private sector and the growing support for it. The key focus of the Ghadan 2021 vision is to fund, encourage and push the private sector to grow. Some of the benefits of a growing private sector includes its contribution to the GDP, creating employment, attracting foreign direct investments to the country; this is just to name a few.

Now, another topic is in the spotlight: the partnership between public and private sector in the UAE. But what is the nature and the various elements of this type of partnership and what are the benefits for the economy.

The official history of public private partnership (PPP) is not that long ago. According to Law Teacher website, “In 1992 the John Major led government, in the United Kingdom introduced the Private Finance Initiative (PFI), which was the first systematic programme aimed at encouraging Public-Partnerships. The United Kingdom has one the most advanced public-private partnership programmes. Public-private partnership is responsible for about 24% of its public investments. The process has also been adopted by some Australian state governments; a model is the state of Victoria”.

We will review this topic in detail and showcase how such partnership have benefited the economy in the past.

According to World Bank, “There is no one widely accepted definition of public-private partnerships (PPP). The PPP Knowledge Lab defines a PPP as “a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance”. PPPs typically do not include service contracts or turnkey construction contracts, which are categorized as public procurement projects, or the privatization of utilities where there is a limited ongoing role for the public sector. For a broader discussion, see PPP Knowledge Lab . An increasing number of countries are enshrining a definition of PPPs in their laws, each tailoring the definition to their institutional and legal particularities”.

“In some jurisdictions, and in particular civil law counties that follow the tradition of the Code Napoleon, a distinction is made between public contracts such as concessions, where the private party is providing a service directly to the public and taking end user risk, and PPPs, where the private party is delivering a service to a public party in the form of a bulk supply, such as a Built-Operate-Transfer (BOT) project for a water treatment plant, or the management of existing facilities (e.g. hospital facilities) against a fee.

In other countries, specific sectors are excluded from the definition, particularly those sectors which are subject to effective regulation or where there is extensive private sector initiative, such as in ICT Telecoms. In some countries arrangements involving more limited risk transfer such as management contracts are excluded from the definition for institutional reasons as the authorities prefer that they fall under traditional procurement processes for goods and services”.

What are the expected outcomes of public private partnerships?

Ministry of finance of the republic of Lithuania has summarized the advantages and some of the disadvantages of PPP, which are as following:

PPP advantages:

• Ensure the necessary investments into public sector and more effective  public resources management;
• Ensure higher quality and timely provision of public services;
• Mostly investment projects are implemented in due terms and do not impose unforeseen public sectors extra expenditures;
• A private entity is granted the opportunity to obtain a long-term remuneration;
• Private sector expertise and experience are utilized in PPP projects implementation;
• Appropriate PPP project risks allocation enables to reduce the risk management expenditures;
• In many cases assets designed under PPP agreements could be classified off the public sector balance sheet.

PPP disadvantages:

• Infrastructure or services delivered could be more expensive;
• PPP project public sector payments obligations postponed for the later periods can negatively reflect future public sector fiscal indicators;
• PPP service procurement procedure is longer and more costly in comparison with traditional public procurement;
• PPP project agreements are long-term, complicated and comparatively inflexible because of impossibility to envisage and evaluate all particular events that could influence the future activity.

Public private partnerships in various countries

United Kingdom

In 1992, the Conservative government of John Major in the UK introduced the PFI,[30] the first systematic programme aimed at encouraging public–private partnerships. The 1992 programme focused on reducing the public sector borrowing requirement, although, as already noted, the effect on public accounts was largely illusory. The Labour government of Tony Blair, elected in 1997, expanded the PFI initiative but sought to shift the emphasis to the achievement of “value for money”, mainly through an appropriate allocation of risk. However, it has since been found that many programs ran dramatically over budget and have not presented as value for money for the taxpayer, with some projects costing more to cancel than to complete.

United States

In 2017, the State of Texas sought its first ever private partner to join in a project to renovate the G. J. Sutton Building in Downtown San Antonio near the Alamodome, according to Mike Novak, the chairman of the Texas Facilities Commission. Local governments in Texas have already entered into such partnerships including the redevelopment of the HemisFair Arena and the construction by Weston Urban of a new Frost Bank Tower in San Antonio. Named for G. J. Sutton, the first African-American elected official in San Antonio, the six-acre complex was vacated by the state in 2014 because of bat infestation and a deteriorating foundation. In 2015, Governor Greg Abbott, counter to the wishes of Mayor Ivy Taylor, used his line-item veto to remove $132 million which would have funded the rehabilitation of The Sutton. The state expects to see the property used at some point in the future for office space and parking slots. Billy Nungesser, the lieutenant governor of Louisiana, proposed in 2017 that public–private partnerships be established for many of his state’s financially-strapped state parks, which fall under his jurisdiction, particularly citing two popular facilities in Sabine Parish: North Toledo Bend State Park and Hodges Gardens State Park, at which operating costs vastly outstrip revenues from the $1 park admission fees. Because of recurring state financial issues, the fate of state parks in Louisiana remain in doubt after July 1, 2017

Public private partnership in the UAE

According to the UAE government website, “in 2017, the UAE Cabinet issued resolution (1/1) on the procedures manual for partnership between federal entities and private sector. The manual intends to diversify the mechanisms for developing the strategic infrastructure projects and improve the quality of services. It also provides a general framework for project lifecycle of partnerships with private sectors.

Dubai regulatory framework of Public Private Partnerships

Government of Dubai enacted Law No. 22 of 2015 which sets up the regulatory framework of Public Private Partnerships in the emirate of Dubai. The law aims at encouraging the private sector to participate in the development of projects and increase investments in different fields. According to the law, a partnership project may be proposed by a government entity or by the private sector. It also specifies certain terms for partnerships between the public and private sectors. They are:

• feasibility of the project economically, financially, technologically and socially
• allocation of sufficient funds in the budget of the government entity to cover the expenses of the project, if any.

The law stipulates conditions for approving the projects. These conditions involve, among other things, funding and methods of partnerships. The term of the partnership contract may not exceed thirty years from the date of execution. For more details, read the guide Public Private Partnerships in Dubai issued by Department of Finance – Government of Dubai”.

Public Private partnership in the construction sector (Case study)

In the UAE, to align with the PPP initiative, according to ConstructionWeekOnline, two public-private partnership (PPP) contracts worth $13.9m (51.3m) have been awarded by Abu Dhabi Municipality (ADM) for the construction of a service station and a market.

UAE firm Tristar Engineering and Construction Company won a $9.8m (AED30m) contract to build the 12.3ha community market in Mohammed bin Zayed City.

Florida Property Development Company will build a $4.1m (AED15.3m) service station in Al Shawamekh city that will provide car repairs, carpentry, and a range of household maintenance services.

Saif Badr Al Qubaisi, ADM’s general manager, said the duo of deals will “step up the development drive and add to the new projects needed for delivering modern services to the community”. He noted that the agreements with Tristar and Florida Property Development Company reinforced the municipality’s mission to bolster “cooperation with the private sector”.

Earlier this year, ADM signed $24m (AED87m) worth of contracts to build social infrastructure projects, including three playgrounds, a sports centre, and four service stations. These contracts were signed as part of growing collaboration with the private sector.

Will other countries in the GCC follow suit?

According to an article published on ME Construction News website, while there has been collaboration between the public and private sectors for some time, the relationship has been restricted to service contracts and to the water, energy and transport sectors. Most projects in the GCC region developed using a recognised PPP model have traditionally done so under each market’s own version of tender and procurement laws.

One of the key reasons PPP has yet to make a mark in the region is due to the lack of legislation, however, experts have pointed out that this is beginning to change. “I’m pleased to see that countries and states that are interested in PPP are trying to regulate it and introduce a framework for it. That’s the very first step,” said Andrew Mackenzie, partner at Baker McKenzie Habib Al Mulla, a law firm specialising in construction disputes and arbitration.

“We haven’t yet seen an explosion of these projects. We’re beginning to see a few of them pop up more regularly, particularly in the power or water sector – where private companies want to partner with public bodies to provide desalination plants or power projects of a particular nature.”

Highlighting the $500 billion NEOM city development as a particular example, Mackenzie told MECN.com that it would be a perfect test for the private-public partnership model. “I think Saudi Arabia will begin to take the lead on more of these megaprojects, but the UAE, Oman, Kuwait, Bahrain and Qatar have a number of significant projects in the pipeline. As we move towards $70, possibly even $80, a barrel in oil prices, these projects become far more commercially viable as more liquidity returns to the market.”

Conclusion

Even though PPP has its clear advantages, but it has its critics as well. Many believe that not all sectors/verticals should fall within the PPP framework, some essential sectors such as water or energy of education should always be controlled by the government as they should always be kept as a non-for-profit entities while other believe that privatization helps sectors grow and become competitive and eventually help us achieve more.

Oman to lay foundation stone for PPP housing project

Oman will lay the foundation stone for an affordable housing development built through a public-private partnership (PPP) in the coastal city of Barka on 22 October. Representatives from the country’s Supreme Council of Planning (SCP) will attend the ground-breaking ceremony for the integrated residential project in northern Oman, on behalf of HE Sheikh Saif bin Mohammed Al Shabibi, Minister of Housing.

Oman’s state-run news agency said the mixed-use residential community was a “first-of-its-kind” project for the sultanate due to its PPP model, which would see “one of the leading real estate companies” develop the community in accordance with international construction standards. The name of the company was not revealed, nor was the project’s value, but it is believed to the be the first time that SCP and Oman’s Ministry of Housing have collaborated on a project of this scale. The Barka-based residential community will have shops, a mosque, healthcare centres, public parks, and an open grassy field for sport. The project is designed to attract Omanis seeking affordable and modern properties. Equipped with integrated infrastructure, tree-lined boulevards, ample parking, and a host of amenities, officials in Oman’s government hope the project will stimulate economic growth and reduce state spending through private sector collaboration, according to Oman News Agency. 

Meanwhile, real estate deals in Oman have been on the slide recently, as Ministry of Housing statistics recorded a year-on-year decline in the value of property deals during the first six months of 2018. Despite a rise in cash generated by stamp duty collection fees, money made by property sales dropped marginally by 0.4% in H1 2018 when compared to the same period a year ago.  A surge in housing plot allocation has partially offset the nominal value decline. In total, 22,128 residential plots were handed out between January and July 2018, marking a 29% rise on the 17,125 building plots granted by the government during the first seven months of 2017.

End.

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Allen, Grahame. “The Private Finance Initiative (PFI) Commons Briefing papers RP01-117” (PDF). UK Parliament: House of Commons Library. 

Richard Webner, “State seeking builder for Sutton rehab”, San Antonio Express-News

“Are State Parks closing?”. The Alexandria Town Talk. April 16, 2017. Retrieved April 17, 2017.

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