Secure Ground for Contractors

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Although life is tough for Gulf contractors during these times of global economic hardship, they can take solace from Abu Dhabi's strong economic fundamentals, which ensure the continuation of ongoing projects as well as a raft of state-backed developments.

Less than 12 months ago inflation and liquidity were the watchwords of the day in Abu Dhabi and contractors enjoyed a buoyant market, with an abundance of opportunities. With huge investment in an underserved real estate market, it often proved difficult for clients to get access to contractors, who commanded premium fees for their services.

"Nowadays it is a different story. The customer is the one who accepts prices, whereas before it was the contractor who dictated the terms of most deals," one Abu Dhabi-based contractor told OBG.

Spurred on by a burgeoning population rate, continuing economic growth and increasing interest from foreign investors, optimistic contractors thought the positive economic environment in the UAE could withstand the negative side effects of the global economic slump.

But in November 2008, as international banks tightened their credit lines and foreign investors became reticent, finance dried up causing a slump in the Gulf's real estate market.

Although this slump has been felt in Abu Dhabi too, the story in the capital is more optimistic – albeit measured in its tone compared to last year. Thanks to a prudent policy during six years of high oil prices, the emirate has amassed a healthy current account surplus, which ensures projects remain on course.

Ahmed Al Sayegh, the chairman of Aldar Properties, told local press this week, "Our strong financial position and well-planned cash flows assure that we are in a good position to meet our targets. We will continue to concentrate on our strategy to focus on innovative and prestigious projects by adapting our resources to fit our requirements."

A slew of developments in Abu Dhabi, such as Al Reem Island and Al Raha Beach, have already begun, providing a bright short-term outlook for contractors. Builders that have managed to secure work in Abu Dhabi can feel more secure in their future, as financially robust large-scale developers focus on the delivery of existing projects to meet pent-up demand.

Nearly 300 exhibitors attended this month's Cityscape, the massive annual real estate show in Abu Dhabi. Government-backed real estate organisations, such as Aldar Properties and Sorouh Real Estate, were eager to show that they are very well placed to navigate their way through the choppy seas of the global economic downturn.

For contractors, Cityscape acted as an important confidence booster. Although not as frenetic as last year's event, which was held in the midst of a speculative boom, the exhibition illustrated Abu Dhabi's solid development plans and commitment to execution. Major projects, which range from residential, commercial and retail to theme parks, sports venues and a Formula One racing track, were put on display by financially sound developers.

Of course, the big question remains whether contractors, especially those that did not secure work with the major developers, will remain busy throughout 2009 and 2010.

Nevertheless, many contractors consider public spending one of the solutions. As the emirate expands in size, current road networks and infrastructure will be put under increasing strain.

Abdullah Al Shamsi, the acting executive director of Municipal Infrastructure and Assets at the Abu Dhabi City Municipality, told local press "We are currently executing 30 projects in Abu Dhabi. Our overall investment in infrastructure will exceed Dh10bn ($2.7bn) this year, much higher than what we spent last year."

He went on to say, "We expect this to increase significantly next year." Naturally, contractors from all around the region will see this as a great opportunity, but the days of receiving work without stiff competition are certainly over.

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