By Mark Raymont www.arabianbusiness.com
In recent years, the Middle East has proved to be one of the most attractive construction and engineering markets in the world for international contractors.
Notwithstanding the present global economic climate, parts of the Middle East continue to present significant opportunities and many global construction contractors are active in the region. Among the most prominent are construction contractors who are head-quartered in the Asia Pacific area, as is illustrated by some of the more high-profile projects in the Middle East, where construction contractor consortia have include many of the major Japanese and South Korean construction firms.
This is demonstrated in microcosm in the United Arab Emirates. In Dubai, for example, Japanese contractors have been heavily involved in constructing the Dubai Metro and the joint venture involved in the construction of the recently opened Burj Khalifa (previously known as the Burj Dubai) was led by South Korea’s Samsung.
The profile of Asian contractors in the Middle East is therefore higher than perhaps at any time in the recent past. Part of this may be explained by the dominance of Asia-based contractors in the global construction market generally – as reported in the ENR 2009 Top 225 Global Contractors, 10 of the top 25 construction contractors came from Asia.
The current levels of activity of Asian contractors in the Gulf region can perhaps be attributed, at least in part, to two issues: the effect of the 1997 Asian economic crisis; and the close economic relationship between Asia and the Middle East.
The effect of the Asian economic crisis is perhaps the most significant. While some Asian countries were affected more than others by the economic crisis, the net effect was to reduce economic activity and dent financial confidence throughout the region with the inevitable reduction in the number and value of the construction projects that achieved financing. The traditional home and regional markets on the large construction contractors in Asia became significantly more competitive.
While Asian contractors have been active in markets outside the Asia-Pacific region for many years, the 1997 crisis caused some of the larger Asian contractors to look more closely at entering overseas markets through exploiting their traditional strengths in resourcing and procuring large-scale construction projects.
Facing dwindling government, domestic and corporate spending at home, Japanese and Korean contractors in particular had in any event increasingly looked towards generating a greater proportion of their revenue from overseas. The Asian economic crisis speeded up the process. The Middle East was an obvious target given its appetite for infrastructure development and expansion of the Petrochem sector and its financial ability to support the high value construction development across the region.
Moreover, historical trade ties between Asia and the Middle East have been strong. The Middle East is one of the principal sources of energy supply for the Asia region. Moving in the other direction, traditionally China, Japan, and South Korea have been among the major providers of engineering goods and services to the Gulf region. Asian companies had therefore entered the Gulf markets at a relatively early stage, gaining experience in dealing with the logistical issues involved in transporting labour and materials into the region thereby facilitating the expansion of their Middle East construction and engineering operations.
While nothing is certain, it is likely that given the current financial climate and in particular the continued primacy of price and quality competitiveness in the letting of construction projects, the profile of Asian contractors in the Middle East is likely to continue to increase for the
Raymont is a Partner at Pinsent Masons based in Dubai. He advises contractors, employers and suppliers in the Construction & Engineering, Oil & Gas, and Power sectors and has worked extensively in Europe, Asia Pacific and the Middle East. His particular expertise is in relation to advising on contract management, risk avoidance and dispute resolution in connection with complex, large-scale projects around the world with a particular focus on the Asia Pacific Region and the Middle East.