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Can the gold rush last?

DUBAI - Dubai has seen a greater concentration of building work than anywhere else around the world, from skyscrapers to entire islands in the Arabian Gulf.Alasdair Reisner wonders where it will all end

LIKE, it seems, every other resident of the emirate, the billboard posters of Dubai must be millionaires. It is impossible to go anywhere in the tiny Arab state without being bombarded by massive hoardings advertising the latest residential tower or office scheme leaping up out of the sands.

And the rate of construction seems to be matched by the speed with which people are prepared to invest in what it produces. A wave of both local and overseas investment has ensured that the pace of development is maintained or even accelerated.

The question is how long this gold rush can last. Not far below the surface there is a number of concerns, each of which has the potential to throw a spanner in the works for construction firms working in Dubai.

With a 50-year history of working in the region engineer Halcrow is bet ter-placed than most to ref lect on these issues. Construction News asked staff working in the firm's Dubai office whether there were cause for concern.

The first worry is competition. While in the past Dubai was seen as an enclave for UK construction firms doing a little bit of work in the sun, now the emirate attracts competitors from as far afield as Belgium, Malaysia, Turkey and Brazil.

'The flood of new entrants means we are seeing lower margins and poaching of staff. It is a concern but it is not something I am kept awake at night worrying about, ' says Halcrow regional director John Heck. 'Competition is healthy. It means we keep our edge. There are a lot of companies coming from overseas, but they may not be able to offer the level of service we do. Sadly in the UAE the percept ion is of ten that lowest bot tom line price is best for clients so clients are getting attracted away to rivals. They come back eventually, but that takes time. The grass is always greener on the other side.' Competition of another kind is a concern not just for construction firms but for Dubai itself.

While the emirate has largely had things its own way in terms of development until recently, its neighbours are now getting in on the act. Dubai is certainly a wealthy state but it pales in comparison to nearby Abu Dhabi and Qatar. Abu Dhabi has a GDP of over $47 billion compared with Dubai's $20 billion. Meanwhile, following the opening up of its northern gas fields, Qatar's GDP is $24 billion. But this is shared between just 600,000 people, half of Dubai's population, making its people among the richest per capita in the world.

'Competition is only just starting to become a problem, ' says Halcrow Middle East development director Jim Fyvie. 'There is an increase in development in the Northern Emirates with Abu Dhabi showing much more interest recently. Ninety-five per cent of all the oil in the UAE is in Abu Dhabi while Qatar has close to the largest reserves in the world of natural gas. This means that they have they money to get going immediately on any major projects they have planned. They are trying to catch up with Dubai's 20 year head start. Any work they do will have a knockon effect on the availability of resources in Dubai.' Indeed, shortage of materials is causing inf lation in the pr ices paid by contractors. In a market where fixed-price contracts are common it is not difficult to see how this can eat into firm's margins.

'We have been talking to the contractors, ' says Mr Heck. 'Supply of aggregates is going to be critical. I was speaking to one and the amount of aggregate that he needed to secure just to complete the work he had in his order books was incredible.

'Fuel prices also went up last year ? 30 per cent almost overnight. It doesn't matter where you are in the world, that is going to have a huge effect. All the materials needed for construction are transported by road, which requires petrol. We are also seeing the price for steel and rebar rising and the price of cement has spiralled upwards. Production is not keeping pace with demand. That could end up slowing projects down because you won't be able to get the materials.' There are also shortages of skilled employees and workers, wh ich has also driven up costs.

Mr Heck continues: 'There are shortages in the labour market. Everyone is fighting for limited resources. The traditional source has been the Indian subcontinent but there have been concerns about an influx of migrants. The Dubai government is trying to control that but it is creating a downstream problem. We need that resource but you cannot get visas in India and Pakistan any more.

'It's very strange. The government is driving development yet the developers, contractors and other stakeholders are finding it hard to get people in to do the work. It is very difficult to get professionals in.' Even if you can get a hold of materials and employees, they are no use if you cannot deliver them to you r off ices or sites. While major building projects have been popping up with little restraint, the Dubai road network has not developed at the same pace. With little in the way of public transport, almost everyone in Dubai travels by car and so even one accident can snarl up some of the major routes. Attempts to control this traffic have affected construction operations.

'There are now restrictions on when HGVs can travel around in Dubai at certain times during the day, ' says Mr Heck. 'That will obviously have a serious effect on construction. When you think of the huge amount of aggregates used its no good to have huge convoys parked up at 3 pm because they are not allowed on the roads.' But those who have lived in Dubai for years have grown used to such inconveniences. Current figures reveal that the Dubai construction sector has a growth rate of 30 per cent, while investment in the em irate is expected to grow by 67 per cent over the next five years. Perhaps, suggests Mr Fyvie, it is a bit too early to be predicting the end of the goldrush.

'I would imagine that things could go on like this for the next five years, ' he says. 'After that I'm not so sure. That said, we've got guys who have lived here for 30 years who say that they thought the same thing back then.'