The Challenges Ahead
05 May 07:24 AMSector : Construction Country : Qatar
By: Steven Humphrey
The task Qatar faces over the next seven years is globally unprecedented as is the level of expenditure on a per capita basis, but Doha appears willing and able to rise to the challenge.
The delivery of massive infrastructure and real estate developments between now and 2022 as well as the nation building required to realize the National Vision 2030 (NV 2030) would overwhelm many countries. However, Qatar is blessed with significant natural resources which generate solid recurring income due to continued global demand for hydrocarbons.
Armed with this arsenal of wealth Qatar has set about developing itself into a modern country with all the features one would expect from a leading developed economy. Founded on the four pillars of the NV 2030 - human, social, economic and sustainable environmental development - the intention is to move Qatar into a position of strength with solid foundations for all future generations. With a focus on ensuring that the current wealth from a hydro-carbon rich economy is utilized for the prosperity of future generations it is easy to understand the direction of development in the country.
It is often believed that the rapid development of Qatar is driven by a desire to emulate others around the region and the world, whereas the truth is slightly different. Although there is a desire to keep pace with others, the aspiration has always been to ensure development is appropriate and aligned with the needs of the country rather than development for development's sake. The importance of understanding the overall vision of the nation is critical to recognizing the strategy for delivering projects. The appearance of slow decision-making and delayed project awards is not recognized for the calculated approach to project selection and approval being adopted at the highest levels of the nation.
The key challenge
The key challenge Qatar faces is not necessarily the delivery of major projects, which although a concern is not insurmountable, it is the need to ensure that the right decisions are made at the outset. There is a major risk of economic overload if all projects are launched simultaneously, which will bring with it inflation, project delays and quality impacts. The fine balance which has to be walked between releasing enough projects to stimulate global interest, whilst at the same time not bringing the country to a standstill is exceptionally hard to manage successfully.
Added to the Qatari pressure is the regional rebirth of the United Arab Emirates following Dubai winning the Expo 2020 and the on-going growth of Saudi Arabia, coupled with the general global upturn, meaning attracting interest and excitement will be a challenge. Qatar is not the easiest place in the world to operate for construction sector professionals and contractors, therefore there has to be a compelling reason to venture into this market. Currently the attraction is major project awards and signature design opportunities. However, if these are slow to materialize or the terms and conditions are unattractive the world’s best will look elsewhere.
The local social infrastructure is currently still very constrained. Whilst certain aspects are a great success, such as health, others are major risk areas – education for example. Although the recent changes related to class size limitations and school designs are done with the best intentions, they have a compound impact due to the lack of existing alternatives. Issues already exist with the limited availability of Western school places and as pressures are placed on other segments of the expatriate schooling community the problem magnifies across all tiers of guest workers in the country. It has to be recognized that expatriates are an essential component of the successful delivery of the NV 2030 and attracting the best talent in a competitive marketplace is crucial to realizing the aspirations.
Tackling social issues
Solving the social issues will take time, but is already in hand. However, the next issue will be the need to adopt a more collaborative approach to project delivery. History has taught us that in times of significant construction activity, not necessarily boom periods, the balance of power shifts from the buyer to the seller. This will mean that the current situation where the client is dominant in the negotiating framework will shift to a scenario where the contractors and suppliers will be dominant. In 2005-2007 this balance of power was also seen and many clients suffered through being ill prepared or unwilling to adapt quickly. Elsewhere in the world the same situation has been played out with inevitable results.
The local construction market is capacity constrained for a number of reasons, many of which are historical, this means that construction costs are generally higher than other regional markets. Therefore, when construction activity increases and the barriers to entry by new organizations are at a level which is unattractive the outcome is the supply and demand equilibrium changes. This impacts prices further as well as restricting the ability of the existing players to perform. Whilst the new requirements around workers welfare are need and welcomed they require time to be effectively implemented in a market which needs incentives to make significant capital investments. The negative global press coverage has been a stimulant as well as a burden on improvement. On the one hand early implementation of the new standards is being demanded, whilst on the other, contractors are complaining about the lack of certainty on future workload. These issues are all centered on a reduced level of confidence in the future market size and how/when projects will be awarded.
This therefore circles back to the original concern about avoiding an overheating market through a controlled and structured release of new projects. So is this “Catch 22” or a cycle which can be broken?
Confidence building in the market
Fundamentally the Qatari construction market is founded on confidence, there is no doubt about the volume of potential work and that construction projects in the country can be profitable if priced/executed efficiently. Therefore the courageous approach to construction delivery to achieve the NV 2030 and the short term goals of the World Cup 2022 has to be based around communication and confidence building within the local market.
It is known that a collaborative approach to project delivery provides benefits to both parties and it does not necessarily result in inflated costs. The local market needs to have confidence that the projected headline workload is really there. Whilst some would like certainty on project awards, the reality is if there is confidence on when and which projects are to be released as well as how, then local businesses will invest in new facilities and technology which will be desperately needed to deliver the ultimate goals. The future success of “Qatar Inc.” will be its ability to become more self sufficient in all aspects of construction delivery. There is a quick win in the 2022 targets, but the real prize is the long term development of a country which has an ambitious vision for the future.
All the current challenges are in fact opportunities for different segments of the local economy and it is possible, through careful management, for everyone to benefit from the vast amount of construction activity which will have to be delivered in the next seven years.