Local and international building companies are heavily exposed to spending cuts by Middle East nations ©Reuters Buses in Mecca that eyewitnesses said were burnt by workers from Saudi Binladin group Protests descended into violence in the holy city of Mecca at the weekend after it emerged more than 50,000 jobs have been cut by Saudi Binladin Group, Saudi Arabia’s largest construction company. The protests, which took place more peacefully in Jeddah, where Saudi Binladin has its headquarters, may also have been prompted by the fact that some workers claim to have not been paid for months. More On this topic IN Construction The job cuts were outlined by two people familiar with the situation, although the company, which employs 200,000 people, declined to confirm the figure. “We do understand that manpower reductions are never easy for all involved,” said Saudi Binladin. “However, the group is honouring its commitments and the affected employees have already received their full compensations and any other entitlements.” Saudi Binladin’s decision to lay off tens of thousands of workers highlights how construction groups are heavily exposed to spending cuts by Gulf countries that have been hit hard by the collapse in oil prices since mid-2014. Some nations have had their finances further stretched by the cost of wars — Saudi has been leading a campaign to root out rebels in Yemen, for example. Against this backdrop, governments in the region are delaying or cancelling plans to improve their infrastructure, and slowing payments to contractors on existing projects. As well as local construction groups, this is affecting international companies that were counting on growth in the Middle East to offset sluggish conditions in markets closer to home. “A combination of low oil prices, regional security issues and wider economic uncertainty has caused some client decision-making to slow [in the Middle East], with more projects being phased over longer timescales,” said Atkins, the UK engineering and project management consultancy, which generated 17 per cent of its 2014-15 operating profit in the Middle East. Several projects have already been put on hold, including a long distance rail network that is meant to run between Oman, the United Arab Emirates, Saudi and Bahrain, as well as plans to improve the roads around Doha. Other projects are proceeding more slowly as governments cut capital spending. Atkins, which has been designing the new Doha metro, has warned its revenue could fall 10-15 per cent this year as a result of the slowdown in new work coming to market in the Gulf. It has announced plans to cut 100 of its property and infrastructure staff in the Middle East — about 5 per cent of the total workforce. Analysts say other international companies involved in Gulf construction are likely to be affected. Sam Cullen, analyst at Jefferies, says: “Even if the others aren’t seeing the slowdown immediately, the risk that they will do in future has clearly increased. If projects are not currently in the design phase then the start date is clearly going to be pushed back.” ©AP Construction in Mecca He warns that Carillion and Interserve, two UK construction companies with significant operations in the Middle East, could be affected by these problems. Craig Beeson of Arcadis, the Dutch engineering company, says that essential infrastructure projects for upcoming events such as the Dubai World Expo in 2020 and the Qatar World Cup in 2022 will be given priority but the “nice to have [projects] are being shelved or seeing their implementation delayed”. Meanwhile, payments due to contractors have been stretched from the usual six months to more than a year, building companies say. Even in Dubai, the Gulf’s diversified economic hub that produces little oil, contractors are complaining about a slowdown in payments as the spillover effect of low crude prices combines with the strong dollar to make the tourism and services-oriented emirate less competitive. This is reviving memories of how Dubai’s construction boom of the previous decade — which created a dramatic skyline of towers including the Burj Khalifa — came to an abrupt end with its property crash of 2008-09. ©AFP Dubai’s skyline, including the Burj Khalifa Steve Morris, president and chief executive at Aecom, the US construction design consultancy, says late payments to contractors have long been a feature in the Middle East because of “excessive bureaucracy”. “In places such as Saudi Arabia, contractors used to be able to get 20 or 30 per cent of the payment up front, but that is absolutely off the cards [now],” he adds. Late payments to contractors have been a particular issue in Saudi since the fourth quarter of last year, when government departments began to squeeze suppliers. Simon Palmer of DLA Piper, the law firm, says it has seen an increase in contract disputes involving construction companies in the Middle East in the past six months. Mr Cullen says: “It’s always been more difficult getting paid in that region. It’s often required the top brass to fly out and . . . point out that they are owed some money. It’s our feeling that the situation is getting worse not better in that regard.” Copyright The Financial Times Limited 2016. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web. Source link