A MEConstructionNewsANALYSIS by Andrew Skudder, CEO. CCS, Guest Author, warning construction firms of the risks of not digitising operations, posted on April 25, 2019, is republished here for its obvious benefits to the MENA’s development.
With the Middle East construction sector under growing pressure as a result of a tightening economy, construction companies should be looking at ways to streamline their business processes, improve cash flow management and tighten risk management. Those that sharpen internal processes and systems today will be best positioned for an upswing in government and private sector investment in the years to come.
The sector faces numerous challenges – challenging economic growth, shrinking margins, skills shortages, rising resource and labour costs – which means it’s under pressure to start innovating.
Investment in tech is behind the curve
The challenges the industry faces are compounded by the fact that many construction groups have not digitised operations such as cost-consulting. This means they lack visibility into – and control over – the many variables, changes, people and equipment involved in any construction project.
Middle Eastern construction companies should be looking for ways to use technology to drive higher productivity, achieve cost-savings and improve project management to weather a tumultuous time for the industry. However, the lean years of late, have seen IT spending in the construction industry stagnate, despite the accelerating pace of innovation around the world.
For example, adoption of wearables, 3D printing, driverless heavy vehicles, drones and building information modelling is rising in the global construction sector. To take full advantage of these advanced technologies, many local construction companies will first need to modernise their core back-office systems.
They should be looking towards tried and tested solutions for estimating, project control, enterprise accounting and operational costing. These solutions will enable them to drive down the costs of maintaining legacy applications, help them to become more agile and give them clearer real-time visibility into business performance.
Breaking down silos
Construction performance and progress cannot be monitored on financial data alone; engineering information is just as critical. Engineering control includes generating and managing allowable and actual quantities of resources, wastages, manhours of labour, production of equipment and time for construction activities.
Without digitisation, an organisation has no clear indication of the status of the contract because it doesn’t have real-time visibility into these factors. Today’s business solutions can break down the silos, enabling estimators and accountants to produce real time-reporting, and yet continue to work in the language that is meaningful to them.
Integrated back-office systems spanning procurement, project control, cost estimation, sub-contractor management and accounting give construction companies one source and view of the truth, enabling them to manage an entire project with real-time visibility into costs and performance.
Using this data can help construction firms make better strategic and operational decisions. Data-driven insights can enable them to better manage cashflow and project risks, so they can better predict and mitigate payment delays, rising costs and other challenges. It can also help companies to drive higher levels of profitability through better project planning.
Building a foundation for the future
Looking to the future, a robust business solution is also a foundation upon which construction companies can layer drones, robots, Internet of Things (IoT) sensors, artificial intelligence (AI) and other advanced digital technologies. Such solutions enable construction companies to manage and analyse big data produced by sensors, devices and workers so they can drive productivity and innovation – AI, for example, can help them rapidly process the data to find key insights.
Construction companies should embrace digital transformation to drive higher productivity, improve efficiency and gain a competitive advantage. Transforming their core business with a proven solution will help them prepare for the future, with a possibility that infrastructure spending will show signs of life again in the near future. Now is the time to lay the foundation for the next wave of growth.
Governments in the Middle East are becoming more
receptive to growing private sector involvement in their economies because
public sector debt in many markets is ballooning, an official from the World
Bank’s International Finance Corporation (IFC) has said.
Speaking on an investors’ panel debate at the
Global Financial Forum in Dubai on Monday, the IFC’s Middle East and North
Africa (MENA) director, Mouayed Makhlouf, said: “For the first time,
because of the massive rise in public debt across the region, we see a
difference. Our narrative with these governments has changed. Now, they are coming to us and they are saying
‘can you help us with the reforms?'”
Makhlouf said that the MENA region needs to create
300 million new jobs – “basically, double the population” by 2050 due
to the burgeoning youth population in the region, and that Egypt alone needs to
create around 700,000 jobs per year, although he said it is MENA’s fastest
growing economy currently, with GDP growth of 5.3 percent, compared with a
regional average of around 2-3 percent.
“The social contract in MENA is as such where
most of the services (are) provided by the public sector. But what you have ended up with… is a huge
public debt that has been rising for the past few years,” he said, adding
that debt-to-GDP ratios stand at around 96 percent in Egypt, 97-98 percent in
Jordan and 150 percent in Lebanon.
“For us, the main thing we need to find in
this region are… growth and jobs. And
I really believe both of these things can only come through a larger private
sector participation,” Makhlouf said.
In a separate panel on the outlook for the region’s
banking sector, JP Morgan‘s Asif Raza said that the decline in oil prices
that began in 2014 had created opportunities for
international banks to advise governments that are looking to
diversify on how to embark on “monetisation and privatisation” of
Kamal, MENA head of corporate banking at Citi, said that governments had run up deficits as oil
revenues fell, and had financed these through “various instruments where
banks have been involved”.
“And we expect to see that continue over the
next 2-3 years.”
Although total GCC fixed income issuance declined
by 16 percent year-on-year to $145.3 billion in 2018 as oil prices rallied,
according to Kamco Research, JP Morgan’s Raza said the current pipeline is
A faster flow
Raza said that at this stage last year, “over
$15.4 billion worth of issuance was done in the MENA region – this year, it’s
He added that in 2018, “the loan market
was (at an) all-time high in this region”. Figures published earlier this month from
Acuris showed that syndicated loan activity in the MENA region last year
outstripped bond issuance – with $133 billion of syndicated loans issued,
compared to $89.5 billion in bonds.
Raza said that at the top end of the corporate
banking market, “there’s lots of activity still happening”.
“There’s still quite a decent pipeline of
financing and refinancing,” he said.
However, Citi’s Kamal argued that the market has
been much tougher for SMEs in recent years.
“I believe that there is room for improvement
for all countries in the region as far as creating the right balance for SMEs
(is concerned),” he said.
He said that “time and again” in tougher
economic times large corporates, government-related entities and even government
departments have delayed payments to SMEs, which causes cashflow problems and
affects their ability to repay creditors.
“And some of the legal framework that
surrounds the corporate sector – we all know about bounced cheques and the
consequences of that. In summary, what
happens is SMEs can’t stay back in a number of cases (to) fight through these
cycles. So, we see skips, people leave
and that does not leave a very strong impact as far as consumer confidence is
Yet funding shortages for private sector firms can
also create opportunities – not least for the region’s private equity sector,
according to Karim El-Solh.
Speaking on the investment panel, El-Solh said that
his firm’s pipeline “has increased dramatically as a result of a lack of
availability of funding for businesses elsewhere.
“The IPO market is not open; the bank
liquidity has dried up so for us it’s an opportunity to come and be a provider
of growth capital. We are seeing more
companies, better quality companies, we’re acquiring controlling stakes at
lower valuations,” he said.
Makhlouf said more opportunities need to be created
for the private sector, stating that levels of private sector involvement in
the economy in the region lag behind other emerging markets.
“MENA region is only one-fifth in terms of
private sector participation compared to Latin America,” he said.
These are the findings of a new World Economic
Forum study which shows the world’s sovereign wealth funds collectively
own $8 trillion
Global decarbonisation could turn fossil fuel-reliant
economies into ‘stranded nations’ unable to unlock the value of carbon-based
assets and infrastructure.
These are the findings of a new World Economic
Forum study, which shows the world’s sovereign wealth funds collectively
own $8 trillion (£6.1tn) in assets but currently invest just
0.19% of this figure in green energy.
It says economies that are heavily dependent on
fossil fuel resources with more than 10% of their total wealth based in carbon
assets could become “stranded” – it says they must act now to develop the
“human capital and economic diversification” to continue to thrive.
The report acknowledges some fossil fuel-dependent
countries have already begun to diversify their economies for impending energy changes but
notes progress is slow.
It says this could pose a serious problem because
as much as three-quarters of energy is expected to come from green sources by
Maha Eltobgy, Head of Shaping the Future of
Long-Term Investing, Infrastructure and Development at the WEF, said: “To protect their economic futures,
countries whose economies rely on fossil fuels need to prepare now for the impending global shift away
from these resources.
“The resource dependent, fossil-fuel-rich nations
that have diligently-built large sovereign wealth funds to manage the economic
challenges of the Age of Oil must now consider how to use this vast wealth to
prepare for the Age of Green Energy.”
Travel and Tour published on Thursday, February 21, 2019, this article on Saudi Arabia that aims to attract 1.5m tourists by 2020 all according to its Prince Mohamed Bin Salman’s Vision 2030. In this prince’s vision, diversification of the economy is emphasised and Tourism as a segment of it, is aimed at increasing the State revenue.
Tourism has turned out to be the
central development theme in Vision 2030 for Saudi Arabia, and as the Kingdom
gradually opens its doors to tourists from around the world, its own citizens
are also considered as one the fastest growing segment in the global travel
With travel bookings in the Kingdom
considered the largest in the Middle East and North Africa (MENA) region, worth
more than $25 billion each year, the power of the Saudi traveller is strong,
which was reflected in recently concluded Jeddah International Travel and
Tourism Exhibition (JTTX), where thousands of Saudis, including women, attended
The show is touted as the largest
travel trade show in Kingdom, featuring outbound destinations for Saudi
tourists and travel companies showcasing various lucrative options.
The JTTX ninth edition was formally
inaugurated by Prince Saud Bin Abdallah Bin Jalawi, Advisor to Makkah Governor
and also secretary at Jeddah Governorate. The show was held under patronage of
Prince Mishal Bin Majed, Governor of Jeddah.
More than 200 exhibitors from 29
countries took part in JTTX which was held at Hilton Hotel. There were stalls
displaying a wide range of tourism facilities such hotels, resorts, airlines,
travel technologies, medical and educational tourism.
A majority of the Kingdom’s tourists
travel to the UAE, Bahrain, Malaysia, Indonesia, Singapore, Turkey and the UK
as top holiday destinations.
However, new destinations like Kerala
in India, Sri Lanka, Azerbaijan and Georgia emerge as new destinations for
The show also featured eight new
destinations: Hong Kong, Finland, Spain, Mauritius, Morocco, Kosovo, Vietnam
and New Zealand with Tunisia being the guest of honor of the event.
Arab Bank’s Radwan Shaban said oil exporting nations provide 80 percent of region’s GDP
The Middle East and North Africa region is unlikely to escape the impact of a trade war, with the biggest potential impact coming from a decline in oil prices, according to the chief economist of Jordan’s Arab Bank.
Speaking on a panel debate on the global outlook for the MENA region, Arab Bank’s chief economist Radwan Shaban said that falling oil demand from China and other nations, as the result of a prolonged trade dispute, would be “a negative for the region”.
“This is a region in which, yes, we have oil exporting and oil importing countries, but in terms of numbers, oil exporting countries account for 80 percent of GDP of this region in 2018,” Shaban said. “Even the welfare of oil-importing countries is closely tied to oil-exporting countries through trade, tourism, FDI, foreign assistance – a whole bunch of factors.”
He said that oil importing countries such as Jordan witness lower trade, lower investment levels and lower assistance with Gulf neighbours if oil prices decline, which “translates into lower economic growth”.
Monica Malik, chief economist with Abu Dhabi Commercial Bank (ADCB), said that with oil prices maintaining a level above $70 per barrel since the second quarter of this year, “we are more optimistic” of the region’s prospects for growth.
She anticipates that higher revenues from oil will mean the government will enjoy a fiscal surplus in 2018, while Saudi Arabia will “substantially reduce” its deficit to under 5 percent of gross domestic product (GDP), although other nations such as Bahrain, Kuwait and Oman had been less progressive with their reforms.
“But I think with the GCC [Gulf Cooperation Council] support packages to Bahrain, we expect the pace of reforms there to accelerate. We’ve already had parliament approve their VAT law,” Malik said.
Both the United Arab Emirates and Saudi Arabia have shifted fiscal policy from consolidation towards growth, Malik said, and had given indications that they intend to continue doing so throughout next year.
In the UAE, she said the country has benefited from “a number of stimulus packages and support measures which aren’t just for short-term growth support but also to improve the business environment, to bring capital inflight, to bring foreign direct investment.”
“I think the critical driver of economic activity, non-oil activity, in the Gulf is government activity still. So, I think focused growth, supported by investments that will really improve the medium-term environment, will be positive for the private sector, though at this point it’s still weak and tightening monetary policy is one of the key headwinds.”
James McCormack, global head of sovereign and supranational ratings at Fitch Ratings, was less positive about Saudi Arabia’s fortunes.
“If you dig around the numbers a little bit, you see a big increase in oil revenues, which has been matched largely by increases in spending. And the concern there is the increases in spending are in current spending, not capital, so (it’s) a little bit more difficult to bring those back down when oil prices maybe come down,” he argued.
A widening gap
He said that the balance of the non-oil economy as a proportion of GDP was worsening.
“The deficit is getting bigger. So, this is really an oil story in terms of the fiscal recovery that we’re seeing in Saudi Arabia,” McCormack argued.
McCormack also said that he feared the trade dispute between the United States and China could be a prolonged one.
“I think it (dispute) is going to last longer, in part because of the fact that the U.S. has moved the goalposts – in fact, widened the goalposts a couple of times,” McCormack said.
He argued that some of the demands being made by the U.S. are considered to be “non-negotiable” by the Chinese government.
“I don’t see how we’re going to have a discussion that’s going to satisfy both sides. This has the potential to turn into something meaningful from a global macro sense,” McCormack argued.
Shaban said that a slowdown in global trade would hit the region in other ways. For instance, he said that Morocco is a significant supplier to Europe’s automotive sector, while in Egypt revenues from ships passing through the Suez Canal provide the country with an important source of foreign currency revenues.
“As global trade slows, that will affect the Suez Canal activity,” Shaban said.
(Reporting by Michael Fahy; Editing by Shane McGinley)
Governments in developing economies often lack the capacity to conduct thorough reviews of proposed capital projects. A streamlined approach can identify those ready for funding.
By Rima Assi, Nicklas Garemo, and Arno Heinrich studying an issue of vital importance for all developing countries, came up with the following essay.
They addressed the most likely to be affected which are the oil-exporting countries of the MENA region as impacted by the volatility of their earning capacities. In the recent past, and before 2014, when free-flowing budgets allowed development without such restrictive measures, governments that get about 90 per cent of their revenue from oil exports did not bother about such issues. However plunging oil prices could mean budget cuts for major exporters like the GCC countries, but these are not expected to be large enough to stop growth, hence the need still of what is proposed by Mckinsey’s people here.
In developed economies, policies and practices for balancing diverging interests in public infrastructure spending are well established. South Korea, for example, established the Public and Private Infrastructure Investment Management Center in 1999 to conduct feasibility studies on large public investments and expanded its mandate to include appraising and managing public–private infrastructure partnerships in 2005. Since then, the center has reduced project overruns by 82 percentage points. Similar units include the United Kingdom’s Infrastructure and Projects Authority, Germany’s Bundesrechnungshof, and Australia’s Infrastructure Australia.
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But in developing markets, many governments have yet to build a capacity for conducting extended project reviews and feasibility studies, because talent is scarce or internal priorities conflict. As a result, these governments often end up funding ill-prepared, poorly designed capital projects, whose scope often diverges from real demand. Overlaps between projects are not uncommon—and actual project costs often exceed forecasts. In fact, nearly 40 percent of the money devoted to global investments around the world is spent ineffectively as a result of bottlenecks, a failure to innovate, or market failures. In developing economies, these ineffective expenditures amount to over $1 trillion a year.
It may be too much to ask that every proposal get a full-scale, in-depth evaluation that takes months to complete. Even in developed markets, that’s not always possible. But it is possible for finance ministries to conduct more streamlined financial assessments of the preparedness and design of projects in only days or weeks. Indeed, we have seen developing countries in the Middle East and Africa embark on such programs by adapting centralized control units and the required level of governance to their own circumstances.
The initial assessment of project preparedness
As a first step, a government must ensure that all projects have been thought through at a sufficient level of detail. This may sound obvious, but projects that fail to describe their rationale properly, don’t evaluate alternative solutions, or lack detailed budget plans are hardly uncommon. What’s more, implementing ministries often lack strong capabilities in project planning, and rely instead on the private-sector organizations that design and implement such projects to review their own work. The resulting incentive structures, far from optimizing costs, tend to inflate the scope and specifications of these projects.
When the finance ministry in one African country reviewed proposals to build new roads, for example, it found a number of them significantly exceeded benchmark costs—often coming from design firms that consistently produced designs with higher costs. When a more thorough evaluation isn’t feasible, a streamlined one- or two-day review can help. Typically, an oversight body would pose a series of straightforward questions assessing how clearly a problem is defined, along with a capacity and demand analysis and a consideration of alternative solutions. This kind of evaluation would examine a proposal’s financial aspects, like planned budgets and cash-flow requirements. It would also probe the operational elements: a realistic implementation plan, compliance with regulatory requirements, and interdependencies and overlaps with other projects. Knowing that it lacks this capability, the government of the country in the example is now setting up an in-house unit to oversee contracts with design companies and challenge their products.
The impact can be considerable. One government in another developing economy took this approach with more than 250 projects in its portfolio and found that only a quarter of them were adequately prepared. Most frequently, project owners failed to quantify the capacity–demand analysis and alternative ways of meeting future demand. As a result, they were granted only enough of their requested budget to conduct studies to increase their preparedness.
A deeper review of project design
Once the initial assessment—often of hundreds of projects—narrows down the pool, finance ministries can conduct a more thorough review of each project’s overall design. That, too, can be streamlined. The finance ministry of the country in the example developed a way to conduct reviews that lasted just two weeks. In that time, it identified opportunities to reduce costs by an average of 20 to 40 percent, without reducing outputs. During the reviews, which will now be a standard part of the annual budgeting process, the cost-review unit of the finance ministry met with owners of projects and tested their design through a series of questions aligned with the initial assessment exercise above. These included the following:
·Public priorities. Does the scope of a project focus on services and features that people really want? Is there evidence that the project is truly needed and meets the country’s socioeconomic objectives?
·Capacity and demand. Does capacity match future demand? Are the expectations for demand realistic? Can alternative solutions reduce demand?
·Costs. Do unit costs reflect benchmark levels? Can costs be cut by adjusting a project’s time frame (to reduce the need for tight deadlines) or by calibrating the schedule to the availability of capital?
·Productivity. Could existing assets improve operations?
·Funding. Are the funding requirements realistic? Are there any opportunities for private-sector funding? Will the assets generate revenues that could fund the project? Can implementation be deferred or slowed down to stretch out the need for funding?
These project reviews can be significant: a two-week review of a public convention complex, for example, identified $1.7 billion in potential savings (Exhibit 1). Elsewhere, one ministry of health’s $300 million request for additional beds for intensive-care units (ICUs) was nearly halved after reviewers considered benchmark utilization data. They found that the proposal’s assumptions about the average length of stay per ICU bed were twice as high as the benchmark, mainly because facilities lacked intermediate beds and had nowhere to send discharged patients. As result, the ministry of health was advised to procure lower-cost intermediate beds and fewer ICU ones.
A two-week capital-expenditure review of a public convention complex identified $1.7 billion in savings.
Or consider a proposal by another country’s housing ministry to develop affordable housing. In-depth reviews found that the proposed design included features—such as skylights, longer driveways, and larger bedrooms—that increased costs but would not necessarily be valued by residents. The optimized design featured more bathrooms, but (unlike the original proposal) with showers instead of tubs; more but smaller bedrooms; and shorter driveways with less internal parking. These homes were better aligned with the expectations of likely residents, but cost 15 percent less—so the ministry could build more homes on its $4 billion total budget.