Construction Committee hails open policy

(SUPPLIED)   

 
The Abu Dhabi economy is growing rapidly because of the emirate’s openness to the world and strong and effective partnership with the private sector.

This is the view of Khalfan Saeed Al Kaabi, head of the Construction Committee of the Abu Dhabi Chamber of Commerce and Industry, Chairman of Ascorp Holdings and a member of the boards of a number of Abu Dhabi-based contracting companies.

In this exclusive interview with Emirates Business, Al Kaabi talks about the growing number of real estate projects being launched in Abu Dhabi. A large part of the available liquidity is being invested in this sector because of the returns of up to 20 per cent that are available, he says.

How do you view Abu Dhabi’s economy and do you think it will be able to maintain its current rapid growth?

The economy is going through an unprecedented phase with a large number of quality developments in different sectors and fields. It is an open economy that is growing because of the government’s vision and planning and the innovation provided by the private sector. Abu Dhabi’s Government has launched the largest restructuring and development programme of its kind in the UAE and the Middle East.

This will make Abu Dhabi a major economic power within two decades. The value of initiatives and projects that will be implemented within the next few years is more than Dh736 billion. The projects are distributed among the construction, tourism, industry, electricity and water sectors. The government is investing in the oil and gas sector to increase production to meet the requirements of this fast-paced development.

The economic strategy adopted by Abu Dhabi concentrates on partnership with the private sector, privatisation, the development of economic zones, the establishment of new cities and centres, the development of tourism, the updating of laws, developing the education sector, adoption of an Emiratisation policy, the development of industries meeting international needs and the encouragement of foreign investment.

Do you think the inflation rate of 10.7 per cent poses a threat to the economy and could lead to the withdrawal of national and foreign investment?

I agree inflation is the biggest problem the Abu Dhabi economy faces. But I think this phenomenon is natural because it is related to the rapid growth that is always seen in emerging economies. There is optimism the inflation will fall and, I think, a rate of five per cent is not impossible. Abu Dhabi’s Government is open to the world and is taking many measures to combat inflation through preventive measures and legislation. We are not worried at all about investment in Abu Dhabi because the strong economy helped us attract foreign investment worth around Dh25.7bn in 2006. It is expected the level of investment from overseas will increase over the next few years and it is projected to reach Dh129bn. Abu Dhabi needs 500,000 residential, commercial and hotel units over the next five years due to growing economic activity so it is important to obtain sufficient investment for the giant projects that are being announced on a daily basis. The biggest problem is that we have an obvious shortage of finance companies.

Big property developments in Abu Dhabi have been facing delays. Why is this? Is the shortage of contractors the major reason?

The reason for the delays is that the new property developments are very big. These developments need a greater number of contracting companies and labourers than are currently available. I do not agree with those who say what is happening currently in Abu Dhabi is a real estate bubble because giant property projects are being implemented and some have been finished. The progress in the real estate sector is in line with economic progress in other sectors. Official statistics show the real estate sector in Abu Dhabi will attract Dh625bn over the next five years.

 

The rapid growth of the construction sector is a result of planning for the emirate as a whole. It is also a result of attractive investment returns in the real estate sector of between 12 and 20 per cent. The value of construction projects being implemented currently is Dh850bn. Official bodies estimated the value of development projects in all sectors is around Dh1.2 trillion. The shortage of workers is one of the most important reasons for delays in the implementation of projects, though the number of workers in the construction sector has risen to 237,000. It is important to say the problems the new property projects face are being solved gradually. The government intervenes to help companies and contractors and co-ordinates with the Urban Planning Council and Abu Dhabi Municipality to carry out infrastructure projects as quickly as possible.

Do you think the continual rise in the price of building materials will affect the growth of the construction sector?

There should be more regulation of price rises to prevent a recession in the sector. We need to regulate the relationship among real estate firms, developers and investors. The rise in building material prices will affect projects, dates of completion and finance. Consequently, confidence will fall and the influx of capital will decline. The high price of building materials has internal and external causes. The internal reasons are related to supply and demand factors. The demand has increased greatly due to the large number of construction projects.

There is another reason, which is the availability of liquidity in 2007 compared to the previous five years due to high oil prices. This high liquidity flowed to the real estate sector as there was no better channel for investment. We see in the market a kind of monopoly by some producers and importers of reinforcement iron and cement. In addition some consumers buy more than they need and this worsens the crisis. The external reasons are related to the high prices of oil, transport and shipping. These factors affect the market because a large percentage of raw materials come from outside the country. I think the high price of building materials will have negative effects, the most important of which will be increasing rates of inflation and high rents.

How can the Abu Dhabi Government overcome the problem of high prices to prevent an increase in the time required to complete projects?

The building materials industry in Abu Dhabi should be re-evaluated. The expansion of the steel and electrical equipment industries should be encouraged. I suggest the formation of a team of experts and academicians to lay down the foundations and rules for the development of the construction sector and the organisation of its labour force. A mechanism should be drawn up to monitor the rise in the prices of basic building materials. We should think seriously about establishing a public joint stock building materials company to meet increasing demand. In addition we should provide a legislative environment to enable the organisation of the real estate sector.

 

Al Kaabi holds two degrees – in electronic engineering and  management and business.