Challenges in UAE construction industry

United Arab Emirates, undoubtedly, has been one of the fastest growing economies in the Middle East. It has witnessed unprecedented growth and investment in the construction and infrastructure industry in recent years. Such was the growth trajectory that it was touted as the largest construction market within the GCC region in 2008, accounting for around 20 percent of the total Arab construction industry.

However, the global recession not only left the region bruised but in some cases battered. Investments retrenched; wallets economised and foreign influx dwindled considerably. There has been considerable improvement in the past twelve months but it still seems like a long road till the end of the tunnel. According to the research report, "UAE Construction Industry Outlook to 2012," issued by RNCOS, the UAE construction industry is expected to grow at a CAGR (compound annual growth rate) of around 7 percent during 2010-2013.

Recovering economic development has led to a boost in activities in the infrastructure and construction industry. Despite authorities operating stealthily, sectors like tourism, leisure, hospitality, transportation, education and healthcare, communications, ports and airports are attracting investments.
2010 welcomed Burj Khalifa, the tallest free-standing tower in the world in Dubai; while the capital Abu Dhabi inaugurated Ferrari World, the Ferrari themed amusement park at Yas Island the same year, home to Formula Rossa, the world's fastest roller coaster. Al Makhtoum International Airport was officially inaugurated in 2010.

Besides global attractions, a lot of investments have been poured in creating shopping arcades, malls and entertainment avenues to cater to the massive tourism influx in the country. Dubai Mall, one of the world's largest shopping and entertainment destinations claimed to have entertained 45 million visitors in 2010. Dubai, the fashion and entertainment capital of the country grew 2.3 percent in the first six months of 2010.

In its latest report, IATA (International Air Transport Association) observed that Middle Eastern carriers helped the industry grow with a 23.9 percent increase in September 2010 compared to 2009, driven by airlines in the GCC and particularly the UAE. In the hospitality sector, the country has seen rapid growth in terms of the number of hotel rooms added to the market in recent years.
According to a tally of hotel supply as of [end of] February 2010 by STR Global, UAE had the largest number of hotel rooms in the total active pipeline in the Middle East with 52,566 (representing 43.3 percent of the pipeline).

"The steel and metalworking sector has always been demand driven hence the volatility. Demand continues to grow in India and China and will keep driving the industry. Demand in the Middle East too will augment in coming years with construction activity expected to increase especially with Qatar set to host World Cup 2022"
- Ms. Shobha Mendonca, Managing Director, Middle East Factory L.L.C.

What went wrong?

While these signs remain promising, challenges of varying nature and magnitude lie ahead. Many industry players feel that restrictive cash flow may pose huge challenges in future times.
 "The global recession adversely affected UAE; majority of the main companies in the country were not able to pay their sub-contractors, who in turn were indebted to their suppliers and/or creditors. This virtually crashed the cash-flow cycle of companies involved in the building and construction industry. Many companies retrenched, others wrapped up, while banks and financial institutions withdrew their credit facilities drastically, which affected the local economy holistically," said Mark Denis D'Souza, Managing Director, Fortuna ENike Air Jordan 1 Mens