United Arab Emirates Infrastructure Report Q2 2008

The UAE construction industry is witnessing a construction boom with Dubai and Abu Dhabi at the heart of this impressive expansion. Home to nearly 6,000 construction companies, the UAE figures at the top, globally, in terms of per-capita expenditure on construction. According to this report, the UAE construction industry is forecast to be valued at US$ 20.22bn in 2008 and grow to US$34.32bn by 2012.

The UAE construction industry is relatively free of entry barriers. In fact, the liberal business environment, tax-free status and political stability of Dubai have been major drivers for the industry to expand. Growing demand from the tourism and housing sectors, as well as promising growth of the economy in general, is providing the momentum for the construction industry. Ambitious projects such as the US$20bn Burj Dubai tower, the US$8.3bn Al-Salam city and the US$4.22bn Dubai Metro have been instrumental in attracting greater capital flows in the form of international joint ventures, especially with British companies for other such projects.

The construction industry of the UAE comprises many illegal workers. The recent government efforts to legalise their status have witnessed a mass exodus of these workers from the country, leading to a labour shortage. Consequently, the construction industry is set to experience escalation in project costs as well as delays. Further, the local building materials sector has been unable to keep pace with the surge in demand for construction material. As a result, as much as 80% of construction materials and equipment are imported into UAE, increasing the overall production costs.

To respond to the rise in costs, the government was obliged to waive a 5% import tax on building materials, following a 200% cement price rise in May 2004. In December 2005, Abu Dhabi's Executive Council has approved legislation to allow 100% foreign ownership in the emirate's specialised economic zones (SEZ).

It is worth paying attention to the increased activity, current and planned, of several major Greek construction firms, who have plans to increase their presence in the Middle East, specifically targeting the UAE. Greek company J&P Avax is active in the Middle East via its Cyprus-based parent company J&P Overseas Joannou & Paraskevaides. Its projects include the construction of a hospital in Qatar and an aircraft hangar in Dubai. Greek construction group Edrasi Psallidas operates in the region through a joint venture with Kuwait-based Ahmadiah Contracting & Trading.

Backed by robust demand, especially from the housing and tourism sectors, BMI forecasts the UAE construction industry to grow at an average of 5.06% during 2008-2012 and contribute nearly 9% to the nation's gross domestic product (GDP) by 2012.