Bishoy Azmy

You said “The UAE’s construction industry is presently valued at more than a trillion dollars and even as we speak new projects are being planned and announced.” The construction industry in the UAE is experiencing an unprecedented boom. How do you assess the current trend in construction in the UAE and the GCC and what are the long term future prospects?

Honestly, from our viewpoint here in Dubai, we have a very bullish outlook to the future of the construction industry. Operating here for the last 20 years in the construction industry, we’ve only seen the industry move from one leap to another, albeit with some slowdowns or corrections, as they are called from an economic standpoint. At the moment, we’re in a very heated stage of development and expansion and in the short-term to medium-range future, i.e. five to seven years, we don’t see that slowing down. After that, we don’t anticipate any spiralling downfalls but I cannot at the moment guarantee, with my vision, which this will continue after five to seven years, but up to five to seven years, definitely, with the profits we are being informed about and which are already in the stages of master plan developments, the boom is continuing.

What are the fundamental factors that are fuelling this growth?

This is a question that has been discussed across a variety of forums around the world, from an economic point of view, from a historical point of view, from a financial point of view and from an engineering point of view. I’m sure its answers also are plenty. My view on the subject is this is a young market which is expanding; this has happened before in other areas, which have witnessed proper government and economic prosperity such as Singapore, Hong Kong, certain areas in the US, Canada, and countries that are less developed than others. So, 12 years ago there was nothing in this part of the world and with proper leadership and influx of government expenditure, due to the sales of oil revenues obviously, the governments – they call them benevolent governments here – were able to pursue proper policies that allow private business to flourish and the real estate market to pick up. Since you’re specifically talking to me about real estate, I would say one of the major decisions that led to this expansion and boom was the decision to allow foreigners to own property in the local market here from the year 2002. That year, we had the launch of entities such as Emaar, Nakheel and Dubai Properties. These are entities that were able to sell apartments, houses or land to foreigners. This allowed a lot of foreigners with cash to start investing in this region and not necessarily international entities coming from the more deregulated markets, such as the US and Europe, but also a lot of people from the region. We are in the Middle East, we are actually in the middle of the world, we’ve got very rich and large, populated countries around us, such as India, Iran, Pakistan, Egypt, Morocco, Saudi Arabia and all of these people were attracted to Dubai for the right reasons and started investing in the real estate market here leading us to what we are today.

You compared Dubai to some of the major world hubs; Hong Kong and Singapore. All of these hubs, at some point in their time of exponential growth, experienced a slowdown. Do you see something similar happening here in Dubai?

I think so, naturally. Singapore was expanding and slowed down, Hong Kong was expanding and slowed down. You can also look at areas like San Francisco and New York, which also expanded and slowed down. So, definitely, there is going to be a slowdown. However, to the best of my knowledge, as contractors in the United Arab Emirates, we don’t see this happening in the next five to seven years.

Do you think Dubai’s property sector will feel the shock of the current global credit crunch?

I don’t think so. That is my humble opinion. I am not an economist or a financial analyst but we’ve seen global crunches already happening on certain markets and, in fact, they’ve had very little impact on the local market here. International investors lacking areas to invest in elsewhere have started directing their funds into this part of the world. Therefore, I would say there are actually positive ripples of the global crunch on the local real estate market.

The UAE-based Al Shafar General Contracting (ASGC) has announced growth of more than 50 percent during the past three years and with more new contracts being awarded, senior company officials have said you expect a turnover of Dhs 3 billion during 2008. What are your key success factors? In other words, what ability makes you perform better and better?

I don’t know about performing better and better but, actually, we have had growth of 70%, not 50%, for the last three years. Our turnover for 2008 is approaching a little over Dhs 3 billion. We anticipate another increase in 2009 of, again, over 70%, so we’re looking at close to Dhs 5 billion turnover in 2009. At the moment, we see our company growing and it has been growing for the last two years. Regarding our key success factors, we have a slogan that is published on our documents, which is “Reliability you can see”. We try to reflect an image that denotes how we perform, which is we are reliable and that is how we think of ourselves. We like to think that our clients think the same. We are careful to ensure we maintain healthy relationships with our clients and healthy relationships on all fronts. We have never been to court with any of our clients and we have been operating for almost 20 years. We have never been penalised as a contractor in the construction business. Most contracts have clauses for liquidated damages or penalties in which, if you are at fault or if you are late or do not comply with rules, you get penalised and you pay money. In over 19 years of operation, we have not paid a single dirham of liquidated damages, we have not been taken to court, we have not taken any of our clients to court, we have not even gone to the next step down, which is arbitration, and we have delivered all our projects at the agreed time. Some projects do get delayed from the original anticipated completion date but that is very common; it is more common that a project gets completed after the original completion date than on the original completion date. There are always reasons for that and we never end up not being finished. Most of the projects are from repeat customers; taking care of your customers and ensuring you don’t lose your customers translates to having repeat customers and if you have that it means you’re doing something right. That is what makes us feel we are on the right track.

Every contracting company has its appeal. What is the appeal of Al Shafar General Contracting? Is it delivering quality, timeliness, or ethical practices? What would you like to be associated with?

I don’t think any management of any company would try and choose between those three. We have to say we are good on quality, time and ethical practices. We are ISO certified, we have been ISO certified for quality compliance for close to a decade now. We are also ISO certified for environmental compliance; ISO 9002 and ISO 1401 for environmental compliance. Also, we’re OSHA certified for safety compliance; OSHA is one of the international certification bodies operating outside the UK – Occupational Safety and Health Administration 1801. So, we’ve got all the major certificates that are available to companies in this part of the world for quality compliance and safety awareness and compliance. The internal importance that we give to those aspects shows: we finish our projects on time, that’s why we’ve never been penalised; we think we deliver good quality and that’s why clients come back to us; we think we’re ethical and there are ways of validating that, we have a very low turnover, in terms of our staff and our workers. We’ve got different HR policies for white collar and blue collar staff. We employ around 15,000 people; 2,000 of which are white collar staff and 13,000 of which are blue collar workers. People do resign from the company, that’s normal, but we get very low turnover relative to our industry and the market. We are in constant comparison and we do surveys in terms of our packages and compensation schemes and we emerged in the market as being more open and having a better status than the average.

Dubai contracting companies have been criticized in the past for their unethical work practices. How do you structure your human resource policies to guarantee an ethical treatment of migrant workers?

Firstly, we follow the law. Regarding the law being seen by other entities or other governments or other institutions internationally as not being good enough for the migrant workers, I would not argue this point now; it is beyond our control. We are definitely complying with the law. I must admit that working conditions for blue collar workers in this part of the world are not as rosy as they are in more developed nations but there has been significant improvement over the last few years. The government has been paying attention to this and the entire industry has been asked to improve its standards, salaries, accommodation, transport and safety issues on site and these have been addressed.

When we interviewed the eco manager at Tadweer, she mentioned one of the biggest environmental concerns is the waste generated during construction. How does Al Shafar General Contracting address corporate social responsibility and how sensitive are you towards the environment?

Part of the answer is that we are environmentally certified as being an environmentally compliant company with international standards. Also, Al Shafar General Contracting, or ASGC, is part of a larger group, which is called ASGC Holding. It actually controls and owns majority stakes in roughly 20 companies. Two of these companies relate to environmental compliance and waste management. We have a company called WMS, Waste Management Systems, which is a joint venture between Al Shafar and a UK-based company called Waste Management Systems that provides solutions for waste management during construction and post-construction. Of course, we utilise that company to the maximum. We have another company, which is part of a group called SDS, Sustainable Design Solutions, which is an environmental consultant and an e-certifier. At the moment, the UAE is witnessing a rise in the importance of environmental compliance for buildings, not just for construction sites. Buildings are now being obliged to be certified under certain international certifications, the primary one being the US Green Building Council and the LEED certificate. There are entities being set up here that cater to this need. We are one of the first private organisations that set up one such entity, a company called STS, which is in collaboration with several of the original writers of the LEED in the US and we’ve got LEED APs, which means accredited professionals who advise clients, developers, consultants and contractors about how to complete projects or an end result – a building or a factory or a school – which is environmentally compliant. So, we use that organisation to ensure that what we do is in line with the best environmental practices.

ASGC has grown to emerge as one of the top 10 construction companies in the UAE. Competition in the construction and contracting market is more intense than ever. What measures have you adopted to beat competition?

I don’t know about beating competition but we are growing. There are a lot of companies that are better than us and we have a lot of respect for many companies in this part of the market. We have been ranked by Middle East Economic Digest as the fifth or sixth largest contractor in 2008 and 2007. We were awarded Contractor of the Year, 2007 at the end of the year by Construction Weekly magazine. Also, about a month ago, we received Best Construction Company of the Year by another construction magazine called Arabian Property. We try and ensure that we are a good company rather than trying to beat competition.

The costs of labour and materials are soaring. How does this affect your business?

Well, obviously, our costs are increasing; labour represents a significant cost and materials represent a much more significant cost. In turn, our spending and the cost of construction is increasing; a natural eventuality.

Do you think this may bite into your profits?

Of course, this question is something that is at the top of our minds and we have been asked this question by our shareholders, our future clients, our banks and our auditors. Our answer is we have managed to secure ourselves by either procuring material early or procuring material from external markets that are not as volatile. Some increases in materials have been due to global increase or possibly to the increase in the value of different kinds of energy, such as petrol and diesel. They could also be due to the falling dollar, which our currency is tagged to. However, some of the increases have also been due to local demands so we hedged against that by procuring directly from markets that are less volatile. We have also drawn up an escalation clause in some of our more recent contracts. The older contracts were not as badly affected because most of the construction had already happened and the materials that witnessed the most significant increase in prices related to the earlier part of construction; concrete and cement, which is related to concrete. If you look at the latter part of construction; the finishing work, the envelope and the interior works, the effect of the increase in commodity prices is not that pronounced. So, our older projects, where we have already done a significant share of the shell, or the earlier construction, have already had these materials delivered, but the newer projects, which we have negotiated in the last few months, include escalation clauses and price mechanisms.

For future projects, how are you going to guarantee a timely delivery, especially in a market where many fail to deliver on time?

Timely delivery is not so much of an issue really because the projects that we take on are very well studied in advance and more and more clients are now getting contractors on board early, so we are witnessing an increase in early contractor involvement where contractors become part of the team. They are not treated like a third party that comes in later to do the work. The previous mechanism would not work very well today because there are shortages of everything. However, what we are seeing now is contractors are brought on board early and because the owners or developers are willing to share the risk of escalation, contractors are ordering everything they need for the project in advance so we see proper planning. Contractors are given projects five or six months in advance and they are able to mobilise staff work, resources, materials, and equipment in that period. So, timely delivery is not so much an issue.

Many people argue that only a low percentage of completed construction is of adequate quality. How confident are you of your ability to deliver high quality and at the same time accommodate for the tremendous growth of your company?

We are a private company that has been around for some time and we care very much about our reputation. We talk about our quality and therefore, if we were not able to match that up with our completed products, we would probably not be in a very good position to continue expanding and procuring projects from renowned clients in the future, which we are doing now. So, for our own sake, and for the sake of our future, our reputation, our growth and our profit, we ensure the quality of products delivered.

Can you mention some of the major products and some of the most challenging products you have worked on?

We are developing a 5 million sq. ft. commercial district in the new area in Dubai called Business Bay, which is called Bay Square. It consists of around 13 mid-rise towers. It is owned by Dubai Properties and the construction cost is somewhere around Dhs 1.5 billion. We are doing another residential development, this time for Nakheel, which is again one of the major developers here. This development is called Jumeirah Heights and it consists of residential high-rise towers of around 50 storeys with a community down below. This is also around Dhs 1.3 billion. We are doing a residential community on the trunk of Palm Jumeirah, which is called The Golden Mile for a large international, but primarily Kuwaiti, company called IFA. This project is 10 buildings stretching across a mile of the trunk of the palm and again in the range of Dhs 1.3 to 1.4 billion. We are doing a villa complex that consists of hundreds of villas with Dubai Properties. The project is called The Villa and we have several stages, which together come to about Dhs 1 billion. We’re doing four or five residential towers in Business Bay for a variety of private developers. The target for completion is between mid-2009 and mid-2010. These towers will be 60 to 80 storey residential and commercial towers. We are also doing a lot of real estate developments for our own shareholders because they are part of our group. This includes a real estate arm called ASGC Properties, they are developing real estate in Dubai Waterfront, Maritime City, Dubailand and Business Bay and we are doing the construction for them as well.

How important are marketing strategies in this particular industry?

I think it’s very important because, as you said, timely completion is not guaranteed. When a company feels that they have a record of success, they should market it and it becomes very important. We have seen that clients are willing to pay a little bit more as premium to ensure that they have a contractor on board with a sound history of timely delivery. They do not consider it as wasted money, they consider it as a hedge against risk because having projects delayed 6 months or a year would probably cost them more than the little money they are paying to ensure quality contractors.

You mentioned that you are very particular about which projects you are associated with and which projects you construct. Is this part of your strategy to guarantee timely delivery and quality?

There is a lot of work here and constructors have little ability to expand. So, expanding by 60% or 70% is huge but we cannot expand further than that. I have been quoted in several publications about the percentage of work being taken versus the amount of work being offered; that is the general situation of contractors at the moment. There are a lot of projects being launched and a lot of entrants into the real estate market and everyone wants these projects done. There are a lot of local contractors and we have also witnessed an influx of international contractors, whether from Europe or Asia, that are being attracted to this market because of the amount of work and the huge volumes of turnover that are expected to be generated monthly and the high demand for contractors. At ASGC, we are lucky enough to be choosy, at this point in time, because we are dealing with some of the most recognised clients in town and, naturally, we give preference to these clients over real estate developers that we do not know. Therefore, we do decline a lot of projects and, technically, we only get involved in projects in which we are familiar with the set up from the start and in which there is an understanding between ourselves and the client. So, we do not get involved very much with competitive tendering the way the industry used to offer us projects and the way we used to get most of our projects. That trend is now declining, for us at least.

Do you feel a lot of pressure now that, as you said, there are international players coming into the market? Will the competition intensify even more in the future?

There are a lot of projects being launched and I think demand is more than supply. I think this is helping competition, it allows us to compete with international companies and therefore, we have to either be up to those standards or lose our market share and we will lose our position. So, I think this is helping competition. There is increasing competition and we are hearing more and more international names and our clients are negotiating with a larger range of contractors but I feel that it allows us to develop and grow because we are a local company and a local contractor that has been operating for a long time in a small city and in a particular region of the world, now we are being exposed to international practices and to the best companies in the world that have been operating for decades and that have been operating in many markets and have developed skills and knowledge and areas of expertise. We are being put in a situation where we, as local, small contractors, are in the same basket; it is dangerous but as long as we are able to match them it is very good for us.

Do you think this may facilitate your international expansion in the future? Is that your ambition?

Of course, I think the natural expansion of any company is to become international and possibly even become public. However, there is a right time for all of that. At the moment, with all the work in Dubai, we are not thinking of international expansion, we are thinking of local expansion. We set up a branch in Abu Dhabi over a year ago and we have already secured several contracts there and we are negotiating several other contracts with some of the key developers in Abu Dhabi. At the moment, this is our main goal in terms of expansion or strategic diversification. So, we are expanding beyond the Dubai market and moving 150 km away to the Abu Dhabi market. It’s not very far, it’s definitely not international expansion, but because of the sheer volume of work being launched in these two entities in the coming five to seven years, we see a competitive advantage instead of going outside to countries where we don’t know anything and we have no control over the supply chain and we don’t have recognition and we are not familiar with the customs and laws. While there is so much work here that we are declining, we don’t think it makes strategic sense. So, possibly, when we see an end to this boom or a slowdown it would be the right time to expand and grow beyond the United Arab Emirates.

You are one of the youngest CEOs, what is your ambition for this company? Where would you like to take it?

Well, being one of the youngest CEOs is not necessarily always an advantage. I’ve thought often about painting my white. Regarding my ambition for the company, I am definitely very lucky to be in this position; at this point in time we are witnessing history being written, I don’t think there has been such a boom in one particular industry, in any part of the world across time. We are seeing the tallest tower in the world, the longest man-made canal, and the largest mall. Projects in Dubai now are extremely large, ambitious and hefty compared to international standards and we are living part of that dream. My ambition for the company is to take it up in terms of everything, while maintaining healthy profit margins because it is not easy due to labour and material increases. Our ambitions are to maintain our good reputation with this massive growth and to expand into Abu Dhabi aggressively and to become as dominant a player there as we are in Dubai. Beyond that, our ambition is to at least become regional: to go beyond the United Arab Emirates, working at least regionally if not internationally.