Kuwait Report

InterviewsFebruary 12, 2021

Construction Sector in Kuwait: An Overview of the Concrete Precast Segment by Gazi Al Omani of Fixed Assets

: Written by Sandra Francisco; Published: February 12, 2021

Interview with Gazi Al Omani, CEO of Fixed Assets General Trading And Contracting Co. (W.L.L.)

What are the challenges in the construction sector in Kuwait? What are the latest trends?

There are only six companies like mine here in Kuwait. Our sector focuses on precast concrete. Right now, you cannot get a license for precast concrete so getting work is easy. Usually, we work on infrastructure, roadwork, government buildings, and seaside blockage. We have a deficit right now in Kuwait with oil going down during Corona. That affected us a lot because the country is paying salaries and forgetting about our sector and not paying us, but we still have to work and produce. This means that we have to go to the banks and get loans to cover our expenses. Overall, we are profiting on paper but there is no cashflow. That is the biggest problem.

What are the solutions for this?

We had struggles here dealing with the pandemic. There was no stimulus plan. So, we must work with the banks, but we have high interest rates which will reflect afterwards on the government because the price will go up because of inflation. We have to take loans and pay interest.

Will this cause your competitors to go out of business?

Right now, we have two large competitors who are on the edge of going bankrupt. They did not know how to cut expenses and survive the pandemic. They had very high overhead that affected them a lot and they thought the pandemic would be over much sooner than it was. They did not know how to cut cost and keep everyone at home. There is an Italian company called INDEX and the head of the company is currently in Italy and he cannot come back to Kuwait. Italy is in the red zone. You have a huge company without a manager or owner or CEO there since February, for the past ten months.

Will that bring some opportunities for the survivors?

In the long run, yes. I am the youngest in the six companies in this sector. Most of them are over 60. So, that will help us in the long run.

What about the other markets such as Iran and Iraq? Is there a possibility for you and the others in the sector to go outside Kuwait?

Iran is in Iraq right now and the industry is really bad. When Iranians in Iraq go back to Iran, then we can work there because it will be safer. Right now, it is not safe. We have Mubarak Port we are waiting for, too. When oil is up, we have work with high prices. Now, everyone is moving out of oil so the country does not know what to do. Oil is going down, the population is going up, salaries are going up, there is less construction. So, to go globally, everything has to calm down, Syria has to come back, Iraq has to come back, and then we can move in. We are locked in in Kuwait. We cannot grow in this sector.

Is there anything short term you are adjusting to solve this?

Short term, we are putting money into the US stock market. That is the only place where you can put money. At Fixed Assets, I am cutting expenses, unfortunately letting people go on holiday until everything calms down. We were working at 95% before and now it is about 20%. It is hard to move with masks, etc. We are moving from paperwork to online. We have a lot of people who do not know how to work online, though.

This seems to be part of a transition to a more modern company and society as a whole, training people to go digital and the transition from oil to something else. Crisis is the time to adapt and then you can grow stronger in another business or area or in the same business in a different way. What have you envisaged yourself to change that?

For example, in the beginning of the pandemic, the second or third month, we moved into the food industry. We opened a bakery because everyone wants food that is easy to take home because there were no restaurants open during lockdown. So, they had to order online delivery. We had a barbershop, but all salons and barbershops were ordered locked down so we closed it. For sixth months, we were paying salaries and rent.

You managed to adapt very quickly to the situation and move from one business to another.

Yes, because we got the news of the pandemic quite early compared to other countries because we have a lot of Chinese in Kuwait. I work with NCC which is a Chinese contracting company. We were working with them and they were saying there was a pandemic and we did not know what it meant yet. They told us it was a real thing back in January. Then, everyone started to understand in March. I got the news a little bit early but I did not know that it was going to affect the economy. Then slowly, with the lockdown, it was a big issue.

What are the other aspects of your business? You are in many different areas besides precast concrete. What is your scope of business and what percentage does each represent for the group?

Fixed Assets plans to create for itself a niche market as a newly plant in concrete precast business. The company has in its possession a specialized plant and equipment with all modern facilities to produce precast concrete elements.

I am in the industry sector. The investment sector did really well because we moved everything to the US. It was really good after March until just a few weeks ago when everyone started selling to have profits for the end of the year. The food industry is doing really well. We have the real estate sector which is doing badly, too. People are not paying rent because companies are not paying salaries. And there is a new law in Kuwait because the population is 70% non-Kuwaitis and 30% Kuwaitis. So, the government is moving towards 70% Kuwaiti and 30% non-Kuwaiti. What happens to the real estate here? It will go down because a lot of non-Kuwaitis are moving out. Usually, Kuwaitis live in houses, not apartments. The apartment buildings are occupied by non-Kuwaitis. Once they leave, what happens to that real estate? People are also moving to buy farms and beach houses which is causing that sector of real estate to go up, but not the city sector. In the lockdown, people could not stay in their apartments or houses. So, people with money went and bought farms or villas on the sea. That is why it went up. Other than that, everything is down in real estate in the city.

What is that nature of the investment side?

It is a family business. To have more shareholders in a company in Kuwait with this population is very hard. That is why we do not have a lot of companies. Even our stock market only has about 100 companies. The MSCI has been in Kuwait since the first of November and still nothing has changed. The market did not go up. Before, international companies could not buy stocks in Kuwait. From the first of November, now they can, but nothing has happened.

Is there a lot of international competition?

Foreign companies come in and do work on their own sites. That is our only problem. You see this with Chinese, Turkish, and Egyptian companies. But the quality is bad. That is why we have a big road problem. We are one of the richest countries in the world but the roads are really bad because of the quality of the work the international companies are doing and they come here to profit more. It is more politics than how good the company is. We are a small country with a lot of money and a lot of construction. To have good connections with these other countries like Turkey, Egypt, and China, they are given contracts even if they do not deserve it. The other problem is that by law in Kuwait, every Kuwaiti citizen who is married can have a house for free. But, there is a ten year waiting list and 120,000 people waiting for their houses. The Turkish and Chinese companies who are working on the infrastructure and doing the houses are very late. That is the big problem right now and it affects us and everyone. It is making rents go up. Renting a 2-bedroom apartment is more than $2,000.

Are you doing anything differently to stand out from these other lower quality competitors?

Every company in our field has their own line. For example, my line is roadworks. INDEX is more in the parking lots, bridges, etc. There is another company that works more in infrastructure. Another company works more in electric substations. Everyone has his own niche. Even pricing is easy. We are able to get quite a high profit margin because there is high demand and low supply. But politics affects us quite a lot. Even with the US election, we did not know if Trump or Biden would win. That is a big difference. We know what the budget is if Biden comes or if Trump comes. When Trump was in office, the budget was much less. When Obama was here the budget was very high. Now, with Biden, it is a safer budget.

What is your perspective for 2021 with the new government in Kuwait and the new government in the US?

We have a new Emir now. Sheikh al-Sabah died the 29th of September. He was a giant in politics. He was the perfect Emir for us. Now with the transition, we are still in the beginning of a new Parliament. With Trump and Biden, too, it is still not clear. But we hope 2021 will be good. 2020 was very bad.

Do you have anything specific that you are planning in the short to medium term, three years? What are your goals?

We are now waiting for contracts to come. We have made our quotations. We heard that by February or March things will start to move. I hope work will come then. Usually, a good index for our economy in Kuwait is the amount of concrete made. It is like a gauge. It starts with us first. If there is a lot of concrete getting made, we know that the economy is moving. It starts with concrete and then everything else. To do a business, you need to do construction, and then it moves on. When you have concrete, you have transportation, you have people working, you have salaries; everything moves.

Are you looking for partnerships or technology improvements?

The problem is that we have cheap labor. It is very hard to leave the cheap labor and take a risk to move to something else. With cheap labor, you can do everything. Instead of having one person, you can have ten. For example, in France or in Switzerland, in the precast sector, the laborers there are much less than in Kuwait because there are machines. It is all mechanical. In Kuwait, it is cheaper to have labor than to have machines.

If Kuwait opens up one day, will that change? Will this way of working be outdated?

It is easy to make the transition. But for example, you have a machine that costs $1 million and this machine is equivalent to 20 laborers. Our average labor salary is 150 Kd which is $500. Do I buy a machine for $1 million or have ten laborers working? If the labor salary or minimum wage goes up, then we will move to the machine.

Is the quality different between machine and laborers?

For me, labor is better. It is like buying a handmade watch or a handmade bag. Sometimes the machine has to be serviced, etc. When the economy opens in construction, it is much better for us because right now Europe and the US are moving towards electric and we are still in the 80s. It is cheaper to buy used equipment from Europe and the US. For example, right now in Germany or Switzerland, you can use trucks for only about five years. So, prices are going down. I can buy them and bring them here because there are no environmental laws.

Are you active in any CSR activities?

I was on the news and on Twitter for a CSR scheme that went viral. I had 9 million views and over 1,000 retweets. In the beginning of the pandemic, people were coming back from holidays and work. It was a mess up. There were no lines. Cars were going everywhere. People were not in line to do the PCR. There was no work and I had a huge stock of barriers in my factory. So, I talked to the Ministry of Interior and I told them I had this idea to do the lines. They agreed and were happy. I had a picture with the Minister of Interior and I was on the news and the radio. They told me that after the pandemic they were going to give me an award.

How did you get into this business? What inspired you to do what you are doing?

I studied in an English high school. I have done my IGCSEs. When I graduated, I went to the US to the University of Denver. I did a double major in engineering and finance and a minor in economics. Then I came back to Kuwait. I had been working with my dad before when I was in high school so I knew what was going on. I liked the job. When I came back, I started straight away. It was difficult in the first three years, but I knew all the employees. We have employees who have been working with us for 30 or 40 years. We are like a family so it is easy.

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Kuwait Report

Construction Sector in Kuwait: An Overview of the Concrete Precast Segment by Gazi Al Omani of Fixed Assets

Interview with Gazi Al Omani, CEO of Fixed Assets General Trading And Contracting Co. (W.L.L.)

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