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Saudi Arabia Report
Marcopolis presents the Saudi Arabia Report focused on the investments, doing business, economy and other topics featuring interviews with key executives. The sectors under review in this issue are industry, real-estate, ICT, investments, banking sector, telecom sector and many more.
InterviewsDecember 22, 2021
Construction Sector in Saudi Arabia: Nasser Al-Shawaf Presents Leading Construction Firm Al Bawani
Nasser Al-Shawaf, Member of the Board of Al Bawani Holding Company
- Written by Sandra Francisco
- Published: December 22, 2021
Interview with Nasser Al-Shawaf, Member of the Board of Al Bawani Holding Company
What is your assessment of the construction sector in Saudi Arabia?
The construction sector has been undergoing some considerable challenges given the change in the way the government is spending money into the local economy. Historically, we have been very dependent on direct government spending while now, you have newer players, such as the Public Investment Fund and the newly announced National Development Fund, which are trying to centralize all the development funds across the various disciplines in the country under one umbrella. Those are the new drivers of spending in the local economy. The government is moving from being the dominant player to stepping back and allowing private sector companies to step up and play a bigger role in the local economy. They are no longer going to provide all the services; rather, local groups, international firms, etc., will come in and they are more than welcome. The government will provide the best environment for them to step up and come and provide those services. The construction market is changing, no doubt, given the new landscape, and our role is to really evolve, to adapt to the new reality. I am pleased to say that we have been relatively successful in doing so, moving from a very basic level of contracts based on the Ministry of Finance to much more sophisticated commercial arrangements and provisions where we have much wider responsibilities. The sector is changing and we are trying to adapt and influence the change as well.
Is it a sector that is very much controlled by Saudi companies? Is there a lot of partnership between Saudi companies and external companies? How international is this market?
40 years ago, there were many international players because we did not have that many local construction firms able to support the government programs in terms of building infrastructure, schools, hospitals, etc. However, this changed and local companies now have the capacity, the credentials to execute and deliver those projects. International companies now have to come with a more specialized skill set and more unique offerings. There are international players and we do joint ventures with a number of them to increase and expand our delivery capabilities to our clients, but they have to come not with a basic skill set, but more advanced, developed, niche skill sets that are required by our clients.
What areas can these international companies bring in new technology or specific skills?
We welcome process driven companies in oil and gas in downstream, for instance, waste to energy, water treatment process providers, desalination process engineering firms, or very large infrastructure projects such as bridges. This is where international companies can come and add considerable value to the local economy and to our offerings to our clients.
What are your competitive advantages? What do you bring that is different from your competitors and where do you distinguish yourself?
The construction market is a highly competitive one in the local economy. We pride ourselves on being really top in terms of performance and we have grown to be among the top five players in the local construction market. We have a particular edge in high end projects, specialized hospitals, defense and security projects, clients that require a five or six star level of finishing and quality, very iconic buildings with unique facades, etc. In King Abdullah Financial District and the Digital City, we are building very beautiful, pretty buildings. We are very strong in rush projects. We have the mindset, the determination to deliver projects with very, very tight deadlines. Given the government's ambitious plans to host world class sporting events, entertainment events, etc., we are a credible, reliable, and trusted partner for the various companies and government organizations who would like to make the impossible possible. We are there to stand behind them and deliver.
What are some projects that you are very proud?
One example where we have turned the pandemic into an opportunity was with the Riyadh Airport Authority. Given the lockdown and the low volume of travelers, they asked us whether they should look into renovating some of their terminals. We worked side by side with them and renovated Terminal 1 in a record four months, really working day and night. That is a project that we are very proud of delivering in such a tight timetable. Another project is the Red Sea Development Company. It is a highly ambitious development company trying to put Saudi Arabia on the global tourism map. They wanted to build a resort in a very remote area. It is a beautiful part of Saudi Arabia that is completely unspoiled. They wanted someone who really has that risk appetite and entrepreneurial spirit to step up and build the infrastructure and get this site ready to build a world class resort.
What is the strategy behind the planned IPO and what will the company be in two years’ time in this case? How prepared are you to attract investors?
The construction market is a highly competitive one in the local economy. We pride ourselves on being really top in terms of performance and we have grown to be among the top five players in the local construction market. We have a particular edge in high end projects.
Twelve years ago, we were very much dependent on traditional government contracts. We decided we wanted to diversify our client base across various sectors and we have taken that very seriously. I can proudly say that now we have more than 20 major clients – government, semi government, government supported enterprises, pension funds, private companies. We have a growing interest in public private partnerships. We are positioning ourselves to be a major player in this relatively new space. We have recently won the first social infrastructure project of its type that is designing, building, financing, and doing the facilities management for 60 schools in Jeddah and Mecca over a 25 year period. We have also won possibly the world's largest privately owned desalination plant that can process 600,000 cubic meters a day, called Jubail 3A. In order for us to really meet our ambitious diversification programs and goals, we are looking at how to lower the cost of funding and how to optimize our capital stack between equity and short term loans. We do not have many long term loans except for the PPP projects. We really want to step up and work alongside the government in meeting their highly ambitious expectations of diversifying our local economy, getting into sports, tourism, hospitality, building landmark projects. We have to step up and boost our capital base, become more resilient, more sustainable, grow our concession business to reduce the cyclicality of the spending. So, we feel the IPO is one step forward to help us in achieving those goals.
What is the implication of these new green buildings and environmentally friendly projects? What is your expertise in this sector?
We have a Health and Safety Department that really pushes to raise the bar in terms of how we operate as a group. The government regulations have become very strict in terms of how to manage waste when we go to any new area, how to do the mobilization, many of the new government buildings now are requiring LEED certification, there are rankings now ranking us as a group of how we are performing. The government is pushing all of us to be much more environmentally conscious, especially if you work next to the Red Sea, for instance, or in some of the areas where you have an incredibly beautiful landscape. We really need to pay considerable attention to the environmental standards and the building code. The building code in Saudi Arabia is being changed, as well. Now, we have to look at the energy model. In some of the projects where historically you would just get the design and build, now, contracts are becoming more performance based and a central part of performance is energy performance and how you can optimize the energy usage.
What are some examples of awards or certifications that Al Bawani has received? What are your major achievements?
On the architectural side, we have won an award for one of the most beautifully architected and designed buildings worldwide for the mosque we built in King Abdullah Financial District. It is a really beautiful structure and very unique in the way it was designed. We are very proud of winning this award for this iconic mosque. It was designed with no columns in the middle. Every piece of the facade was different than the other. We had to go through extensive links into how to coordinate that beautiful structure and make it have the ambience, the feeling, and make it as comfortable as possible to people who are visiting and praying in the mosque. It is really incredibly beautiful.
What is your CSR policy?
Giving back to the community has always been an intrinsic part of our culture and we are active in supporting numerous charities. We also invest in training, especially for Saudis, as the government is trying very hard to equip our young population to join the workforce. We are trying to make all those initiatives more institutionalized. That is something that is really a work in progress. But almost on weekly basis, we interact with various organizations and really support them to meet their objectives, whether it is training orphans, providing some equipment to a new center for the disabled, or supporting a new charity that helps people with disabilities getting married. We are active and we are considering at some point in time having our own charity where we can become more institutional in our giving.
What has been the impact of being a family business?
Over the four decades or so of the group's life, we have been transforming ourselves to become more corporatized and to have the right checks and balances, the right corporate governance in place, but it is obviously easier said than done. You need to have a minimum scale in order to do that. We are now at a size and scale where it makes a lot of sense for us to move to the next level of going public, trying to ensure the sustainability of the group and the 10,000 plus people that are working with us on a full time basis and the other 1,000s who are either suppliers with materials or work with us as subcontractors. We look at this from a very responsible perspective that we are no longer a small organization and we cannot just manage things the way we wish. We take responsibility very seriously. We are taking the right steps to really step up, look at how to become more resilient, more sustainable through funding our organization chart and structure. Risk management is really crucial when you are of a certain size. We are looking forward to making our private success a more public one. We are looking as well at how to create that fixed income component in our business, which is the concession business, the public private partnerships, the build operate transfer projects, to enrich our asset base and help us weather any cyclicality in our sector.
A lot of businesses have transformed themselves because of COVID. They have had to change and digitalize themselves. Did you have to transform the way you are processing things?
The pandemic has undoubtedly posed a tremendous challenge to all organizations, to governments, to people around the world. The Saudi government demonstrated a great deal of discipline and proactivity and they have really taken very pragmatic steps. They were more on the cautious side which really helped us get back into business fairly quickly. We have been going to the office for several months now. Recently, they have announced some measures to limit the number of people getting together. But hopefully, this is more erring on the side of caution to try to prevent the spread of the virus. More specifically as an organization, we have had to adopt new, stringent regulations for health and safety in terms of keeping social distancing while working on site, the transportation for our workforce, the labor camps, the level of hygiene, checking the temperature of our people. We are fortunate because we have our own medical department, our own nurses, ambulances, so it was easier for us to cope with all those new regulations than other groups who are not equipped for that. In terms of our communication channels, we have moved more of our meetings online. And even now, while we can sometimes meet physically, we are adopting more and more virtual meetings. One of the things that differentiates us is that we were one of the early adopters of BIM technologies, building information modeling technologies, which are very advanced software tools that allow you to see the building virtually constructed with a great level of detail and insights before it is built. It allows you to detect any clashes between the civil and the electrical or the mechanical and the civil, it would help you produce the quantities with higher accuracy, and helps you develop a more accurate program. So now we are rolling this from 20% of our projects and we are trying to push it to 60% of our projects with the aim of reaching 100%, hopefully. The pandemic is a serious challenge but we are trying to see how to make the most out of it.
What are the projects you are working on at the moment?
We have more than 40 ongoing projects. So, it is very busy time for us. We are very fortunate. It is a good problem to have. We are really spread all over the kingdom. We are covering all the way from the extreme north, east, and west. Whether it is building a desalination plant in the south, expanding the rail network in the north, the Red Sea in the west, building an innovation center for Saudi Aramco, we are very busy. Usually, our attention would be split between looking for new opportunities and overseeing our business development bidding team. That is a major risk all the time. You do not need to win just any project, you need to win projects that you can deliver and deliver profitably, hopefully. The other part of our time and attention is focused on maintaining relationships with clients. One of our advantages is that we tend to be lean and very close to our clients, to our team, our vendors, our lenders, and the various market participants, the consulting teams, etc. That always gives us an edge. One of the complications of the construction sector is that you have so many variables in the construction process and so many stakeholders and the only way for you to really succeed is by winning those people over. I believe we are pretty good at trying to get them on our side so we can deliver to our clients in a satisfactory way.
What is your ambition for the group in the medium term, two to three years' time? What do you want to achieve?
The government announced a highly ambitious transformation plan with the Vision 2030. It is up to us now as market participants to decide whether or not we want to shape up, live up to this direction, the government expectation, embrace Saudization, do more locally by promoting local content, local industries. We want to be up to this challenge. We have made the decision that we do not want only to participate in this economic transformation but that we want to help in shaping it. That is why we are getting into PPPs, water, power, looking at becoming a public company. We want to do everything we can to adapt to the new Saudi Arabia. We will be relentless and we will exert every effort to really pursue that.
What drives you to continue doing what you do? Did you have a specific inspiration to get into this industry or a specific goal in mind?
In the 70s, with the oil windfall, the government really wanted to build roads, schools, hospitals, universities, air bases, airports, etc. It was a very compelling and attractive sector to get into and that is how my father got into the sector. Things obviously have changed and there is much more competition. We are fortunate in a way that my father decided to say he would be stepping back more than 20 years ago and told us to get on with it and run; while in other families, you would find the founder still really holding on to his seat and trying to call the shots. One of the advantages we have had is that we were able to claim responsibility at a younger age, we have made our mistakes, learned from them, and we are very hands on as a group, as shareholders, and backers of the business. We meet with as many people as we can, both internal and external. We have an open door policy. We are very passionate about what we do and we like to make people happy. Whether it is staff or suppliers, we negotiate really hard, but we always want to make it a win-win situation. That is really why we have incredible deal flow. People come to us all the time asking to work together and we pride ourselves on that. We try to always work with a large network of partners in joint ventures, in partnerships, in all our PPP projects, we are working with other prominent families. We are passionate, we enjoy what we do, and we want everyone to be happy, whether it is clients or any stakeholder. As a family and family members, we try to complement each other as much as we can. My role predominantly is to look at the big picture and where we are heading, manage the risk, look at our funding requirements, look into new areas where we believe we should venture into and invest in. The IPO is my initiative. We have been working on digital transformation. We have some very serious plans of how to become not only a leading company in Saudi – which we are in a way – but one of the leading construction companies in the world. The construction sector is not the most advanced technologically, so it is not a really difficult target to meet. So, we are really going to try very hard to be a world class construction company and we will do everything to make this happen. We would like to be a national champion where we will be looked favorably at by the government.
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