Construction Industry in the UAE - Literature review Example

The United Arabs Emirate Construction Industry Table of Contents Introduction 3 2.Literature review 4 3.Immigration impact on the construction industry 4 4.Challenges to the construction industry 6 4.1.Procurement 7 4.2.Culture 7 4.3.Handling 7 4.4.Operation 8 5.Health and Safety in the industry 9 6.The Construction Market 11 7.The SWOT analysis of the construction industry 11 7.1.Strengths 11 7.2.Weakness 11 7.3.Opportunities 12 7.4.Threat 12 8.Conclusion 12 9.References 14 1. Introduction In 2013, the United Arabs Emirate construction industry reached a staggering $41 billion. According to the Business Monitor International, this figure is the highest since the crash and overtakes the Saudi Arabian industry becoming the leading industry in the Middle East. The industry value is a 4.5 percentage increase from the previous year. The construction industry in that accord contributes a lot in the national GDP (Khan, 2013). According to the report, the earning from the industry in Dubai alone contributed 21 percent of the national GDP in the first half of the financial year 2013 making it the second highest after the retail and wholesale industry. It implies that the industry is entering a renewed era where it is gaining stability in its growth and development. As a result, investors are confident with the industry fostering expansion and attracting new investors (Ren, & Du, 2013). The contractors are projecting the current trend to continue to the future contributing to the country’s economic growth, create employment opportunities and attract other investors in other sectors that are dependent on the construction industry. The prospect of such future success will depend on the government policies. If the government puts in place favorable policies, the industry will enhance the living standard and the growth of the country. The UAE’s construction industry has risen to become a nexus of growth in the construction industry in the world. With the increased level of confidence in the industry, there is an expectation of a continued increase in the flow of liquidity. This means there will be a timely development, completion and handing over of the projects in time (Faridi & Sameh, 2006). The consistence flow of investment will secure a stable growth pattern within the market and an extended period of sustainable economic growth. In the year 2013, the government of Abu Dhabi committed AED 330 billion in the construction for social development that included the construction of health centers, education, housing transport projects. 2. Literature review Dubai is experiencing a radical change in the construction industry as several important constructions are taking place. Among the important constructions in Dubai is the Downtown Dubai and Business Bay project. Maktoum International Airport and the construction of Mohammed bin Rashid City is also under construction as government aims at rejuvenating the status of the city to be the epitome of trade in the world (Faridi & Sameh, 2006). The Rashid City is a large mixed-use development project housing retail outlets, art facilities and the Mall of the World. The government plans to make the mall of the world the largest shopping mall in the world. The Abu Dhabi has witnessed progress in two major healthcare projects; the Cleveland Clinic and the Al Mafraq Hospital. The two health facilities provide over 1000 beds for the patients within the capital. In the transport sector, there is the development of the UAE federal system. The Etihad Rail will link Dubai and the Abu Dhabi by the year 2016. The project will later extend to the Oman and Saudi Arabia. 3. Immigration impact on the construction industry As the Gulf States experience a major regeneration and development in the construction sector, there is an increased competition for job opportunities. The industry is growing at high rate thanks to the young population in the area. However, the increased growth has created a decline in the available skilled labor (Hegazy, 2012). The United Arabs Emirates has turned to the construction industry to reduce over reliance on the oil and gas industry. This has created a diversified economic growth increasing the sources of the national income from the original oil-based economy to a multifunctional economy. The boom in the construction industry has seen it becoming an important player in the country’s economic growth and development. The 2007 Arabs World Competitiveness Report ranked the United Arabs Emirate as the most competitive country from the gulf region due to its mega projects that boost its economic growth. The half of UAE’ population lives in Dubai, and the country is one of the richest countries in the Middle East. The construction industry is growing in such an alarming rate due to the states projects that aim at expanding the economy into healthcare, education, tourism and sports and leisure. As a result, the government is investing millions of US dollars in oil and gas industry, power, chemical, and transportation and communication industry as well as in the commercial and residential construction (Ren, & Du, 2013). The development of the stated sectors directly depends on the construction sector. In that accord, the building and construction industry becomes a major player in the economy due to its diversification and covers several fields linked with the other sectors. The United Arabs Emirates construction industry benefits from most of the public sector construction projects. As for the year 2007, the government had plans to construct a causeway between Qatar and Dubai, tourism and hotel projects and other projects estimated to cost over $ 0.5 trillion. The projected growth in the tourism and business sector necessitated the construction and expansion of the highway networks as well as the upgrading the sewage and waste removal systems. The private sector is similarly active with over 800 new towers constructed in Dubai making it one of the busiest construction areas in the world (Faridi & Sameh, 2006). The construction promotes the economic growth attracting foreigners in the country. As a result, there is a high demand for residential houses raising questions whether the demand can keep up with the supply. As a result of the market, the construction industry benefits as the governments embark on constructing residential houses to meet the high demand. The number of foreign workers in the UAE due to its population size is high almost equal to the country’s population. As of 2007, there were over 2.7 foreign workers registered with the ministry of labor. The number is even high considering that some external workers such as domestic workers, drivers and free-zone workers do not register with the ministry of labor. As of 2006, the total population of foreign workers was 85 percent of the country’s population. These high populations of foreign workers contribute to the construction industry in two ways (Ren, & Du, 2013). First, the workers increase the demand for residential houses. The market stimulates the state to construct more houses thus empowering the construction industry. Secondly, the workers work in the building and construction industry by providing either skilled or unskilled labor. The construction industry requires many workers as there are many projects going on at the same time thus demanding high number of workers that are unavailable in the UAE (Hegazy, 2012). Given the status of most UAE families, few are willing to work in the construction sites, this encourages foreigners to come and provide unskilled work. 4. Challenges to the construction industry The construction industry in the United Arabs Emirates faces challenges of achieving sustainability on the construction sites. A major barrier is the increasing amount of material waste generated in the construction process. There is a lack of balance between developing the built environment and protecting the natural environment (Rogers, 2011). Since the United Arabs Emirates got her independence from The United Kingdom in 1971, there has been enormous emergence of cities notably Dubai and Abu Dhabi. The construction of these cities produces much waste material harmful to the environment. The waste has not been appropriately managed to ensure a clean environment. The United Arabs Emirate is bone of the major producer of waste from its construction projects. The construction industry in United Arabs Emirates contributes largely to the waste product in the country. In 2007, the waste in Dubai from the construction industry was 2.7 tons. In 2008’s first half of the year, the waste was double that of the previous year 2007. The waste from the construction sites originates from for sources namely, design, procurement, handling of material and in the operation process (Al-Hajj, & Hamani, 2011). Since the construction industry in the UAE is experiencing an unprecedented boom, the level of waste is similarly increasing. A major influence on the waste production and management is the constructors’ attitude and behavior towards the waste issue. The source of waste materials revolve around four factors; procurement, culture operation and handling. The origin of material waste as grouped in the four categories is, 4.1. Procurement Delivery methods and schedule Purchase of inadequate materials Poor quality of materials Poor advice from suppliers Poor supply management 4.2. Culture Lack of awareness Lack of support from management Lack of incentives Lack of training 4.3. Handling Damage during transportation Mishandling of materials Lack of product knowledge Inappropriate storage 4.4. Operation Unskilled labor Inadequate time Poor communication Bad weather Poor coordination between traders Sustainable development in United Arabs Emirates is important because of over reliance in the oil and gas production sector. The country has seen its level of carbon emissions escalate making it among the biggest emitters on a per capita basis. Due to the importance of the construction industry in the economic growth of the United Arabs Emirates, there is a need for the industry to operate in sustainable lines in order to reduce the negative effects on the environment and prevent natural resource depletion (Hegazy, 2012). In that accord, the United Arabs Emirates construction sector experienced important development in the last decade in its involvement in creating a sustainable development environment. Most of the success of the sustainable development goes to the Emirates Environmental Group. The EEG facilitates a green and sustainable EAU by building effective outreach among key stakeholders in the construction industry. The foundation of the Emirates Green Building Council (EGBC) was in 2006. The organization main objective was to advocate for the use of environmental friendly technologies in construction. These technologies would preserve the environment and ensure sustainability in the country. Among the sustainability proposed by the organizations is water usage. Since water is an important resource in the United Arabs Emirates due to its location, the or5ganization advocate for water utilization. These campaigns aim at ensuring there is adequate water for construction purposes and human consumption. The sustainability policy aims at achieving economic, environmental and social sustainability. Economic sustainability involves use of means that increase profitability in the construction industry. The attainment of profit depends on the efficient use of resources such as labor, materials, energy and water. Environmental sustainability is the prevention of dangerous and potentially irreversible effects on the environment (El-Sayegh, 2008). Measures that ensure environmental sustainability include careful use of natural resources, minimizing waste materials and enhancing the environment where possible. Social sustainability involves response to the peoples demand at every stage of the construction process; to ensure customer satisfaction and maintain a close relation with the stakeholders. 5. Health and Safety in the industry In the EAU like other developing countries, lacks effective rules and regulations to ensure safety in the construction sites. Despite the strong rate of growth in the construction sector, there are poor safety and health conditions. The existing frameworks in the construction occupation and health conditions is inadequately enforced and fragmented. As a result, the construction sites are dangerous (Al-Kaabi, 2001). There is no comprehensive health and safety legislation to regulate the safety of workers in the industry. The health and safety regulation are in pieces amounting to over a hundred fragmented legislations making it easy to breach the law. As one would expect to find clear legislations and regulation in the elaborate United Arabs Emirates’ construction industry, there are no such laws. Additionally, there are no established agencies to ensure the enforcement of the health and safety provisions. There are no industrial-specific principles to oversee the safety of workers in the country. In United Arabs Emirates, there is no single federal or local legislation to deal with the health and safety of workers in the fastest growing construction industry (Al-Kaabi, 2001). Instead, the available laws and regulation cover the matter in general terms without specifying the need for security measures in the construction sector. Among the applicable laws are the labor laws that are applicable in any industry. The ministry of labor is responsible for enacting this law and ensuring the health and safety of workers in this industry. The police are the most used agents to enforce the law or carry out investigations concerning construction related accidents. In Abu Dhabi, there is a glimpse of hope after the introduction of Code of Practice for Construction Projects by the Department of Municipal Affairs (Zaneldin, 2006). The code of practice includes level of training, reporting procedure and the process of appointing security engineers. Similarly in Dubai the municipality issued a code of practice for construction projects. The code of practice contains the health and safety measures. However, these laws have not been passed into laws but they shed light on the government’s intent in ensuring the security of the constructors. There are no federal laws for workers’ compensation insurance. However, the UAE Labor Law gives employees or their families’ compensation in the event of work-related deaths or disability. As discussed early, it is important to note that some construction deaths and injuries go unreported as most people working in this industry are foreigners who not registered with the ministry (Khan, 2013). It is, however, considered important for contractors to have workers’ compensation insurance. Free zones have their own rules ensuring each company has adequate workers’ compensation insurance requirements. 6. The Construction Market The joint ventures between local and international organizations shape the market. However, the local organizations have a larger share of the market with 51 percent. This is a constitutional provision due to the 49 percent foreign ownership restriction in organizations registered in the United Arabs Emirates. The construction industry experienced a collapse in 2007 following the global financial crisis. The crisis saw projects delayed, put on hold and others cancelled at unpredictable rate (Khan, 2013). The company’s confidence declined, and the companies began to rethink on which strategy to employ to address their customers and competitors. Due to the unpredictable features in the industry, the companies adopted a survival strategy instead of strategy designed for their growth. 7. The SWOT analysis of the construction industry 7.1. Strengths The industry is in a politically stable country that is rich in oil production. The favorable factors attract international investors and workers. As a growing non-oil sector, the construction sector has attractive salaries and tax free environment that maximizes the companies’ profit. 7.2. Weakness The currency of the UAE is unstable compared to the US dollar. The industry experiences an inflation growth and shortage of skilled manpower. The oil production spending increases decreases the government saving, therefore, causing a low rate of public investment in the construction industry. There is a great disparity between the Emirates that cause the unequal distribution of development projects. 7.3. Opportunities The construction industry will benefit from the rise in oil revenues that will enable the public and private sector to have more money for investment in construction projects. The diversification in the country into various sectors such as tourism, transport and communication, health and education among another will promotes the construction industry. The global increase in the consumption and prices of oil stimulates the growth of the construction sector. 7.4. Threat The Middle East is an insecure region and the restart of the Iran nuclear weapon programme possesses a threat to the construction industry. The gulf region is insecure due to terrorist attacks that stimulate western attacks. Global economy and financial crisis affect the industry as investors lose confidence (Zaneldin, 2006). The threat of competition from other emerging markets in the Middle East and worldwide. 8. Conclusion The United Arabs Emirates construction industry is in its early stages but experiences substantial growth. It contributes highly to the national GDP with an estimated 21 percent as per the year 2013. The industry has attractive salaries those attractive foreign workers in the unskilled and skilled categories (El-Sayegh, 2008). The workers come into the country in two ways. One, they come through the right procedure as laborers through the registration with the labor ministry. Secondly, they come by illegal means and start working in the various industries as domestic workers, drivers and workers in the free-zone areas including the construction industry. The United Arabs Emirates government project of diversifying its sources of revenue has promoted the construction industry. The diversification projects that involve the construction of education and health facilities have increased the jurisdiction of the construction industry. The tourism industry and transport and communication have necessitated the construction of malls, hotels and the expansion of highways, airports as well as the railway line. As a result, the construction industry is growing and employing more workers every day. The lack of specific federal regulations in the industry possesses a great problem to the workers’ health and safety. The immigrants who join the industry illegally are vulnerable to the legislation as their death and injuries cannot be compensated (Alhajeri, 2011). The lack of adequate registration also affects the environment as the construction companies do not incorporate measures that protect the environment. However, there are some governmental and non-governmental organizations that ensure economic, social and environmental sustainability of the construction industry in the United Arabs Emirates. 9. References Alhajeri, M. (2011) Health and safety in the construction industry: challenges and Solutions in the UAE. Unpublished Thesis. Coventry: Coventry University Al-Hajj, A., & Hamani, K. (2011). Material Waste in the UAE Construction Industry: Main Causes and Minimisation Practices. Architectural Engineering and Design Management, 7(4), 221-235. 10.1080/17452007.2011.594576 Al-Kaabi, N. S. (2001). Improving safety performance in construction site operations in the United Arab Emirates. El-Sayegh, Sameh M. (2008). Risk assessment and allocation in the UAE construction industry. International Journal of Project Management 26(4), 431-438. Print. Faridi, A. S. and Sameh M. S. (2006) Significant factors causing delay in the UAE construction industry. Construction Management and Economics 24(11), 1167-1176. Print. Hegazy, S. (2012). Delay analysis Methodology in UAE construction Projects: Delay Claims, Literature Review1." PM World Journal 1(2), 1-21. Print. Khan, A. (2013). Decent work practices indicators in the construction projects of United Arab Emirates. International Journal of Business Excellence, 6(4), 409. Ren, P., & Du, Z. (2013). Information Science and Management Engineering (Set). SOUTHAMPTON: WIT Press. Rogers, S. (2011). Battling construction waste and winning: lessons from UAE. Proceedings of the ICE - Civil Engineering, 164(1), 41-48. Zaneldin, E. K. (2006) Construction claims in United Arab Emirates: Types, causes, and frequency. International Journal of Project Management 24(5), 453-459. Print. Read More