Long-term strategic schemes vital to avoid crisis recurrence – Dipping oil stirs GCC ‘chaos’

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Did you know that many of the outstanding contracting companies in the region are facing troubles including their inability or delay in paying the salaries of employees?

Are the contracting companies blameless? Should the governments bear the responsibility for such crises?

Did the Gulf governments give up the development file?

First of all, we need to diagnose the problem in a proper, precise and simple manner. This problem had first emerged after the oil prices had increased. It had resulted in exaggerated investment in the construction sector in an unprecedented manner especially in countries that were positively impacted by the high oil prices. It was obvious that contracting companies will rush for a piece of the cake of such development. We also know that some of these companies, which have extraordinary abilities or share special relations with the decision makers, had appeared on the surface. Due to the growing oil gains, the wheel of development was faster than ever before due to which the process of development extended to the establishment of new areas and construction of new roads as well as rehabilitation of the existing roads. Many flyovers were constructed to facilitate the traffic and shorten the distances between different areas.

Many new sites for state authorities were established. Signs of extravagance and luxury through the building of outstanding shopping malls started to be seen. The sight of towers and skyscrapers became common. All this increased the appetite of many contracting companies to take up projects that exceeded their financial and contracting capabilities to the extent that international contracting companies had also joined the golden field.

Such construction projects were prevalent in Saudi Arabia, Abu Dhabi, Dubai, Qatar and Kuwait as well as Bahrain even though the projects in Bahrain were not as large-scale as those in rest of the countries.

Recession

Due to the global recession in 2007, Dubai experienced terrible difficulties. Many harmful rumors were spread concerning expectations of Dubai’s developing model to come to its end. However, thanks to the ruler of Dubai and his creative team as well as the massive support provided by Abu Dhabi, the emirate fulfilled its commitments and opened the tallest skyscraper in the world – Burj Al-Khalifa – during the peak of the crisis. It also launched an unprecedented project in the region, which is the underground railway, and completed the construction of the Dubai Airport, which later became the Dubai Airports Corporation. Dubai successfully overcame the crisis and became a model example of how such crisis can be confronted and defeated.

In Abu Dhabi, the increase in construction activities was obvious, with much attention given to the oil sector as well as the field of luxury tourism through the establishment of Formula 1 racetrack, various projects in Yas Island and the unique green Masdar City.

In Saudi Arabia, developmental projects included establishing new roads to connect many areas of the country, constructing new airports and developing the existing ones, constructing King Abdullah Financial Center in Riyadh, expansions aimed to contain the growing number of pilgrims and other large projects in Madina and various touristic projects in different parts of the country.

In Qatar, work is ongoing by leaps and bounds to finish one of the most outstanding sport constructions in the world and to ensure the availability of all necessary utilities in preparation for hosting the World Cup.

Projects

In Kuwait, road projects are being carried out including huge flyovers like Sheikh Jaber Bridge of length 21 kilometers which will link Kuwait City with Subbiya in North Kuwait via the sea and other flyovers in downtown Kuwait with the aim of facilitating traffic. In the medical field, the ongoing projects include the establishment of new public hospitals including Jaber Hospital. Concerning the educational field, a major project for establishment of Shaddadiya University is ongoing even though a problem had surfaced over the uncertainty of the government regarding whether the site should be allocated for the new university or for accommodating private universities or for Kuwait University to transfer its faculties to the site.

Following the above mentioned constructional development, news about the deterioration of oil prices started to appear. Oil prices fell from a height of $135 per barrel to $20 per barrel. Such sharp fall in oil prices affected the budgets of oil producing countries in not only the Gulf region but also different parts of the world. These countries started to adjust their public budgets in line with the new circumstances that resulted from such deterioration in the oil prices.

This move negatively impacted the contracting companies such that the consequences were obvious to any observer. A set of economic laws was passed for confronting the consequences of the crisis. The contracting companies were faced with dilemma in terms of delays in completion of projects and providing salaries to its employees and laborers.

Such a crisis occurred in many countries due to which the governments there had to directly intervene. However, the solutions of the governments were in favor of the workers and not in favor of the companies. Some embassies also intervened in the matter, which led to spread of resentment.

Actually there are many reasons behind this situation. The government had to pay the benefits of the companies on time and closely follow-up the companies. On the other hand, it seems those companies lacked long-term strategic plans for crisis management. This put those companies in critical situations especially in terms of their employees and laborers, and they ended up canceling many projects.

Based on all of the abovementioned situations faced by both governments and companies of the public sector, the private sector must learn from the crisis and prepare long-term strategic plans to avoid repetition of such problems. Successful overcoming of crises does not happen always.

Leaked reports concerning the selling of major companies indicated that these companies were strongly hit by the crisis. It also indicated the depth of the impacts of this crisis. So, time changes…

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By Yousef Al-Awadh

This news has been read 12492 times!