Wednesday, Apr 02, 2014
(FROM THE WALL STREET JOURNAL 4/2/14)
By Asa Fitch
Developers are rushing to Qatar, where an unprecedented building boom is under way to prepare for soccer's World Cup in 2022 and meet the emir's drive to modernize the tiny but energy-rich land.
About $200 billion of projects have started or are planned, according to an estimate by the Middle East Economic Digest. That is more than Qatar's current GDP and about $100,000 for each of its two million inhabitants.
But with the frenzy have come concerns about rising costs for construction material and labor that could take a bite out of profits.
Qatar faces growing criticism about construction-site safety and its controversial system for importing thousands of foreign workers. Any changes to that model could increase costs or even undercut the country's aggressive development schedule, analysts say.
"The success of Qatar's current development model depends, importantly, on the ability to rapidly hire expatriate workers," warned the International Monetary Fund in a report last month.
Meanwhile, analysts are warning of a shortage of construction material, particularly cement. Qatar National Cement Co. is building a new factory to increase its capacity to more than five million tons per year. But analysts at Kuwait's Global Investment House, an investment firm, warned in a recent report that as much as 10 million tons a year would be needed as construction picked up.
Qatar "will face a major cement shortage scenario," the report said.
Qatar has a history of sharp increases in construction-material costs. Cement prices soared by more than 50% in the run-up to the 2006 Asian Games, when a shortage forced Qatar National Cement, the country's largest producer, to import the material. "We've seen it before and it is scary," says Nick Smith, a partner at consultancy EC Harris in Qatar.
Some Qatar contractors already are stockpiling materials in advance of the pick-up in construction. "We've got quite a small supply chain here and it's not the most open of markets," Mr. Smith says.
The Supreme Committee for Delivery and Legacy, the government body overseeing World Cup projects, declined to comment on whether material shortages and costs were a concern.
Analysts and developers in the region say they are bracing for materials and labor-cost inflation as Gulf countries including the United Arab Emirates pick up the pace of development. Marios Maratheftis, the global head of macro research at Standard Chartered, expects the overall U.A.E. inflation rate to increase to 4% this year from 1.1% in 2013, mainly due to buoyant activity in the real-estate market.
Qatar, the world's largest exporter of liquid natural gas, for the past decade has been looking to increase its prominence both regionally and on the global stage.
Two years after hosting the Asian Games, the emir outlined a vision for economic and social development that aimed to modernize the country while preserving traditions.
Since Qatar was awarded the 2022 World Cup four years ago, controversy has erupted over summer temperatures that routinely soar beyond 100 degrees Fahrenheit, as well as allegations of bribery linked to the bid. Qatar's World Cup organizing committee has denied that it was aware of any payments allegedly made by a former national soccer official to an executive of FIFA, the sport's global governing body.
In any case, developers have been flocking to the country. Contracts for the Doha Metro, part of a planned $36 billion national rail network, were awarded recently to a host of companies including Spain's Fomento de Construcciones y Contratas, Turkey's Yuksel and Italy's Impreglio.
Doha is dotted by construction sites these days, including the massive Msheireb project in the city's old downtown area and the Jean Nouvel-designed National Museum, with its cluster of intersecting saucer-shaped rooftops.
Labor costs are an emerging concern in Qatar because of growing pressure from international rights groups to abolish the so-called kafala sponsorship system. Under it, low-wage migrants that form the bulk of Qatar's construction workforce often have their passports held by their employers, restricting their freedom to change jobs or return home.
Workers also are prohibited from forming unions to bargain for higher wages. Changes to the system that allow for collective bargaining or let foreign workers more easily move into higher-paying jobs would push contractors' costs upward.
Fueling the criticism has been a string of deaths among migrant workers mainly from Nepal, India, Pakistan, Bangladesh, the Philippines and parts of Africa.
A report last month by the International Trade Union Confederation said 1,200 Indian and Nepalese workers had died since Qatar was awarded the World Cup, and estimated that 4,000 more would die before the tournament took place.
The Supreme Committee for Delivery and Legacy has disputed the ITUC's findings, saying the section covering its activities was "littered with factual errors and attempts to discredit the positive work we are undertaking."
(END) Dow Jones Newswires
02-04-14 0447GMT
