Economic View

On bolstering the strength and adaptability of Egypt’s construction sector

In what ways has the company’s diversified portfolio contributed to its resiliency?

SAYED FAROUK: Arab Contractors’ position as one of the oldest companies in the engineering, procurement and construction segment, as well as its diversified portfolio of construction and infrastructure works, has helped it remain resilient in the face of unexpected challenges such as the Covid-19 pandemic. In addition to servicing projects at home – including single structures, heavy construction and shipbuilding – Arab Contractors operates across the MENA region and throughout the African continent. 

The firm’s involvement in mega-projects that have been prioritised by the government as key to future economic growth has also helped it weather the pandemic-related economic downturn. For example, we were involved in the construction of tunnels in the Suez Canal, as well as in the building of the parliamentary facilities in the New Administrative Capital. We are also partnering with foreign companies to strengthen Cairo’s public transport system, including Line 3 and Line 4 of the metro. 

How has the construction project pipeline in Egypt changed the nature of operations in recent years, and to what extent did the pandemic have an effect on this?

FAROUK: The series of mega-projects has helped us add value to our operations in recent years and we have worked to ensure projects are completed in a timely manner. In order to achieve an accelerated timeline while ensuring projects were completed in line with international standards, we have invested in technology, human resources and high-quality inputs. We have also focused on bolstering ties with clients and consultants, which has required sustained financing. 

It is no surprise that the pandemic negatively affected many of the opportunities that would have normally been present in Egypt. The low-price environment in some markets after the initial outbreak of the virus affected some tenders and the pipeline of projects. However, it has also led to new opportunities: the halt of projects in certain countries gave us the chance to acquire some of the resources – such as equipment – available in those markets that would have otherwise stood idle. 

To what degree are domestic contractors able to compete with international companies? 

FAROUK: Egyptian companies that have the resources and experience needed for the local market are in a position to offer their services at a competitive price when compared to international firms. Indeed, we are able to compete because foreign companies that drive down their prices often put healthy profit margins at risk. While this has largely been the case, foreign companies with experience in mega-projects have posed a challenge in recent years. Certain countries are also strongly investing in their domestic construction sectors, and this has highlighted the influence these countries can have on material prices due to the extent of their operations both at home and abroad. 

How can firms in the construction sector better plan for risks such as raw material inflation? 

FAROUK: It is important that companies in the sector take a forward-looking view when planning for both individual projects and longer-term growth plans. For risks such as raw material inflation, contracts that include fair pricing adjustments can enable large-scale projects to be completed both on time and on budget. If the risk of inflation of key materials is calculated into the contract, it is possible to adjust prices should they increase. However, there remains the risk of losing money as these clauses are not automatic.