DUBAI: The UAE’s construction sector is becoming an extremely localised affair, with another international firm — Murray & Roberts — contractor deciding to call it quits on this market. As long as the pace of new project activity remains subdued, the industry can manage such exits, industry sources say.

But the situation can easily tighten up all too suddenly if activity picks up — and it certainly will — during the home stretch of Dubai’s Expo 2020 preparations as well as the newer mega developments in the books of Nakheel (at Deira Islands and elsewhere), Meraas (the launch of Six Flags) and Emaar (Dubai Creek Harbour) as well as those mounted by other developers. On top of this, each of the emirates is continuing with fairly high spending patterns on infrastructure related investments.

“In the current circumstances when industry-wide margins have more than halved, no contractor can keep maintaining the same overheads,” said a source at a leading construction firm. “The focus on curbing costs has to be constant — more so when there are delays on the payment side.”

Meanwhile, South Africa’s Murray & Roberts confirmed that it would be exiting the UAE construction sector. It forms part of a move to focus on mining, oil and gas and utility.

But industry sources add that the credit payment periods are manageable in the UAE compared with the six months and more that are the norm in Saudi Arabia. This has already led to some well-publicised busts of leading names in the kingdom. Other Gulf markets, except for Qatar, have seen a contraction in their construction sector.

“In the UAE, some of the small- and mid-sized contractors have had to exit or forced to scale down operations,” said a contractor, who did not wish to be named. “For the bigger names, there have been massive losses, such as at Arabtec. But the impression is that at some point the industry will get into a U-turn mode and local contractors are better prepared to handle it,” the contractor added.

As of now, the big names are hunkering down, with some getting selective about the projects they are willing to take on. This way they are at least assured of the client being able to meet their payment commitments. Another cost cutting exercise has been through lay-offs of all non-essential staff. (There was some talk of bigger names coming together on select projects, which would mean sharing in of the upfront costs and, consequently, the associated risks. But nothing concrete is yet to emerge on this score.) “The construction sector in the UAE is turning increasingly local and regional — players who remain need to have extreme reserves of patience to make it work,” said Vinod Pillai, General Manager at RP Group, which is now building up a portfolio of projects in the UAE.

“I think there’s enough capacity in the domestic market to handle the current projects and those are coming to market soon. Any exit by a big international firm is likely to leave more work for local players and that’s more money being retained domestically. That can only be a good thing for the medium-term,” he said.