A Strategic Analysis of the Construction Industry in the United Arab Emirates

Bachelorarbeit von Viktor Gorgenländer

Introduction:

The construction industry is one of the most booming industries in the world. In particular, in the United Arab Emirates this industry has experienced a constant growth over the course of the last few years. Driven by the UAE’s oil wealth, the country has witnessed an unmatched development and transformation. Oil revenues have lead to a driving construction boom and completely change the face of the state.

The construction industry is still one of the engines of economic growth in the UAE. One of the highest concentrations of cranes in the world speaks volumes about the incredible pace of construction taking place, particularly in Dubai and Abu Dhabi, but also in the other emirates. The fact that about 30,000, or 24 percent of the world's 125,000 construction cranes are currently operating in the region speaks for itself.

The UAE’s construction projects stands out clearly from building projects in other parts of the world, due to the fact that there is no constraint on constructional imagination and there is no place in the world where construction moves as fast as in the UAE. With some of the most innovative mega projects such as ‘Burj Khalifa” (the tallest building in the world), or ‘The Palm Jumeirah”, ‘The Palm Jebel Ali” and ‘The Palm Deira” (the world’s largest man-made islands) with epithets of world’s biggest, best, and tallest the UAE construction industry remains unbeaten.

The construction industry is a complex environment in which each organization is faced with numerous opportunities and threats. This academic paper provides an in-depth analysis of the fast growing construction industry in the UAE, while scanning the construction business for opportunities and threats. This thesis implements the PESTEL analysis that will be used to analyze the UAE’s construction industry. The main objective of this paper is to identify the factors in the macro-environment that might affect an organization. Having the PESTEL context, this output is used to execute a SWOT analysis. The PESTEL factors combined with external micro-environmental factors are classified as opportunities and threats in a SWOT analysis. Thus, the thesis also aims to identify the opportunities and threats in the construction business. This academic paper does not assess company’s internal strengths and weaknesses.

Through strategic analysis of the UAE’s construction business this paper creates an adequate framework that helps participants of the construction business to take advantage of opportunities while protecting them from threats.

Before profoundly analyzing the construction industry of the UAE, the second chapter gives a briefly overview of the country and its construction industry. Furthermore, this chapter provides a background on the topic by defining the strategic tools used in this paper.

Chapter three, the major part of this bachelor thesis, analyzes in detail the construction industry in the UAE by scanning the macro-environment for opportunities and threats. The effects of political, economic, socio-cultural, technological, environmental, and legal factors on organizations are discussed. This chapter is divided into six subchapters. In particular, the first chapter 3.1 covers an analysis of the UAE’s political environment, which deals with the political system and its stability, governmental intervention through investments and policy implementations, the UAE’s foreign policy and the tax environment within the country. The next chapter 3.2 examines the economic landscape, where among other things the effects of the global financial crisis are addressed. Furthermore, the UAE’s economic growth rate and the contribution of construction to the economy will be pointed out. The interest rates, foreign direct investment and inflation in the country are also scrutinized. The socio-cultural factors are evaluated in the following chapter 3.3. This chapter analyzes the UAE’s society, culture, demographics, labor immigration and education. Chapter 3.4 investigates the technological environment, where the technological readiness of the federation is explored. The penultimate chapter 3.5 outlines environmental factors. This chapter considers the environmental impact from the UAE’s construction industry. And finally the legal landscape is analyzed in the last chapter 3.6, where the legal system, labor law and legal presence is evaluated.

The conclusion summarizes the key lessons that have been learned and gives an outlook on future role and potential of the UAE construction industry.

Table of Contents:

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Chapter 2.1, The UAE at a Glance:

The United Arab Emirates (UAE) or Dawlat al Imarat al Arabiyya al Muttahidah is a federation of seven emirates - Abu Dhabi, Dubai, Sharjah, Ajman, Ras Al Khaimah, Umm Al Quwain, and Fujairah that was formed in 1971. The UAE is ruled by the current President Sheikh Khalifa Bin Zayed Al Nahyan and enjoys a high degree of political stability. The country is located on the south-east shores of the Arabian Peninsula. The capital and biggest emirate of the United Arab Emirates is Abu Dhabi. The population enjoys a high standard of living and is around 5 million people. The Emirati dirham (Dh or AED) is the currency of the state. The UAE has a dynamic free economy, in which successful efforts have been made to diversify it away from dependence on oil and gas exports.

Two histories are evident regarding the United Arab Emirates. Firstly, the history for thousands of years before the discovery of oil, and secondly, the history of the half century after the oil boom. No nation has changed more and faster than the UAE. It has one of the most amazing rags-to-riches evolutions the world has ever witnessed. A major transformation has taken place in the country since the discovery of oil in Abu Dhabi in 1959. Since then, the Emirati and their leaders invest in the future of the UAE through intelligent and far-sighted planning. With the growing revenues from oil production a massive construction program began including building schools, housing, hospitals and roads, and it still continuous to the present time.

Chapter 2.2, The UAE Construction Industry:

The business dictionary defines the construction industry as a ‘Sector of national economy engaged in preparation of land and construction, alteration, and repair of buildings, structures, and other real property.” Today, the fast growing construction industry in the UAE is an integral part of the country’s economy. The sector is experiencing steady growth on account of urbanization, economic development and people's rising need for improved quality of living. In general, the country’s construction sector segments can be roughly categorized into real estate (e.g. housing, industrial parks, plants, office, malls, hotels) and infrastructure (e.g. roads, rail, bridges, airports, hospitals, schools, universities).

The construction industry contribution to the country’s GDP has essentially grown during the past few years. The sector managed double-digit growth despite the adverse economic conditions. In 2007, construction is the fourth largest economic activity after oil, manufacturing and trade, constituting about 8 percent of overall GDP. With government’s commitment to diversify its economy away from dependence on oil, the construction sector attracts huge amounts of investments. Government investment in major infrastructure projects accounts for nearly Dh21.2 billion - in roads, ports, airports, water and electricity, government housing, schools, hospitals and healthcare centres, which provide a huge boost to the construction industry as a whole.