Qatar building materials costs to surge
ahead of 2022
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[June 24, 2015]
By Matt Smith
DUBAI (Reuters) - The cost of construction
materials in Qatar is likely to jump as the host nation intensifies
infrastructure building ahead of the 2022 World Cup, and other building
projects could finish late as a result, industry experts say.
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Qatar is set to spend more than $200 billion on the soccer
tournament as part of a 2030 development plan, although tough
contract terms and state bureaucracy have left some contractors in
difficulties.
Corruption allegations at soccer’s governing body FIFA have put
renewed media focus on Qatar, although Qatari officials say they are
confident the 2022 tournament will go ahead as planned.
The high level of construction activity – predominantly in the
capital Doha – is already making it hard for contractors to get
workers and materials to sites.
"The pinch point will likely be in 2017-19 when the construction
work peaks, but the government can take measures to mitigate that,"
said Nick Smith, Partner at engineering consultants Arcadis in
Qatar. He predicted materials inflation would be about 3 percent in
2015.
"This will include early supply chain engagement, standardization of
products and direct procurement of certain items. Qatar is already
pursuing some of these initiatives."
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Materials inflation could surge to 15-20 percent from 2018, said
Steven Humphrey, a director at infrastructure specialists AECOM.
Qatar witnessed a similar phenomenon ahead of hosting the Asian
Games in 2006. Also, construction inflation fluctuates more than
general inflation and small markets such as Qatar are less able to
absorb changes in workload, a report by Arcadis unit EC Harris
states.
"Qatar, like most other Gulf states, has suffered from projects
being delivered late, sometimes over budget and usually because the
scope has changed from what was originally set out," said AECOM's
Humphrey.
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"With a fixed deadline like 2022 these attitudes will not be
permitted. As prices get squeezed, contractors who bid at the
incorrect prices will shy away from doing the projects and move
their resources into more profitable projects."
Qatar will import many of the building materials it needs from
neighboring United Arab Emirates. Doha’s limited port facilities
mean these goods must travel on small barges or via truck through
Saudi Arabia, adding to supply chain pressures.
"Contractors pick and choose what their priorities are, so there’s a
real danger – looking at bids today where they seem very competitive
– that these are projects that may not be able to be delivered on
time," added Humphrey.
Commodity prices have dipped, helping to mollify materials inflation
in the short term, with spot iron ore prices slumping to a near
four-week low last week as slow Chinese steel demand kept steel
futures near their weakest since their 2009 launch.
(Reporting by Matt Smith; Editing by Jon Boyle)
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