Stepping up to the mark

Just as the world stage is now welcoming the fast emerging economies of China, Russia, Brazil to compete with developed markets of the West, so the Gulf region is seeing its own microcosmic developing economies surging onto the scene. Having for years been the dominant power of the construction development market, the UAE has slowed of late due to speculative over investment and a hit from the global financial crisis. And as investors take their eyes off such major markets in the construction sector, the opportunities arise for emerging destinations to establish themselves as the next lucrative frontier for the region’s industry players.

Syria is one such nation, taking the relative lull in the Gulf's construction market as a foothold to leverage growth. In October 2010, the government of Syria announced plans to invest US$10.36 billion in new developments, in order to complete a five-year strategic growth plan. Turning its attention to all sectors - residential, retail, tourism, office space, infrastructure and energy - the government is pushing for a boost to the nation's economy and looking to attract foreign investment. And indeed, with the likes of Majid Al Futtaim Group, Qatari Diar and Saudi Binladin Group winning contracts in the country, the mixed-use developments, which have become so prevalent in the Gulf region, are beginning to spring up.  

The Emirates' Majid Al Futtaim Group is currently working on its Khams Shamat development, a shopping mall and office complex worth a reported US$817 million. The largest mall in the region, this project, once completed, will include over 200,000 square metres of commercial space and play host to brands such as Carrefour, the world's second largest retail firm. "We are constantly innovating the concept of what we call a shopping resort destination, which appeals to local residents as well as tourists," CEO Peter Walichnowski said in a statement. "With its easily accessible location in the Khams Shamat project on the Beirut-Damascaus highway and the extensive offerings that will be in it, we will be anchoring this tourism project with one of the most advanced retail concepts in the region and a great attraction to this location for people from both within and from the outside of Syria as well."

Bullish though the statement may be, MAF's development is one of many serving to bolster the economic landscape of one of the region's least developed states. With a per capita GDP of US$4600, its wealth relative to its regional neighbours' is very modest, higher only than Iraq, Yemen and Afghanistan.

Likewise, as investment from major international firms provides a boost for Syria's economy, so does the progressive Syrian market provide strong long-term growth opportunities for those firms themselves. "Markets like Syria have the potential to become big markets for Arabtec as they open up and develop," explains Arabtec's CFO Ziad Makhzoumi. "Markets like Syria want to grow quickly and have the resources to provide very attractive opportunities."  Indeed, though the country has an economy of similar size to Iraq's, it is not hampered by the same infrastructure woes; in addition the region's major airlines have increased their routes to Syria and Qatari state-owned Qatar Electricity and Water Company has pushed an estimated US$1 billion into new utilities plants. Furthermore, the investment landscape is more open and transparent enough to welcome foreign investment. March 2010 saw the announcement of an economic zone, to be conceived, developed and overseen by the Syrian Finance House. According to the Gulf Finance House's Chairman, "The Syrian authorities have embarked on cross-governmental reforms to create an open business environment, laying out strong commercial and legal frameworks that have attracted foreign direct investment and witnessed considerable growth in the Syrian economy."

Opportunities

"Contracting is opportunistic," explains Makhzoumi, "so a new market opening up that wants to attract foreign money usually opens up with the tourism sector, for it is the most obvious. Travel to Syria is easy and Syria has so much history and so much to offer such as beaches and places to visit." Already a market showing positive signs, some six million visitors set foot on Syrian soil in 2009. Now being fed by the increased air traffic into the country and the luxury developments such as Arabtec's US$120 million luxury project in Damascus, the government aims to have that figure doubled by 2012. And according to Makhzoumi this is a market that can achieve a sustainable level of growth. "The tourism sector employs local people that do not need a high degree of skill and can be easily trained and therefore it is an attractive sector to develop first."

Makhzoumi believes that this marks a trend that will stay for the long-term, complemented by the large-scale mixed-used projects that are already under way in Syria, and those that the region's leading contractors are looking to embark on in the coming years. Speaking about how he envisages the US$10.3 billion government investment will alter Syria's development landscape in the long-term, he says, "More tourism sector projects and infrastructure projects to support the bigger commercial and residential developments that will happen in the medium term. Syria is also developing the industrial sector so related projects will also be developed."

He adds that the coming years and the government investment will also most likely alter the regulatory landscape, making the regulations more attractive to encourage further foreign investment in the country. Currently, he says, this is the primary challenge to operating in Syria. "There are various challenges but they are mainly regulatory and logistical, with new rules introduced continuously which in the long-run will be beneficial but are not necessarily clear in the beginning. Any investor must be able to do their homework well and understand the cultural way of doing things."

And for Syria, this will be imperative if the country is to achieve the economic growth levels necessary to make it a competitive destination relative to its regional neighbours. Certainly the US$10.3 billion government funding will go a long way to improve development in the country, but in order to fulfil the requirements for rail, roads, airports, power generation, hotel capacity and housing, private investment from across the region - and indeed the world - must be able to come in. The four percent economic growth for 2010 indicated by the World Bank is just the beginning.

"The private sector has to be involved in the investment programme if the country is to open up and compete with other markets. The private sector always brings a commercial angle to the projects, and public private partnerships (PPPs) work better and reduce the resources supplied by the government," Makhzoumi says. "We are already witnessing that in some of the deals that we have reviewed, where land is offered by the government on a long lease to a developer to build commercial or residential income producing projects whose funding is not arranged through the government but by the private partner. Both parties reduce their initial capital requirements and benefit more in the long run."

As Syria looks to develop in the new year, investment from such major firms as Arabtec and MAF is just as significant for the developing nation as it is for the firms themselves. "Arabtec would bring a wealth of experience gained over 35 successful years of working in the construction sector in various countries that went through the learning curve that Syria is going through now," explains Makhzoumi, highlighting that the opportunities presented by a move into Syria are mutually beneficial for the nation's economy and those firms in question. On the other hand, he adds, "Syria is a country with great potential that has a high level of skilled educated people and the will to open up and compete with other markets in the region. They did not suffer like other countries did from the recent economic crisis and now can develop projects that are well thought of, better planned and more efficiently executed."

New investments for the new year

For the Syrian government, 2011 was welcomed alongside the announcement of a US$794 million investment in developing the country's marine transport sector. The first major investment outlined as part of the US$10.36 billion five-year growth plan, this figure represents a four-fold increase in marine transport expenditure on the previous five years. Minister of Transport Yarub Badr announced that the government's five-year growth plan "underlined that strategic importance of Tartous Port in Syria." A comprehensive development of marine transport is essential to improving the country's trade capacity, which in turn will pay dividends to boosting Syria's economy.

Likewise, the luxury hospitality industry is set to see a further boost in 2011, as interior design contractor Depa - the firm responsible for fitting out the Burj Khalifa - wins a US$19.6 million contract for the 338-room Yasmeen Rotana Hotel in Damascus. As well as the guest rooms, Depa will be responsible for decorating the public areas including the main lobby and restaurants, with work expected to be completed by Q1 2012.