What now for the rental market in the Middle East?

By Murray Pollok28 September 2010

Aramco’s Khurais refinery in Saudi Arabia. The country is investing billions of dollars on new oil a

Aramco’s Khurais refinery in Saudi Arabia. The country is investing billions of dollars on new oil and gas projects as well as new infrastructure.

For years the massive Burj Dubai skyscraper has embodied the scale and ambition of the building boom in the Middle East. However, the completion of the 206-story tower in early January has ushered in a new, more austere phase in the Middle East story.

"It will never get back to where it was, with property prices at such high levels and so on," says Tony Nobbs, managing director of Dubai-based Al Laith, one of the region's largest scaffolding contractors and rental companies.

Al Laith was one of the many rental companies that benefitted from the Dubai boom when it was at its height. The company used the boom to develop beyond its scaffolding roots to offer a rental service that encompassed powered access, mast climbers, event rentals and general plant hire.

"Plant hire has been the hardest hit", says Al Laith's rental division director, Tim Richards, "Where customers tend to be contractors on smaller contracts. It has now come back a bit - we hadn't rented a concrete mixer for 3 months."

Even so, Mr Nobbs says the company's turnover remained steady last year and he expects sales to improve slightly in 2010. "Because the business is diversified the company is more secure" he says, "There will be growth, although it is difficult to say how much - rates will still be under pressure. " There are still pockets of work in Dubai, say the two men, but investor confidence needs to grow before recovery can begin.

With business in Dubai now at a much lower level, Al Laith and others are having to look wider afield to keep their equipment busy. "There are some massive projects in Abu Dhabi while Dubai picks itself up", says Mr Richards.

The shift in focus from Dubai to Abu Dhabi is highlighted by the decision by Volvo's dealer in the region, Dubai-based FAMCO (Al Futtaim Auto & Machines), to open its first Volvo Rents store not in Dubai, as originally planned, but in Abu Dhabi.

The new Abu Dhabi store - the first Volvo Rents operation in the Middle East - has a fleet of around 50 medium and large sized machines including articulated haulers, wheeled loaders and excavators. The investment for FAMCO - which is also a dealer for Volvo trucks, Merlo and SDMO - is estimated to be around US$15 million.

Ilkay Fidan, Volvo CE's sales and marketing director for the Middle East, says the new location had been operating for three to four months and has made a good start, quoting for many large projects.

Mr Fidan says all the Middle East countries were impacted by the global slowdown, but says Volvo expects there to be positive growth in 2010. "During the crisis rental went down dramatically [in the Middle East], but now the rental market is starting to improve."

He says that Abu Dhabi, Saudi Arabia and Qatar were all less affected by the slowdown than Dubai, which is why FAMCO switched the start-up location to Abu Dhabi. However, Mr Fidan says FAMCO plans to establish Volvo Rents stories at other UAE locations next year, including one in Dubai.

The aim is eventually for all Middle East countries to have Volvo Rents operations led by local dealers. However, Mr Fidan says the priority areas for the next three years will be the high volume markets of the UAE, Saudi Arabia, Oman and Qatar. These four together account for around 89-90% of all construction equipment sales in the region, he says.

Qatar is certainly rich in promise. Mr Allard Bijlstra, rental manager at Q-Fab, a rental, sales and service business founded in Qatar in 1996, tells IRN; "Because the market in Qatar is not as big as Dubai the collapse of the financial market has not hit us so hard. Dubai just stopped.

"Since the middle of 2009 rental volumes have remained the same as last year but sales have declined", he says, "we have to fight harder for the business."

Mr Bijlstra says that 2010 will be challenging, but there has not been a huge collapse and the country may even see an upturn in sales. He expects there to be fewer private projects, but government is trying to keep the economy running and is investing substantially in sports, education and the oil and gas - Qatar has the second largest oil field in the world.

"The Shell GT plant is the biggest in the world", says Mr Bijlstra. "By the middle of next year 5.5 million barrels a day will be produced of oil and the gas equivalent - that is only 20% less than Saudi. Infrastructure projects are underway, including a new port and some construction."

Q-Fab, which represents a wide range of brands in Qatar, including Wacker Neuson, New Holland, Mitsubishi Forklifts, SDMO, Alimak Hek and UpRight, has a rental fleet of 350 items, to which it has added 130 units alone in the past 18 months.

Mr Bijlstra believes that there is a particular opportunity for low level access equipment. "There are lots of competitors with the bigger machines", he says, "Personal access equipment is a new market to focus on machines that are easy to operate, maintain and lightweight, opens up markets such as the shopping malls, hotels, gas station and events signage." He is planning to spend substantially on the new personal access machines from UpRight and will be increasing his sales force to stand a better chance of getting business in the difficult 2010 market.

Local rental players are one thing, but there has also been an influx of European rental companies into the region. The aerial platform market has been a particularly busy area, with Riwal and Lavendon both with a major presence in the market (Riwal also has a power rental business in the Middle East).

In the general rental market, both the UK's Speedy Hire and Spain's GAM have recently announced joint ventures with Middle East companies. We report on GAM's progress in the box story on this page.

Speedy, meanwhile, has just announced a five year rental contract with Al Futtaim Carillion (AFC). AFC is a joint venture between UK contractor Carillion and United Arab Emirates-based Al Futtaim Group that operates in the Middle East and North Africa.

Speedy says the deal could generate annual rental revenues of £10 million in its first year. The rental company has acquired £4.1 million worth of light equipment and other assets from AFC and will become the contractor's exclusive rental supplier for light plant and equipment in the Middle East and North Africa. The deal follows on from the memorandum of understanding signed by the two companies last July.

The contract will initially cover a number of long-term AFC projects in the United Arab Emirates (UAE) but will eventually extend to other projects in the region.

The UK rental company, which has now invested a total of £8.5 million in equipment for the new venture, says it will also provide "a full range of asset management and logistical services" for AFC.

Steve Corcoran, Speedy's chief executive officer, says the deal underlines the value of its strategy of developing deeper "relationships with leading international contractors and industrial clients and highlights Speedy's rapid progress in becoming an international services business."

The Dubai construction market may never again reach the heights of 2007 and 2008, but Speedy, GAM, Volvo and others are showing that as far as rental is concerned, the Middle East is still just moving off the ground floor.

GAM's progress
in Saudi Arabia

Saudi Arabia is a market that is attracting a lot of attention because of the massive investments in oil and gas as well as residential housing and public infrastructure planned over the coming decade.

Last February Spanish rental company GAM signed a 50/50 joint venture with Saudi Arabian conglomerate Eastern Trading & Conts. Group (ETE). The two have formed GAM Arabia, operating initially in Saudi but with the aim eventually of establishing operations in other Gulf States.

Mr Hassan Balaghi, business development manager with ETE, tells IRN that GAM Arabia starting renting last May from a single location on the main road between Dammam and Jubail, two of the major industrial areas in the country. Around 200 machines are in the start-up fleet, and these comprise heavy earthmoving equipment, aerial platforms (booms and scissors), compressors and generators (up to 375 kVA) and mobile cranes up to 150 t capacity.

Mr Balaghi says utilisation rates for the fleet are currently at around 65%, with equipment located at up to 16 different sites. One of these projects (with 30 machines) is in the country's capital, Riyadh, and it is here that GAM Arabia will open its second depot, probably by May this year.

The operation is being run by locally recruited staff - around 10 mechanics, two engineers and five administration staff - and Mr Balaghi says that a further 10 mechanics are to be recruited as the fleet grows. The fifth consignment of equipment, for an additional 100 machines, is expected in Saudi Arabia by the end of January.

GAM Arabia employs one Spanish mechanic and two others are to be employed soon, and the business is being run by general manager Jose Antonio Aguado. Mr Aguado is employed by the GAM Arabia joint venture but he was previously in charge of GAM's industrial rentals business in Spain.

Mr Balaghi says the Saudi Arabian construction and building market "is still booming, and the budget allocation is more for this year than last year. There are two mega projects coming up that will require investment of over US$20 billion." These are the $11 billion Manifa Oilfield Redevelopment and Jubail Export Refinery projects.

The longer term plans are for GAM Arabia to enter into neighbouring Gulf States. Mr Balaghi says that Qatar and Bahrain - both very close to GAM Arabia's operation in Saudi Arabia - are obvious next targets.

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