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Saudi Arabia Report
Marcopolis presents the Saudi Arabia Report focused on the investments, doing business, economy and other topics featuring interviews with key executives. The sectors under review in this issue are industry, real-estate, ICT, investments, banking sector, telecom sector and many more.
InterviewsMay 05, 2015
Contracting in Saudi Arabia: Housing Projects a Priority
Samir Kreidie, Managing Director of Rabya
- Written by Peter Matay
- Published: May 05, 2015
Kreidie is managing director of the Rabya Trading & Agriculture Company. He is the founder of the Inma Foundation, which helps provide humanitarian support to impoverished people in Lebanon. He is also a director at Development Foundation International, an organisation which strives to increase American participation in Lebanese humanitarian efforts.
Interview with Samir Kreidie, Managing Director of Rabya
From your website, I have gathered that you are mostly involved in contracting, landscaping, construction. Can you tell us a little bit about the activities of your company?
Rabya was established in 1974 by Sheikh Abdul Kader Alfadl. At the beginning, the goal of the company was to only do landscaping. At that time, the Arabic concept of landscaping was only ‘pure greenery’. The American consultants like Parsons, Vector and Corporate Engineer came in in 1976/77, the word landscaping came to be associated with every construction activity done outside the house. It means we had to do pools, pathways, electrical connections etc. So, we started recruiting general specialists in tiling, in electrical and mechanical fields. In 1979, we found that we can do any type of general construction because we had all the required skills. Therefore in 1980, we started general contracting. So from landscaping we turned to general constructing. In 1984, we also decided to move to infrastructure, which is a special field by itself. So, we have 3 main divisions – landscaping, general contracting and infrastructure. In 1988, we started our electro-mechanical department. So, we now have a full package – from general construction, to infrastructure to electro-mechanical and landscaping.
I have a few statistics, which states positive things about the construction industry. There are a lot of young people looking for housing in the future and the government is engaged in a lot of major infrastructure projects, major airport and highway constructions. What is your opinion on the outlook of the entire construction sector? Is it positive or optimistic? Or is there a negative trend as a result of the current oil prices and some cutbacks in public funding?
Well, I have followed the development of Saudi Arabia since 1974, when the company was formed. Since that time, we have constantly been facing challenges in terms of growth throughout the entire kingdom. Therefore, Rabya had to constantly keep abreast with the developments. Recently, a lot of importance is placed on housing projects. King Abdullah has allocated a lot of money to provide a house to every citizen in Saudi. At the beginning, the idea was to just provide the people with a house, now the idea is to give the people a site along with the funding to build a house. Therefore, we are involved with one of the projects of the Ministry of Housing, which is Prince Fawwaz’s project in South of Jeddah. This is in an area of around 2.5 million square meters. We are involved in the infrastructure. We are expecting to finish this in one year. Within a year, we will have individual plots for at least 4000 to 5000 people. In addition to this, we are involved in other constructions.
Of course, we, the local contractors, are facing problems to meet the requirements of these big developments. We have to constantly improve ourselves, constantly upgrade our management and hire more people to meet the huge developmental requirements of Saudi Arabia.
The oil drop is serious, of course, nobody can deny. But the government is assuring us that they have a lot of reserves. So, they want to continue with the projects that they have started. So, based on this assurance, we are still continuing with our work in order to fulfil the demands that are way beyond the capabilities of the local contractors. This is why, there are times when we use the expertise of specialized international contractors.
2015 marks a very important event, the outline of the 10th National Plan. This will then specify the amount spent in different sectors. Can you comment on this? What do you expect of this and how is this going to affect your business?
Our knowledge is based on the government budget. As you know, the budget is even larger than what it was last year. In fact, it is the biggest in the history of Saudi Arabia. Hopefully, if they meet the obligations of this budget, every contractor in Saudi will be very busy. In the last 10 years, the government has always been paying on time. They have never ever delayed payment to any contractor. Sometimes it is actually the contractor who is not paying to the sub-contractor, but the government is fulfilling its promise. So, I am optimistic that this budget will be successful. What happens after that remains to be seen. I don’t know about the next budget based on the oil-price drop.
In the view of all these developments, how are strategizing moves in your own company?
In the last 10 years, we have increased the strength of our manpower by 30% and we have enhanced our equipment, infrastructure etc. So, every year, we have to increase by 20% to 40%. This year, we decided not to increase by 30%, but to withhold a little, meet the requirements at hand, improve our management, consolidate ourselves well, improve our efficiency, so that we are ready to face the next challenge.
So, right now you are basically consolidating your position?
We are now consciously selecting projects, than just accepting mini projects, because we found Rabya has been expanding a little. Now we are improving and we are expecting to finish 50% of the projects at hand by June 2015. From then on, we will start taking on new projects.
Rabya is part of a part of a big conglomerate of companies. Can you tell us a little bit about the group? There is not much information on the internet. Can you speak more about the vision of the Group?
The founder of the Alfadl Group is Sheikh Abdul Kader Alfadl. Now the leader is his son Sheikh Mohammad. We, the Alfadl Group, do not like to advertise too much. That’s why there is not much information about them, not on the internet, not in the media. We are a group of 18 companies, specialized in different forms of general construction to trading, to food industry to banking to transport etc. We have a total of 18,000 employees. We are a very conservative group. I am a part of the Group and the Director of Rabya. We handle our business with great earnestness. We never take on more work than what we can handle. It’s a very big group and a very well established group, especially in the western province of Saudi Arabia.
This especially correlates with your motto “the customer comes first”.
Of course, the most important part of our business is to meet our obligation on time and with high quality. Therefore, in every company in the Alfadl Group, Sheikh Mohammad has introduced a system in place. Firstly, an international organizes the various departments. Secondly, a quality control is in place in every company, every department and every project. This ensures that the work is done properly. There is also a scheduler in every project, which ensures that it will finish on time. So, the most important to Sheikh Mohammad and to the Alfadl Group is that, we never take up any project or any commitment, if we cannot finish it on time and meet the quality requirements.
You have travelled extensively around the world, done business in other places. How does Saudi Arabia compare to other countries when it comes to doing business, getting contracts and general business environment?
In 1990, Rabya started expanding. From Saudi Arabia, we started in Bahrain, in the Emirate, in Qatar, in Egypt and in Lebanon. We started to expand all over the Gulf. But 10 years ago, we found that the boom in Saudi Arabia is so big that we cannot fulfil even 5% of the requirement in the western province. Therefore, we decided to limit ourselves to Saudi Arabia. So, all our offices outside have almost come to a close. Right now, we are only concentrating on Saudi Arabia. More than that, we are concentrating on the western and southern provinces of Saudi Arabia, because the boom here is very big, the projects are huge and it is our land and so we feel that we should concentrate more on this land.
Can you tell us a bit more about the western region?
When I talk about the western and the southern region, I mean Jeddah, Madinah, Najran, Jizan, Abha and so on. We have a good relationship with the municipality. We have completed the seaside projects for them. We were recognized as the best in the Middle East, one from an international company. The Mayor accepted the prize for the best project. Also, for our project in the Middle Corniche, we have been classified by the Cityscape as the third best project with reference to quality and timeliness. We also have a very good relationship with Aramco. We have just finished a very big project for them, the Monument of King Abdullah in KAUST. This is an out of the world monument in terms of quality. I don‘t want to take all the credit for Rabya, because the design is outstanding. It has been done by an Italian group. We were the contractors to execute this. We are very proud of this project. We also boast a good relationship with the Royal Commission for Jubail and Yanbu, but especially in Yanbu, we share a good relationship with the Ministry of Health. We are building around 19 hospitals for them now. These projects are spread across Jeddah, Abha and Al Bahah. We also share a good relationship with King Abdulaziz University. We are doing around one third of the whole university. We are now completing around 16 projects in Rabigh to complete all the work in the campus. We finished 4 contracts in Camille. We also constructed a university in Khlais. We are also carrying out many other projects for them in Jeddah. I hope I didn’t forget any of the other main clients.
Recently, we took up a big cultural project, the Prince Sultan Cultural Center. We are in charge of the infrastructure, the golf course and many other contracts within this project. The Prince Sultan Cultural Center is the most prestigious project in the Middle East. I believe that it will have very high quality. This is a project built in memory of the late Prince Sultan. This idea was conceptualized by Prince Khaled AL-Faisal together with Sheikh Mohammad and many business people. Around 14 business groups in Jeddah decided to carry out a colossal project in the airport, in an area of 2.5 million square meters, with a cultural center in the middle. This will be the biggest cultural center, where people Haj pilgrims can learn about Islam and about the formation of Saudi Arabia. There is also going to be an exhibition center and a big library. It is going to be a very refined place and very healthy and wealthy in material and substance for all Saudis and all foreigners to understand Saudi Arabia. There is also a very big medical center, a big university, two schools, a commercial center, housing projects and a beautiful lake with a golf course. It is actually a very small city. Sheikh Mohammad and the rest decided that it will be a 7 star unit. Every single item has been selected with greatest care. Every single university or medical center offers the highest quality possible. We are proud to be one of the pioneers involved in the construction of this project. I do not have an estimation of the cost once everything is built. But it will definitely be over 100 billion Riyals.
That’s quite a big project. We know that as a private company, you are not allowed to disclose any financial growth figures, but what is your outlook for 2015 and beyond? Do you think the company will be very profitable? And this is in line with illustrating how the companies are doing in this environment.
We mainly work with the government. The government is very competitive. I remember that in the 70s, our profit was only 30% of whatever we invested. 25% in the 80s and 15% in the 90s. Now, if we get an average 9% to 10%, we are very content. Since the competition during the bidding is tough, we are very conservative while accepting projects. Since there are so many birds to catch, we try to catch the more attractive birds.
I would say that we are satisfied with just 8% to 9% of general profit as a package.
When is the Cultural Center due to be completed?
The Cultural Center started 6 months ago. It is a private project, not a government one. They rented the land from the IAP, the airport division for a duration of 50 years. I guess that the project will be completed in 5 years.
This question is about doing business. In your opinion, what is an absolute must for every company? What is required to have competitive advantage over other companies in Saudi Arabia? I feel that doing business involves a lot of relational building, a lot of hand-shakings, a lot of person-to-person market rather than pure transactional market.
No, it is not like that. Except for projects that are turned in from hand to hand – those are very prestigious projects that the King himself is interested in – since we are working for the government, the rest are all very competitive. So, it is your price that decide. You should be classified. You should have enough resources to execute it. The question here is ‘how to be competitive’. To be competitive, the most important quality is the ability to motivate the manpower. The efficiency of any project depends on how motivated the manpower is. In order to complete the project with very little spending while providing the quality demanded by the client. In the last 10 years, the government has been very strict as far as quality issues are concerned. They have assigned highly international and local consultants and they are very picky about quality. Therefore we cannot take risks as far and quality and deadline are concerned.
Everybody talks about relationships in business. Yes, it is important in private projects. If you are taking private projects, it is all based on personal/professional relationship, shaking hands, goodwill etc. But with the government projects, it is purely the price that decides.
In the US for example, whether you get a project or not has a lot to do with the kind of marketing you undertake. Basically your reputation. Does this play a role in the Saudi as well?
Since 10 years, the price has only been the deciding factor. The lowest bidder gets to take it if he is classified. Now, the latest rule is that if he does not fulfil the requirements, then the project can go to the second or the third lowest bidder.
Before 10 years, we have experienced 2 or 3 phases since 1974. From 1974 to 1990, it was based on relationships. In the 90s, they said, “no, only the lowest bidder. That’s it!” 5 years ago, they decided to grant it to the lowest bidder, if he fulfills all the requirements without delay etc. If he does not fulfil it, the project may go to the second or the third bidder and the most qualified and of course there will be a negotiation regarding the price again.
So, there were 3 stages. First was personal, second was the lowest bidder and now it is the lowest bidder assuming that the lowest bidder has a good reputation. If he doesn’t, the Ministry has the right to move to the second lowest bidder.
So, if you are a newly established company, you don’t have a chance?
If you are newly established, you are classified. You have to classify yourself. If you are not classified at all, then you can take up 5 million worth of work. I think 5 to 8 million. Don’t quote me on the number exactly. So, let’s say you can take up to 8 million worth of work, if you are not classified. So, you take 5 to 8 million. You take 1 or 2, then they classify you to be number 5. Once you take it a little higher, you jump to number 4 gradually. So, in the government you have to pass the various stages in order to upgrade your classification. We are number 1 in general construction, landscaping and site development. We are number 2 in infrastructure and roads. We are number 3 in electro-mechanical. We have never done marine work, so we are classified as 0 at marine. So, we cannot take up marine work of more than 8 million riyals. But we can take unlimited amount of work in general construction. So, you pass through stages and it is the Ministry of Classification in the government that classifies us.
What are the charities you are involved in? You are involved with many charitable organizations. What do you intend to accomplish through this?
I started charity work 30 years ago. At that time, my country Lebanon was in a civil war. We started a charity foundation called Inma. It was purely to help poor people to teach their children or build their houses. After 3 years we discovered that pure charity is not enough. They have to change as a person, something along the lines of teaching a man to fish rather than give him the fish. So we started a second company to educate the children and enrich their culture. Then we started a third one, building bridges between the East and the West, especially between Islam and the rest of the world. Because I believe that since 30 years there is a clash. The two cultures don’t understand each other. Both don’t know how to interact with each other and they are hurting each other. The Muslim world views the world as one without any religion, which is totally wrong and the West views Islam as a religion of terrorism. Since we are misbehaving with each other our hatred towards each other is increasing and we are hurting each other and in turn encouraging extreme behavior towards each other. That’s why I started a started a foundation 27 years ago, based in Washington.
I then became a member of a family called the National Prayer Breakfast, which is a huge foundation worldwide with hundreds of NGOs that are ready to work. I chose around 40 in the Middle East. I built the infrastructure for them in Beirut so that they can take it forward from there. Even with a minimal budget we can achieve a lot. For example, we organized around 6000 cataract operations in Lebanon and around 2000 in Egypt, 3000 in Syria, 1500 in Yemen. That makes 10,000 operations all together. If I had to pay for them personally, each operation would amount to $3000, which is 30 million dollars. But this is not how we function. They come with their equipment and doctors and I only organize the infrastructure for them. So, instead of paying $3000, it will only cost me around $200, around 7% of the cost. We do the same with companies that carry out construction or repair of the houses. We concentrated on Palestinian refugees, building their houses and giving them hope. Why I chose to bridge this gap is because if you take the case of this Palestinian refugee, who is angry with the whole world, suddenly he finds this beautiful American lady giving sight to his mother. This proves to him that the West is not the devil anymore. He can relate to it and when the doctor sees the Palestinian refugees in their dire state, he tends to speak about them there. The same goes with housing, pest control etc.. Inma became a hub for 42 international NGOs in the Middle East. It is not the Inma that is doing this work. Inma is only managing things. We became the management for a lot of NGOs. This encouraged me to start more NGOs, one of them being conservation of the nature in Lebanon, forestry, trees etc.. So, I open NGOs based on my contacts and my organizational skills. Right now, I can say that I have 8 NGOs functioning well and I am member of 19 international NGOs as well.
