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.
Michael Wuebbens is Managing Director of Huta Group, one of the largest marine construction firms in Saudi Arabia. He joined the company in 1981. Mr Wuebbens holds an civil engineering degree form the University of Aachen in Germany.
Interview with Michael Wuebbens, Managing Director of Huta Group
What is your overall assessment of the construction and contracting sector in Saudi Arabia? We have witnessed a drop in oil prices which in the 80s meant that projects were cancelled. Are we seeing a similar situation now? What is the outlook for the construction sector?
Well it is too early to draw any conclusions regarding the oil prices because this is a very recent development and most projects, plans and programs that are implemented today are still ongoing as usual and are not affected by this development. Whether it will have an effect is still to be seen. For the time being, there is no obvious effect.
I think that with the change of administration in Saudi Arabia we will see a number of new initiatives being launched which will probably compensate for any eventual drop in construction activity. This is not the first economic cycle that I have seen. In general Saudi Arabia has sufficient reserves to balance ups and downs in the economy without them having a major impact.
What do you think about the new administration? Now that King Salman is on the throne, what does it mean for the construction industry in general? This year we shall see a ten year plan being announced which will allocate spending for different sectors of the economy, what is your opinion?
It is not up to me to give an opinion about the new administration but in general, experience shows that new administrations come with new ideas and concepts; they create new projects and have a new focus. In principal it should always have a positive impact. It gives new momentum to a lot of things that were not moving ahead before. I think that in general it will have a positive impact and I am not worried about the near future.
Given all of these micro factors we have just mentioned, how do you adjust your strategy for 2015 and beyond?
In our particular field of contracting which is related to infrastructure works, marine infrastructure etc. we don’t see a need for a major change of strategy. Saudi Arabia has a coast line of several thousand miles and the major infrastructure installations are located on the coast or are marine related and that is why we don’t see that there is any reason to change our strategy. If you think of the projects to enhance the power supply installations, all industries which are related to oil are near the sea or have marine installations. This will obviously put us in a strong position not only in the future but also today. We don’t see any reason to change our strategy.
What is the current number of projects under construction that the group has undergoing and what is the outlook?
We have an order book today of about 6 or 7 billion Saudi riyals. This will keep us busy far beyond 2015 and even 2016. We have just invested in new major marine equipment such as a new dredger which shows that we are optimistic and confident that we will find work for this new equipment and we do indeed have work for these units. We see that the region in general has a lot of potential and this is not going to change, irrespective of recent oil price changes which I think are affecting other countries a lot more.
Can you tell us about some of your key projects?
Our key projects are port construction projects and power plant projects. We have projects to do with the marine side of power plants. At the moment this is our focus.
We are constructing a new international sea port here now, 100km north of Jeddah, which is supposed to be one of the biggest in the region, if not the biggest.
This is a major infrastructure project. We are involved in practically all major power plant projects in the Red Sea and also the Gulf. We are working for the Sea Port Authority, which is one of our major clients as the owner and developer of port facilities. The new port that I mentioned is a private port, not a public one. These are our major projects that we are working on; they are all very large installations.
What are some of the challenges? Do you feel that there is a lot of competition in Saudi Arabia or is it more about securing sufficient people and resources?
It is both I would say. Certainly, Saudi Arabia is an open market. We are facing competition from all over the world here. There is a certain entry barrier due to visa and other restrictions but companies overcome that barrier and we face competition from Asia in particular, mostly from Chinese and Korean companies. We have to cope with that. We operate here as a local company; we are a Saudi company and we have to deal with that competition. Some of these competitors have political support, especially the Chinese. Which is not always very pleasant, but we can deal with it.
You mentioned personnel and resources; the construction sector in general is relying a lot on foreign personnel because it is difficult to get Saudi personnel in our sector. Obviously we have to deal with this issue because recruiting non-Saudi personnel is more difficult than it used to be. I don’t want to call it a problem but to mobilise the necessary resources can sometimes be a challenge.
At the same time, it is our particular advantage if it comes to the competition against non-Saudi companies because we do have the resources and we already have 6 or 7 thousand people here in the country on our payroll working for us which is an advantage that we are trying to benefit from.
When we talked to other people from the construction industry, they said that the government has changed their approach and are not necessarily going for the cheapest options as they did in the past but that they are looking at track records and quality. Do you feel that there is a change of heart in the tendering process? Or does price still remain the number one factor?
I think that price is the number one factor. There are rare occasions where the price is not the decisive factor in public contracts because the government procurement law is restricting the options and the award of such projects. The private sector, we could say, is more liberal in the way that they award projects and make decisions. The public sector is very much controlled by price considerations at any level, in any ministry or department. I don’t see that there is a change of attitude or policy.
Tell us a bit about Huta Group and about the different subsidiaries?
Huta Group is a group of companies; the core company is Huta Marine which is engaged in marine construction and installations, dredging and reclamation works, port and jetty construction.
There is Huta Hegerfeld which is a civil contractor. We have a subsidiary called Huta Foundation which is specialised in deep foundation work. There is Saudi Cranes that provide heavy lift and crane services in the market to third parties, not just to Huta. We have an environmental engineering company called Huta Environment which provides environmental engineering works, engineering studies and environmental studies for third parties. These are our main activities. Additionally we have a portfolio of investments in the industrial and port sector which is pure investing activity.
The group has in total some 6 or 7 thousand employees. We have a yearly consolidated turnover from all of the group companies in the order of 3.5 to 4 billion riyals.
Due to the nature of our equipment, we have a very significant fixed asset base because in our marine business we are running more than a hundred marine construction vessels. These are big vessels; we are the largest marine contractor in Saudi Arabia, we have some of the largest cutter suction dredgers in the world. So far we are probably a little bit atypical from a normal contractor whose asset bases are normally smaller. This is our philosophy; we are creating value ourselves, we are not buying or sub-contracting works, we are doing this with our own resources and so far it works.
Regarding the projects on the Red Sea; comparing the western provinces of Saudi Arabia and the eastern provinces and the projects on going there, can you talk about the projects in the western area in comparison to the rest of the coast and the Persian Gulf?
It seems it is a government policy to focus more on the development of the western provinces now, which was not always the way. There was a lot of focus on the eastern provinces in the past because the oil is there and because major industrial installations are there. We feel that there is now a shift towards the western provinces, which is presented by the establishment of the economic cities in Rabigh and in Jizan which have attracted major investments and industries. Jeddah in itself has always been a big centre and there is railway now under construction between Mecca, Medina and Rabigh.
I feel that there is a re-orientation towards the western region, that doesn’t mean that they are neglecting the eastern region but in our opinion the western region was neglected for a while and it is now back on the radar. That is a good development because the Red Sea is on the major trade routes of the world. If you go from Europe to Asia you have to pass by the Red Sea. It is natural to be present there and established there from a national economic point of view.
You mentioned the Asian contractors, is your strategy going to be based purely in Saudi Arabia or do you have international ambitions?
Our ambitions and strategy are primarily in Saudi Arabia. We do work in neighbouring gulf countries occasionally but it is not a main market for us. The Saudi Arabian market gives us so many opportunities that we don’t see any need or reason to go beyond.
Thus demand for your services is not an issue for you?
Not for the time being.
Do you see this changing in the future?
I cannot look into a crystal ball, things may change but Saudi Arabia is a huge country; it is the biggest economy between Asia and Europe by far. So I don’t see a change in the medium term. I cannot see any other country or place that can offer similar opportunities.
When it comes to doing business, how do you find doing business in Saudi Arabia? I presume you have worked in other countries, how does it compare? What are the specific challenges or advantages?
This is a very general question and it is a difficult question to answer. What is the difference between Saudi Arabia and the Far East? Or what is the difference between Saudi Arabia and Egypt or Europe? Each country and each region has its own particulars. I don’t want to make a comparison because when you do that you tend to qualify and that is something which in my opinion can never be fair because each area has its own characteristics based on the specifics of that area, historical development and social development etc. You simply cannot compare. Singapore for example has its own attractions and its own disadvantages and Saudi Arabia has its own specific positive elements and maybe also some negative elements. To compare them is in my opinion irrelevant because it is meaningless. I have to deal with the challenges here as I would have to do so in the UK or in Germany. I have to take them as they are.
Of course, the community here, in the Middle East in general, is very much focused on individuals and on individual relations. That may make this region different in comparison to many other regions. The relationship between business and the entire public community and the way people interact here is very much depending on the relationships between individuals much more so than in other places where you have public life that is governed by law and regulations whilst here it is more governed by the relationship between individuals. This is sometimes positive and sometimes negative. You cannot change it and I don’t feel a need to change it, it is just something you need to consider when here and when doing business here.
To give you an answer to what is the difference between here and other places, I think that this is the case here and that is not to say that there isn’t a similar situation in other countries but I think that it is a particular factor that you have to consider in Saudi Arabia and perhaps in the Middle East in general.
What do you like about doing business and being in Saudi Arabia?
I am a civil engineer, and the target or objective for civil engineers is to create something, to build and construct something or to develop something. If this is your target then Saudi Arabia is a dream because there is a lot of space and room to develop and implement construction projects and to implement new ideas much more so than in many other countries. This is a very interesting and challenging situation for me and that is probably one of the reasons why I have been here for so long.