UAE contractors face payment delays, says China State Construction CEO

China State Construction Engineering Corporation-Middle East (CSCME), which has helped build the Palm Jumeirah Garden Home Villas in the United Arab Emirates, says Dubai— its home in the region— has handled the slowdown in the sector reasonably well. Argaam recently spoke with Yu Tao, president and CEO of the company, about the contracting sector’s struggles with tighter cash-flow, delayed payments, and stalled projects.

Q: Do you expect the slowdown in the UAE construction sector to change in the near future?

A: I think Dubai is handling this slowdown better than other places. In Dubai, there are players from both public and private sectors. And the private sector was not really affected so much. So, the situation is not very bad.

However, the profit margin for the contractor is very low. The cash flow is very tight.

Q: What does lower liquidity with banks and a slowdown in government expenditure on projects mean for contractors?

A: If the government is going to reduce expenditure in the construction sector, the contractor will probably have fewer choices, and the competition will become even fiercer and tenser. The profit margin will tend to drop again. Of course, that will not be good news. 

Q: What has been the effect of delayed payments on the contracting sector?

A: I think it has become a very common problem in the industry. And it’s certainly is causing damage for everybody. The whole industry is very tight in terms of finance, in terms of their funds. The clients are paying very slowly. The process of certification is very long. With a single digit profit margin, we are handling so many challenges.

Q: How will late payments affect future contracts?

A: This will certainly affect the morale of the contractors. They will become even more careful. I don’t think the current situation is going to be constructive. It’s unhealthy. And we have to have a change.

Q: What is the current payment cycle in the UAE?

A: On an average, I think we are getting the payment back in something like 100 to 120 days, which is a pretty long circle. In my experience, in order for the contractor to survive, 30 to 45 day payment is something reasonable. Going beyond is going to be very tough.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com