More local contractors are looking to go global: Local contracting companies are turning towards private sector investments — both local and foreign — and are also eyeing ventures abroad as the government is scaling back on construction projects to preserve its FX buffers and adhere to the IMF guidelines.

There are a lot of challenges restricting Egyptian contractors’ success abroad, most of which are due to local companies being accustomed to local standards in the sector, Mohamed Sami Saad, head of the Egyptian Federation for Construction and Building Contractors (EFCBC), told Enterprise. Saad emphasized the importance of adopting new regulatory standards that align with the International Federation of Consulting Engineers (FIDIC). Efforts in that direction will make Egyptian contractors recognized and accepted by international funding institutions, Saad said.

Even locally, the sector still has ways to go: Last week’s Hardhat looked at the construction sector’s calls for updated contract standards to keep up with the industry.

Current state: According to Saad, only 40 companies out of the 23k contractors registered with the EFCBC are currently able to access contracting work abroad.

FIDIC STANDARDS ARE KEY TO TAPPING FOREIGN MARKETS

FIDIC will open the doors for large-scale projects abroad: Adhering to international standards and the FIDIC guidelines is a must for Egyptian contractors that want to tap global markets, Mohamed Abdel Raouf, a member of the EFCBC, told Enterprise. He explained that focusing on meeting local standards only would exclude Egyptian contractors from competing in offshore tenders.

Testing the waters in Libya and Iraq: Internationally-funded projects in Iraq and Libya could be a good start for Egyptian contractors, as they have plenty of low-risk projects such as water stations, wastewater treatment plants, power stations, bridges, and housing projects, Abdel Raouf said.

HOW TO GET THEM USD LETTERS OF GUARANTEE?

Securing USD letters of guarantee remains a challenge: Contractors need to secure USD-denominated letters of guarantee to be eligible for bidding in foreign tenders, which has become increasingly difficult amid lower credit ratings of local banks, Mamdouh Morshedy, a member of the EFCBC, told Enterprise.

A Saudi company to handle the letters? The EFCBC has reached an agreement with Saudi officials that will see a Saudi company issue the needed letters of guarantee for Egyptian contractors; in exchange, the latter will be responsible for providing the equipment and building materials needed for the project, Saad told us. The EFCBC plans to implement the same model in other Arab countries to facilitate the entry of Egyptian contractors, he added.

Having more offshore branches of Egyptian banks would make it easier to issue letters of guarantee, EFCBC board member Shams El Din Youssef told Enterprise, noting that there’s only a limited number of recently-established branches of Egyptian banks abroad.

OPENING OFFSHORE BRANCHES + GOING THE REAL DEVELOPER’S PATH

Different standards, same contractors: Contractors that are used to large-scale projects here

at home won’t qualify to take on projects of the same size abroad, as they would be classified in a lower grade by global standards due to FX rate difference, Saad explained. (Expensive megaprojects executed in Egypt would be considered cheaper when their value is measured against USD).

A work-around: Per discussions with Saudi officials, it was agreed that contractors should opt for establishing offshore branches, rather than creating new standalone companies to operate abroad, Saad said. The proposed solution would allow contractors to bid for projects of the same scale they executed at home and put them on track to eventually establish an independent company, after an enough number of projects are executed abroad. The same formula is planned to be implemented in other countries in the region.

Upscaling the craft to real estate development vis-à-vis contracting: If more contractors were able to bid for developing entire projects, such as cities and residential compounds — which would effectively qualify them as real estate developers — rather than signing up for building a single component within such projects, like a bridge, it would accelerate their expansion abroad, Saad said.

The gov’t loves sending real estate developers abroad: The government has shown support for the sector’s expansion abroad by issuing the necessary licenses and permits and addressing obstacles. This shift could bring bn of USD to Egypt, Saad told us. A lot of contractors would qualify to work as real estate developers, Saad said, citing government officials.

WHAT MAKES AFRICA SPECIAL?

The way to tap projects in Africa: While Africa is booming with construction projects, Egypt’s lack of a sufficient number of representative offices that inform Egyptian contractors about ongoing tenders hinders Egypt from tapping into that sea of projects, Morshedy told us. The government should also develop a strategy for providing contractors with the necessary data about such projects, he added.

A tight race: Turkey, China, and Israel are highly competitive when it comes to the construction sector in Africa, Morshedy said.

EU-FUNDED PROJECTS ALSO ON THE LIST-

An upcoming meeting with the EU Commission will take place in June, where the EFCBC will discuss how to facilitate Egyptian contractors’ access to EU Commission-funded projects, after the latter had standardized funding requirements across the EU banks, according to Saad.

Your top infrastructure stories for the week:

  • A new wind farm inaugurated: The Electricity Ministry yesterday inaugurated a 252-MW wind farm in the Gulf of Suez, which is set to power some 1.08 mn residential units and reduce 2.4 mn tons of CO2.
  • Pharma warehouses in the pipeline: The government wants to invest EGP 8 bn to set up six strategic warehouses for pharma and med supplies across six governorates.
  • A pipeline for petroleum products: State-owned oil and gas contractor Petrojet has completed more than half of the construction of a new EGP 1.7 bn fuel transport line that will connect the Middle East Oil Refining Company to Al Hamra terminal.
  • Health Ministry to work with private sector to set up ten hospitals over two years: The Health Ministry is in talks with local and foreign private players to to build ten hospitals across ten of the country’s governorates within the next 24 months.
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