Dynamic capabilities in KuwaitJune 26, 2018
Aysha Budastour, chairman of Kuwait Bruckner Construction Contracting Company (KBC), talks to TOGY about the government’s increased interest in public-private partnership (PPP) projects and the need for Kuwait and foreign companies to extend a hand to local SMEs. KBC specialises in feasibility studies and plans and constructs its own foundation and tunnel works.
• On the local advantage: “There is a huge budget for the Silk City and Warbah and Failaka Islands projects, and I would prefer local companies were engaged for these projects rather than only depending on foreign, low-cost contractors. These companies might be excellent in their respective countries but when they are in a foreign country, they lack the local know-how and understanding of the government.”
• On rented labour: “There needs to be greater oversight to reward those that use their labour force as opposed to renting them out – a practice that has run rampant in recent years and caused an oversupply of expensive and illegal labour.”
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What are your thoughts on the government looking for more private-sector participation in infrastructure projects?
I am happy to see the private sector involved. The private sector’s mentality in running a business is more dynamic. As contractors, we need prompt decision making, clear plans and execution of those plans. In the private sector, when dealing with a very big organisation, a consortium of many contractors or just one contractor, I do not have to go through government bureaucracy. Sometimes there are delays due to the need for government approval, but the private sector is more efficient when it comes to getting work done, getting paid and moving on to the next stage.
Are PPP projects in Kuwait more efficient than public-sector projects?
Some are managed better, and others are not as professional as I would have thought. It depends on which player enters the market. We are currently working with a large, foreign company that is simply not efficient compared to some local players.
There is a huge budget for the Silk City and Warbah and Failaka Islands projects, and I would prefer local companies were engaged for these projects rather than only depending on foreign, low-cost contractors. These companies might be excellent in their respective countries but when they are in a foreign country, they lack the local know-how and understanding of the government.
This requires more time, because they have to learn and adjust to the atmosphere and bureaucracy. Another issue is the fact that when I work with a German, Japanese or Korean company, their management who are here are the decision makers. When I work with a Chinese company, the decision makers are normally in China. When you deal with them, even small things have to be sent back to China for approval. It is not like the European or Japanese mentality, where the local team has the power to decide. It is important that all foreign contractors place decision makers in the countries they choose to do business in.
If the government allows international companies to participate in PPPs, they should oblige the main contractor to spend 75% on local content, otherwise many companies here will go bankrupt. The backbone of any country is its SMEs. They should introduce laws to protect SMEs, otherwise SMEs will suffer and it will be bad for the economy.
The construction of Silk City requires infrastructure, roads, power stations, electricity and sewage-treatment pipelines, which local Kuwaiti companies have the capacity to build. Urban design planning might be the only thing that has to be matched to Kuwaiti culture. Foreign companies could have a share of extreme engineering projects for motorways or buildings, but the rest can and should be done with local companies.
What kinds of reforms would make Kuwait’s engineering and construction market more appealing?
We have huge pieces of equipment and no place to store them. For instance, if there is no job and we rent a place for storage, we are suddenly not allowed to store the equipment because the area has received a new commercial designation that forces all incumbent renters to find new plots that comply with the new law. All this is being done without the government providing alternatives to the affected sectors. In the future, I hope that areas are designated for contractors to have their workshops and for storage facilities.
We need large areas of land. We are now at the mercy of big companies who receive land on yearly lease hold agreements for fractions of the prices they charge us. This has to be looked into.
Additionally, our workforce is improving, and main contractors are hiring local talent. There are still some main contractors who, if they do not click with a local business, have to deal with the challenge of bringing in manpower and the cycle of paperwork that entails. To be fair, the Ministry of Social Affairs and Labour has made things easier with online registration. Submitting papers online is making things more efficient.
However, there needs to be greater oversight to reward those that use their labour force as opposed to renting them out – a practice that has run rampant in recent years and caused an oversupply of expensive and illegal labour.
The Ministry of Social Affairs and Labour could also determine the amount of manpower needed for each company more accurately by studying their mandates. Depending on the activity of the company and turnover, some companies such as ourselves are manpower-driven while others such as consultants and designers are technology and IT-driven. Irrespective of similar contract values, such businesses have extremely different manpower needs.
Is there something the private sector can do to kick-start these changes?
At the end of the day, we all have to put our heads together because we are not working against each other but together as a team. We are building this country. We have the interests of the country in mind. If the country is moving up, we are moving up with it.
Local companies should not be ignored. We have the know-how, the manpower and the equipment to execute the vast majority of projects. An international company should only be brought in for special projects that local companies lack the expertise to execute.
What are some of your company’s highlights from this past year?
In 2017, around 25-28% of our work came from the oil and gas sector. We were invited by some companies to bid, and I believe there will be a lot of upcoming work that we will be a part of. We achieved and even exceeded all of our milestones in 2017. It was an excellent year. Looking at the first quarter of 2018, we are also on track with our plan. We locked the projects we wanted and started executing them.
What are your plans for 2018 and 2019?
Our work will mainly be in infrastructure, roads and motorways. We are getting two mega-projects, and we are in negotiations for a third and fourth project. These jobs will be in our pipeline until 2020. There are also some expansions projects in the oil and gas sector that we expect to execute foundations for.
We also do not neglect the private sector, because we have a strategic share in the private sector. We always keep part of our fleet ready for the private sector because we have very big projects in that area. We have clients that we do not want to turn down just because we are busy with big jobs. In this respect, we try to maintain our share of the private market as well.
Is Kuwait Bruckner looking to move into other fields?
We are identifying segments. We, as Kuwait Bruckner, hope to expand into the industrial field by establishing a factory. We are also establishing a separate business in dairy products.
The industrial factory will be very specialised, providing a good platform for knowledge transfer. We signed a JV with a German company because of their quality, and we are waiting on the industrial authority for final approvals. With that being said, our current business is going well and the market is growing.
Does it seem as if prices are dropping?
Yes. I was discussing this with some main contractors. The local, private companies target quality and time. If my price is higher, they still give me the job. That is how the private sector is more dynamic. Private Kuwaiti companies have the full setup: co-ordination for government approvals and getting everything from start to delivery from the Ministry of Electricity & Water, Environment Public Authority, Ministry of Communications and Ministry of Public Works.
The big private-sector companies in Kuwait know all of these things. When we work with them, we can see how efficient they are. They make our lives easy as well as guaranteeing us our money. When we work with foreign companies, our money is not always guaranteed. That is the very real risk of the government going through privatisation and development with foreign, low-cost companies. In general, major players will look real at who is the cheapest or who is the best, depending on where they are from.
Everyone is looking at price because they want to make money. But people also want those who deliver with quality. Some foreign companies know us, and they work with us because they can save money as the project progresses due to our experience and expertise in solving ad hoc problems while executing the contract. Time is money. We use this concept to help justify the supposed higher initial cost of working with a company like our own.
How have you remained competitive in this market?
We try our best to upgrade our plant with the highest available technology in our trade by obtaining the best fleet, training our staff to execute well and bring our engineers to the highest standards of quality through constant oversight and guidance.
This “top-down, bottom-up” approach is only possible at our SME size, and we use this concept to our advantage by leaning on our dynamic capabilities.
You mentioned in 2017 that you were looking into Iraq. How has that plan progressed?
We are still looking into that. The logistics of going from one country to another are difficult. We see how it is not easy for major players around the world who come to Kuwait for the first time. The job has to be really big; otherwise, it is not worth it. We are waiting now for the budget allocated to rebuild Iraq, and I hope we will have a share of it. We would go for a fairly large project, but we do not anticipate going for a small one.
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