Setting up costs slashed for new contracting firms

Entrepreneurs encouraged to set up new construction firms to ease small project bottlenecks

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By  Eudore Chand Published  September 25, 2004

The Dubai Government has cut the costs of setting up a construction company dramatically. The bank guarantee required is down from Dhs1 million to Dhs300 000. It has added just Dhs10 000 to the cost of registering the company in the emirate and getting a contracting licence. “We have done away with the requirement for a Dhs1 million guarantee,” confirmed an official with the department. He went on to explain that the bank guarantee requirement was an inhibiting factor that restricted the entry of entrepreneurs, investors and businessmen into the highly lucrative construction sector. He said that the measure will make it easier for new entrepreneurs to enter the construction sector. The cut has been made with a view to overcoming the tight supply conditions that currently characterise the market. It is common knowledge that there is plenty of work to be had in Dubai. Orders books are full and many industry players believe that some contractors may have taken on jobs that overstretch their resources. There are an estimated 17 000 general contractors in the country, of which Dubai has more than 6000, not counting the specialised contracting firms. UAE contractors have a 346 000-strong labour force. In normal times, this would be sufficient; but the current building spree, second only to the activity in China, is way beyond the norm. It is estimated that Dubai has some US $25 billion dollars worth of ongoing projects, but most of this money is being spent on large projects. Smaller projects are suffering. Industry experts say that it is not relatively profitable nor “worth it” to do a smaller job like that of traditional building or a villa. Delays in smaller projects have become endemic as contractors give them low priority, allocating the majority of their resources to higher profile jobs. However, marketmen feel that liberalising the sector could also open the floodgates to some unethical practices to the market. They fear that many new entrants may have little previous experience and would be attracted just by the glamour of projects like Burj Dubai etc. Industry old-timers say that new players may not know the intricacies, issues and problems of the sector and could find themselves loaded with liabilities within a short period of time. They point out that, faced with such a situation, undercutting (a common phenomenon even in the best of times), would become even more rife, leading to a very unstable market. The liberalisation of the contracting licence regime was part of Dubai Department of Economic Development’s efforts to lower the minimum capital requirements for limited liability companies. Licence fee and renewal charges stay unchanged; the Dhs10 000 is a surcharge.

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