Memorandum from the Arab Contractors Union to the Technical Scientific Advisory Committee of the Council of Arab Ministers of Housing and Reconstruction
Subject: The Importance of Granting a Preferential Percentage to Arab Contractors in the Implementation of Projects Financed by Arab Governments and Funding Institutions
The construction industry holds significant importance in the national economies of all Arab countries due to its influential role in creating real employment opportunities, stimulating various economic sectors, improving balance of payments, increasing added value, and contributing approximately 10 to 12% of Gross Domestic Product (GDP). At the same time, it represents a major pillar for achieving the desired sustainable development and economic and civilizational growth.
The Arab region is witnessing tremendous development and great momentum in urban development plans and infrastructure projects. This has made the construction industry one of the largest Arab industries by volume, ranking third globally in terms of investment size, accounting for up to 70% of the total investment expenditure of Arab countries. According to a recent report issued by BMI Research, the construction market in the Arab region reached approximately 336 billion US dollars in a single year (2018).
International reports issued by the United Nations estimate that the reconstruction projects required for Arab countries affected by the Arab Spring events would cost hundreds of billions of dollars, nearing a total of one trillion dollars.
Despite these enormous figures spent in the Arab construction industry, the share of Arab contractors remains below expectations. A significant portion of these investments and projects are implemented by foreign companies, posing a real threat to the development of the Arab construction sector.
One of the main reasons behind this situation is that Arab contracting companies face fierce and unfair competition from foreign companies that receive extensive political, financial, and moral support from their governments. These foreign entities are provided with all necessary financing, facilitated banking and insurance procedures, and tax incentives. Furthermore, they are supported by their national funding institutions, which prioritize them in the execution of externally financed projects. As a result, they acquire the majority of major and strategic projects in the Arab world.
Given that the Arab contractor is the one primarily responsible for achieving the sustainable development goals of Arab countries, and is burdened with fulfilling national ambitions such as eliminating unemployment and absorbing large numbers of workers, technicians, engineers, accountants, and consultants — all while stimulating the production cycle — the issue of supporting and empowering the Arab contractor becomes a national and economic priority. Therefore, it should be viewed as a strategic objective for all joint Arab institutions, organizations, and governments.
In its ongoing efforts to develop the Arab contracting industry and maintain its status as the second-largest source of national income in the Arab world after oil, the Arab Contractors Union constantly calls upon all Arab governments and organizations to support Arab contractors economically, technically, and morally. This is to enable them to compete fairly with large, well-funded foreign companies and to leverage the technical and human capabilities of national companies, enhancing them so they can effectively contribute to development and reconstruction in Arab countries affected by political instability.
As one of the primary goals of the League of Arab States is to ensure the future security of Arab nations and develop their interests in all fields, the League serves as a platform for drafting and adopting decisions that improve the conditions of Arab citizens and support economic and social development in the Arab world.
The League of Arab States has already made significant efforts to coordinate Arab economic policies and has succeeded in becoming a platform for drafting and endorsing numerous decisions that promote economic integration and fulfill the objectives of the UN’s 2030 Sustainable Development Agenda.
In light of the desire to enable Arab contractors to participate in implementing major Arab development projects and to increase their chances of winning tenders offered by Arab governments and funding institutions — and to activate their expected role in the reconstruction of Arab countries affected by recent political events — it is essential to address this matter seriously.
The Arab region is endowed with a large and diverse system of institutions and funding bodies, including development funds such as the Arab Monetary Fund, the Saudi Fund for Development, the Arab Fund for Economic and Social Development, the Abu Dhabi Fund for Development, the Kuwait Fund for Arab Economic Development, and the Arab Bank for Economic Development in Africa. In addition, many Arab banking and investment institutions possess significant financial capabilities, such as the Arab Investment and Export Credit Guarantee Corporation and the Arab Authority for Agricultural Investment and Development. Not to mention international financing institutions in which Arab countries hold large and influential stakes, such as the OPEC Fund for International Development — of which Arab countries contribute two-thirds of its resources — and the Islamic Development Bank, in which Arab countries hold 70% of its capital and resources.
To fully leverage these Arab funding institutions, and based on the resolution of the Economic and Social Council at its extraordinary session held at the General Secretariat of the League of Arab States on September 8, 2004 — regarding the study of the role of Arab financial institutions in Arab development and the rationalization and enhancement of their efforts to ensure an effective financing role in favor of the Arab private sector and development — we believe there is an opportunity to enhance the developmental, financial, and integrative roles of these funds.
This can be achieved not merely by funding projects, but also by increasing the effectiveness of the Arab human capital involved in construction, through the support of stakeholders in the Arab construction industry. This includes adopting policies that serve as incentives or encouragement for Arab contractors and protecting them from the dominance of foreign companies.
In line with what the African Union has done to protect African contractors from foreign companies — through the recommendation by the African Union Commission for Infrastructure and Energy to award additional points to African construction companies when bidding for projects financed by African institutions, particularly the African Development Bank — we hope the League of Arab States and the Council of Arab Ministers of Housing and Reconstruction will consider encouraging Arab funding institutions and governments to issue decisions and adopt policies aimed at restoring balance between Arab and foreign contractors’ participation in executing funded Arab projects.
This can be realized by incorporating a preferential percentage for Arab contractors — members of the Arab Contractors Union — in tenders issued and financed by Arab funding institutions or Arab governments. Such a step would enhance their chances of winning these projects and protect the Arab construction industry. This is particularly crucial given the dominance of foreign contractors in the massive Arab construction market, which poses a serious challenge to the development and growth of Arab contractors. Additionally, the presence of foreign companies imposes a burden on the Arab economy as they transfer huge sums of money and profits abroad. In the long term, this leads to economic losses and increased unemployment rates among Arab citizens.
At the Arab Contractors Union, from our position in protecting and enhancing the role of the Arab construction industry and our belief in the importance of increasing its contribution to Arab development plans and projects, we are fully convinced that adopting such a recommendation — and any incentive policies or decisions in support of Arab contractors by the League of Arab States and the Council of Arab Ministers of Housing and Reconstruction — will ultimately yield enormous economic and social benefits for Arab states and peoples and will contribute significantly to achieving comprehensive and sustainable Arab development.
Secretary General of the Arab Contractors Union
Eng. Hamdy Shehata