Roundup: Global currency volatility turns Mideast construction industry upside down

With the rise of the U.S. dollar and the relative decline of the euro and the Chinese currency yuan, producers of building materials and real estate maintenance, electrical and plumbing (MEP) face in the Middle East tailwinds and headwinds.

Speaking to Xinhua at the ongoing "Big 5" fair and exhibition in Dubai, the largest construction and MEP congress in the Middle East, Leo Lo, general manager at air conditioning producer Chigo from Foshan in China's Guangdong Province, said "our cost base for imported materials is rising indeed due to the weakening yuan, but exports from China into the Middle East, on the other hand, are booming."

Earlier in the week, the yuan dropped to its lowest external value in eight years after the People's Bank of China reduced the reference rate on Monday.

In order to spur exports to the Middle East, Chigo engaged Hong Kong-born Hollywood actor Jackie Chan as a promotional artist as the banners of the firm's stand at "Big 5" show.

But according to Lycoris Ng, sales manager at Ventech Central A/C, also based in Foshan, said the higher import costs for materials mitigate the gains from exports.

"The foreign exchange world flipped upside down. We have not seen a similar situation since 2008," she said.

A total of 700 Chinese firms, out of over 3,000, are present with booths at this year's "Big 5."

Since 2014, China has been Dubai's biggest trade partner in relation to non-oil exchange.

In order to spur Chinese exports to the Gulf further, Ren Xiaofei, director of the Trade Development Bureau at China's Ministry of Commerce, held earlier on Tuesday a seminar where Chinese firms took the opportunity to promote their products to buyers from the Middle East, Africa and elsewhere.

Arab firms such as construction company Orbital Horizon from Jeddah, Saudi Arabia, are in the position to buy Chinese spare parts at a cheaper price than before.

"As the Saudi riyal is pegged to the dollar, we benefit now from a higher purchasing power when importing MEP parts from China," said Abdullah Al-Shateri, financial manager at Orbital.

All Gulf Arab currencies, with the exception of Kuwait, have been pegged to the greenback as anchor currency for decades in order to create a stable currency regime.

Hazeem Sultan Al-Suwaidi, senior vice president of Abu Dhabi-based petrochemical giant Borouge, said "it is too early to judge on the stronger greenback. So far we have not seen any impact on our export volumes."

Asked if exports to China would suffer due to the weakened yuan, Al-Suwaidi said "we opened a manufacturing plant in Shanghai in 2010, that was our first pant outside the UAE. We are committed to our customers in China and we have experience in managing the market."

For French export area manager Etienne Darud from SFA Group, a Paris-based producer of sanitary solutions, the weaker euro "is not neither an obstacle nor a support in the Gulf region as we export globally, and currency fluctuations balance overall. We remain very optimistic for 2017."

The European currency fell from around 0.90 per dollar to 0.94 per greenback since the start of November.

Franz Freiherr von Redwitz, managing director at German truck maker MAN Truck and Bus Middle East and Africa, said firms with ambitions in the Middle East shall rather focus on improving sales efficiency and after sales services in order to gain market shares.

"The construction market is more competitive than ever and in order to differentiate yourself, you have to reduce costs for the customer by giving him a better quality than his peers."

Asked if he sees currency fluctuations as the biggest headwinds in 2017, von Redwitz said "we do not see much wind next year at all, as the market remains difficult."

The "Big 5" started on Monday and runs through Thursday, Nov. 24. Endit