Suicide bombings, aggressive security, rising tension, paranoia … Just how tempting does the money have to be to persuade British firms to work in the Middle East? Building examines the risks and rewards
Those british firms that are considering bidding for work in the Middle East are faced with a difficult cost–benefit analysis. It is difficult partly because the end of hostilities in Iraq has done nothing to calm tensions in the region, and partly because it is difficult to think when bombs are going off all around you.

The suicide attacks in Riyadh, capital of Saudi Arabia, on 12 May announced that religious terrorism against the infidel is still a potent threat. This was then underlined by a set of synchronised explosions in Casablanca the following Friday, attacks in Chechnya, Yemen and Israel, and frantic warnings from the Foreign Office to UK nationals not to travel to east Africa.

The mood among US firms in the region is understandably jittery. Rumours are flying that workers in Jeddah are the next Saudi target, and that the threat is spreading to neighbouring hot spots, such as the United Arab Emirates and Qatar. Hardly surprising, then, that British contractors and consultants are hesitant about rushing into the region.

"I would not wish to go to work in Saudi or Kuwait right now," says Charlie Hughes, managing director of architect and masterplanner Miller Hughes. He has been in talks over reconstruction work in Iraq but is exercising extreme caution. "I spent two years in Chechnya but I don't think it was anywhere near as dangerous as this situation." Hughes believes that the authorities in the region have some way to go to reassure him that the risk to his staff is acceptable. "They have to get an awful lot sorted on security. I would not send any of my married staff to that region at the moment," he says.

Those firms already in the region have stepped up security. This is particularly true of the Americans, who are probably most at risk of attack by groups affiliated with al-Qaeda. And it is even more especially true of contractor Bechtel, which has taken the leading role in the reconstruction of Iraq. It has braced itself for attacks on its projects in Riyadh and Jeddah. Yet the Riyadh attacks, which killed 34 people, proved that Americans were not the only the target. "That was worrying," says George Younis, senior partner at QS DG Jones, which has offices across the region. "Al-Qaeda targeted American, British, Australian, Irish – anybody who's a foreigner."

Miles Johnstone, an associate director at insurance broker Heath Lambert, says Saudi Arabia, Iraq, Yemen, Syria, Lebanon and Egypt are all areas of concern. He says underwriters are demanding to know how close construction sites are to police stations or military barracks. And he has a warning about the "key-man" insurance policies that firms take out to cover staff travelling to the region. Johnstone says insurers may be reluctant to honour these if they suspected that employers could have done more to protect staff and sites from terrorist attacks.

The risks of expanding into the Middle East have been sufficiently well presented to business planners. But how about the rewards? Building analysed those last summer, in an article entitled "The new hedonists" (9 August 2002, page 38). This focused on the building boom in the Gulf in general, and the United Arab Emirates and Qatar in particular. It concluded that workload in the Middle East was a good counterbalance to a slowdown in the British economy. And since then, industry bigwigs such as Ray O'Rourke, boss of Laing O'Rourke, and Rob Smith, the new senior partner at QS Davis Langdon & Everest, have made recent trips to the area to see the potential for themselves.

Gone is the buccaneering spirit of the 1970s, where the region was considered ripe for exploitation, and where newcomers cut their teeth before moving back to the UK

The heyday of Britain's involvement in Middle East construction was in the 1970s, when contractors fled the stagflating UK in search of petrodollars. Do firms have the same hunger now? Only a handful of contractors – Amec, Costain and Balfour Beatty – have shown an interest in working in Iraq, and this muted response seems to underline a cultural shift. Gone is the buccaneering spirit of old, where the region was considered ripe for UK exploitation, and where industry newcomers could cut their teeth before moving back to the UK.

Raj Sharma, senior manager for recruitment firm Hays Montrose International, points to a sea change in the past decade. "There are more people going back to the UK than coming out," he says. He points to the number of people his firm needs to approach before tempting one to a post in the region. "You used to have to speak to three people and get one interested, now it's six to 10," he says. "Most of them say, 'Why should I give up what I have got already – what's the hook?'" This, Sharma adds, is allied to a decline in the attractiveness of remuneration packages. He reckons Middle Eastern clients seem to be widening their search for staff to anywhere in the world with English speakers.

And firms are getting warier about operating in the region. International consultant Arup has pulled out of the area in the past few years, according to chairman Sir Nigel Thompson. Speaking last month, he said the firm had had problems being paid by Middle Eastern clients, and was now focusing on East Asia.

Even companies still working in the Middle East admit that things are not what they were. DG Jones' Younis points to narrowing margins in the region and says that obtaining payment can be a problem.

But others still working there remain bullish. "It's busting busy," says Tim Siddons, director at QS firm Baker Wilkins, which has operations in Qatar, Bahrain and Iraq. He describes Dubai in the UAE as "the Hong Kong of the Middle East". After a hiatus in activity in the region during the Iraq war, Siddons says there has been a noticeable change. "The confidence is astonishing. Very large projects that a few months ago had people scratching their heads and thinking about it, are now seeing decisions very quickly." Siddons also point to the "massive amount of liquidity" in the region, largely from the recent hike in oil prices, which will lead to further investment from the Gulf itself, rather than the USA or UK.

DL&E boss Smith sees the situation in Saudi Arabia as very different to the rest of the region. He has delayed a decision to set up a permanent office in Riyadh, but adds that he is optimistic about the rest of the Middle East – partly because he thinks the proposed "road map" deal between Israel and the Palestinians has some chance of success.

Making the case for work in the Middle East

Today is a crucial day for British firms hoping to win reconstruction work in Iraq. First, US contractor Bechtel is holding a conference in Hammersmith, west London, at which firms can register their interest in work and receive information on procurement, taxes, payment and so on. The conference will also detail Bechtel’s contract from the US Agency for International Development, which covers the rebuilding of roads, hospitals, airports, government buildings, water and electricity systems. It is believed to be worth a total of £500m. The second conference will be held by Trade Partners, the arm of the DTI responsible for promoting the UK’s commercial presence abroad. The meeting, which will be attended by officials from the US embassy, will explain how much money the US is putting into the reconstruction of Iraq, and how much will be available for British companies. Some firms have leapfrogged the subcontract route. Tim Siddons, a director of QS Baker Wilkins, says he has won two retail projects in Baghdad; these should go on site inside six months. He thinks there will be a lot of investment in Iraq from other countries in the Middle East, and therefore lots of work for UK firms. “The exciting thing for people like ourselves is that this sort of investment is unrelated to the US and British government embargoes,” he says.