Saudi Arabia’s $1.2 trillion construction market largest in Middle East, spending slowdown only temporary

DUBAI (BE2C2 Report by Irshad Salim) — Amidst reports that the Saudi government’s finance ministry has ordered departments not to award new contracts during the fourth quarter of the year, the kingdom remains Middle East’s largest construction market with US$1.2 trillion worth of projects planned and underway, according to latest figure in Deloitte’s 2015 Powers of Construction report.

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This includes several sectors like transport, infrastructure, utilities, education and healthcare, reflecting the prioritization of upgrades for local roads, rail, port and airports along with other facilities in order to attract private investment.

The kingdom’s largest allocation in the 2015 budget is toward the transport and infrastructure sector earmarked at US$168bn.

One of the key projects in focus is the rail and road program that includes Riyadh Metro, Dammam Rail, Haramain Rail, Makkah Railway, and Saudi-Bahrain Causeway. Airport construction and upgrades, including work on Riyadh’s King Khaled International Airport and Jeddah’s King Abdul Aziz International Airport as well as construction of new airports in Madina and Abha Governorates, is another vital segment.

The upgrade of existing roads and building new ones across the kingdom along with infrastructure projects in the industrial cities of Jubail, Yanbu and Ras Al Khair are also the part of the ongoing development.

According to Bloomberg, the construction sector is starting to show signs of stress as spending slows and contractors are hit by payment issues as the slump in oil prices pushes the country into a deficit for the first time since 2009.

The world’s largest exporter of oil is responding to the decline in crude, which accounts for about 80 percent of revenue, by tapping foreign reserves, cutting spending, delaying projects and selling bonds, the report says.

“For now, these measures only apply for the remainder of this fiscal year, but they may well set the tone for 2016,” said Jason Tuvey, a Middle East economist at London’s Capital Economics.

Alan Richell, the head of business advisory for Arcadis Middle East says the slowdown may be temporary. “The impact may not be felt so drastically this time as it was during the oil slump of the 1980s.”.

He said that although there is “definitely a short-term reconsideration” of budgets, this is largely a matter of deferring some project schedules and reassessing non-core work.

“But there’s no sense that any major pieces of infrastructure work are going to be cancelled,” he said.

“All they are doing is responding to what looks like a determinedly low oil price for some time to come by doing the same with their capital spending – stretching it over a longer period.”

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