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Saudi construction set for 10% expansion from 2015

on Jan 26, 2014

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The Saudi construction sector should see growth returning strongly from 2015, with an estimated 10% expansion, according to Business Monitor International (BMI) in its 'Saudi Arabia Infrastructure Report Q1 2014'.

Capacity constraints have hit the Saudi construction sector over 2013, which supports the report’s move to downgrade the short-term forecast for the industry last quarter.

“We have priced in the anticipated delays in projects as a result of shortages in labor and materials, and therefore see growth at 7.2% in 2014. However, with project awards continuing at rapid pace, and a sizable backlog awarded since 2011, we believe the sheer size of the project pipeline in Saudi Arabia will ensure high growth rates over the medium term. As such, we anticipate activity to return to its buoyant trend from 2015 onwards,” the report said.

In Q413, BMI downgraded the near-term outlook for growth as labor shortages, as a result of the government's crackdown on visas and drive for Saudization, were set to delay projects. This has played out as the industry reports serious delays and project cancellations over 2013.

At the same time, a severe cement shortage led the government to initiate measures including emergency funds to import 10mn tons of cement and construction of new facilities which should ease the shortfall over the year.

“While we believe these issues will continue to weigh on growth into H1 2014, we see them as near term, especially given the impact of the labor shortages on the construction industry, a sector of strategic importance to the government. Once resolved, the clearing of the backlog, combined with more recently awarded contracts, such as the $22.5bn Riyadh Metro project, should see growth return strongly from 2015, with 10% estimated.”

In August the contracts for construction of Lines 1-6 of the Riyadh Metro project were awarded to three consortia formed of international and local companies. In total, the project is expected to cost $22.5bn and be fully complete in 2019. Construction is hoped to start in 2014, although delays are anticipated.

In July, it was announced that the first phase of the $16.8bn Makkah Public Transport Program was to enter construction in 2014, and be completed in 2017. The long-delayed Land Bridge project is also moving forward, with a contract for design work on the $7bn railway awarded in August. The design phase is expected to last two years.