Saudi's time has come

Ahead of Saudi PMV, we look at a booming market

ANALYSIS, PMV

Major projects have been started, are underway and, in the case of the record-breaking, Princess Nora University, nearing completion that were barely off the drawing board when the PMV Saudi shoe last opened its doors in Jeddah in 2009.

The Kingdom has taken the title off the UAE as the undisputed home of construction in the GCC with the value of infrastructure and construction contracts in the current 2009-2012 period expected to exceed $138 billion. And there is more to come.

Whether it’s the King Abdullah Financial District in Riyadh, or the massive development of Jubail Industrial City, an entire city out of the desert, if your company doesn’t have a Saudi project strategy then it may not be worth talking about. Because for the next few years at least: the Kingdon of Saudi Arabia is where it’s at.

The Saudi Arabia constuction story began as a derivative of the wealth that was created by the oil and gas sector, however, while demand for construction equipment remains steady in that sector, it is other new factors that are affecting demand for machinery and equipment.

The blue-ribbon projects have co-incided with massive investment into infrastructure and this is set to continue. There are roads and railways to build and the Saudi Arabian government is investing $400 billion on infrastructure over the next five years as the entire country’s infrastructure is upgraded.

Its booming economy is also demanding that investment is made into the Kingdom’s energy supply. The oil may be fuelling the economy but Saudi Arabia’s national grid is ill-equipped to handle the country’s forecasted electricity demands.

Nuclear energy plant construction has been identified as a crucial component for the kingdom as it tries to offset its growing population, rising energy demands while lessoning its reliance on its reserves of black gold.

Housing is also of paramount importance to the country’s development. Over 70% of the population are below the age of 30 and six mega economic cities are under development to provide long term jobs and housing. In fact it is predicted that there will be 50% increase in demand for residential housing in the next three years alone.

Thankfully, the dearth of housing is finally being addressed, encouraging housing construction in the Kingdom which could be boosted even further should reforms to home ownership be carried through.

It is a mouth-watering prospect that a boom in home ownership could really turn the heat up on an economy that is already simmering well with oil prices once again buoyant.

Growth to 2015
“I think we’re looking at least until 2015,” Waeil Mandalouti, general manager of machinery and equipment supplier House of Equipment tells PMV. “There is some business in Oman and Bahrain, but for the next few years everything for us will be going into Saudi Arabia.”

Understandably with the fallout of the downturn elsewhere, a lot of companies have had to re-dress their approach to the market. Some like Nabil al Zahlawi’s NFT, for example, have found themselves returning to a market that during the boom time in the UAE they had moved away from despite having originated their operations in the country.

Nabil al Zahlawi told PMV last year that Saudi had become a very important country for the Manitowoc dealer and heavy equipment trader.

“For us the Saudi market has become incredibly important. For instance we supplied 1,000 pieces of equipment to Saudi Bin Laden that are being used on the King Abdullah Financial District and we’ll see other project.”

Meanwhile others consider themselves fortunate to have entered the market early and are beginning to reap rewards of building up long-term partnerships with the bigger contract players in the Kingdom.

House of Equipment’s owner
Arabtec is one company that has made no secret of its ambitions to embark on an aggressive expansion plan across the Middle East, with Saudi Arabia its key focus (along with Syria and Egypt).

“At Arabtec we will continue to focus on Abu Dhabi, as there are still a lot of projects there,” says CEO Thomas Barry.

“Some may be a bit slow to come to fruition, and margins will be tight because of competition from other local contractors looking for work there.

But our major focus will be Saudi Arabia. They’ll be spending around $400 billion over the next few years to improve residential areas, hospitals, schools, rail.”

In October last year, the company secured a $1.33 billion contract from Saudi Bin Laden to build 5,000 villas, which includes a residential project in the Eastern Province. The potential for its distributor of machinery, House of Equipment, is obvious.

“Overall, in terms of the sale of equipment, I would say that Saudi is still a ‘neutral to buy’ market,” Mandalouti says: “With Arabtec as our holding company, we’ve been able to work with some big names. For instance, Saudi Bin Laden.”

Build it quick
It may cause nightmares for facilities managers everywhere, but the build it quick ethos that reigned supreme over the boom years in Dubai seems to have caught on with some planners in the Kingdom.

If anything, projects like the KAFD and the Pincess Nora Bint University are raising the bar when it comes to the expected speed of build.

With contractors passing on demanding schedules to suppliers, Saudi is testing the very limits of the machine and equipment distributor’s ability to keep the production line rolling.

“Everyone is focusing on Saudi and the projects are massive not just in size. Take the challenge of the Princess Nora Univiersity,” explains Al Zahlawi. “They went through the A-Z of everything that you need for the campus in just two years that you normally expect to take 10-15 years.” He adds ruefully: “This is a good challenge – fortunately, we like this kind of project.”

Although it has got easier to set-up in the Kingdom , it remains a difficult place to gain traction for machine makers, especially those that lack the brand cachet of companies like Volvo or Caterpillar, for example.

The Chinese manufacturers that have made such a big impact in the emerging markets, are stilll behind the major OEMs in the Kingdom. As one observer puts it: “There is a still a degree of snobbery that works again some of the Chinese companies. But that is changing. Slowly.”

Interestingly, talking to Chinese manufacturers it is clear that two of the biggest barriers to entry are the difficulties of finding an in-country partner and the not entirely unrelated issue of a historical lack of a physical presence.

A representative of a major Chinese manufacturer told PMV recently that the competitive nature of the domestic market in China was damaging efforts to develop as suppliers to the global market.

Indeed Chinese manufacturers are yet to prove they have the sales and marketing clout to properly assail a market as notoriously closeted as Saudi Arabia: “We would like to do more there, we need to be there, but it is not easy for us.”

It may be that 2011 proves to be another missed opportunity, but there is enough demand in the market to suggest that the rapidly evolving leaders such as Sany, Liugong and Shantui may yet make their mark.

About PMV Saudi Arabia
Dharan International Exhbition, Damman, 13-17 March, 2011

The growth of the construction market in Saudi Arabia has attracted a lot of international interest. 165 exhibitors from outside of the GCC will exhibit in the ‘The Big 5’ amounting to 70% of the exhibitors attending.

Amidst a year of global economic challenges, construction projects in Saudi Arabia have remained relatively untroubled with as little as 1% of projects delayed or put on hold. The Saudi PMV show is designed to bring discussion on how major projects impact on their business.

Hundreds of billions of dollars will be invested in the construction and fit out of these major projects. The question for the cranes & PMV market is how do we resource this expansion program?

Comparisons and benchmarks do not exist however we must ensure that all resources in the build are managed. Delays which lead to cost increases or penalties on this scale must be avoided.

The Saudi PMV Show is now in its third year and promises to build on the success of last year’s exhibition in Dammam, which saw the largest gathering of cranes, heavy vehicles and equipment ever seen in the Kingdom.

For more information visit: www.saudipmvshow.com

Saudi boom
Here are 12 reasons why there are few countries in the world who can boast the scale and scope of some of the landmark projects in the Kingdom:

* Economic Cities – King Abdullah, Eastern, Talbuk, Rabigh, Hail, Madinah, Jizan
* Jeddah Gate
* Jubail Industrial City Phase Two
* King Abdullah University of Science & Technology
* Aramco- Sumitomo Chemical Refining Plant
* Aramco- Total Export Refinary
* Aramco- ConocoPhillips export refinery
* Saudi Basic Industries Corp Saudi Kayan Petrochemicals Company (Kayan)
* Maadens Ras Al Zour Mining Ind City
* Saudi Land Bridge Project
* Aramco Expansion Project
* Sipchem

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