Comeback Kingdom

Machinery traders are looking to Saudi

The 'yellow metal' of construction equipment is one of Saudi Arabia?s most valuable commodities.
The 'yellow metal' of construction equipment is one of Saudi Arabia?s most valuable commodities.

Machinery traders are looking to Saudi, where the equipment market is expected to be worth $4bn by 2015.

To paraphrase a boxing anthem, do not call it a comeback, but Saudi Arabia’s been here for years. After a decade of dominance, Dubai, whose career stats once consisted of some knockout buildings and one-in-three of the world’s cranes, has been overthrown as the heavyweight player in the construction machinery and equipment market in the GCC.

For the first time in a generation, The Kingdom is the country when it comes to purchasing power and machinery might.

Furthermore there are signs that, in the short term at least, the Kingdom will not be pulling any punches either. By the time we reach 2012, the previous three years of construction investment would have exceeded $138billion, and there are roads and railways to build for years to come.

The Saudi Arabian government’s spending on infrastructure alone could reach $400 billion over the next five years as the entire country’s transport network is upgraded.

Small wonder, then, that Saudi Arabia has become the most desirable destination for machinery traders that have grown disillusioned with inactivity in Dubai.

Whether it is the King Abdullah Financial District in Riyadh, or the massive development of Jubail Economic City, an entire city out of the desert, if your company does not have a Saudi project strategy, then it may not be worth talking about, because for the next few years at least, the Kingdom of Saudi Arabia is where it is at.

The Saudi Arabia construction 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 investment into joining up a vast country that is a quarter of the size of the continental US, but only has a 1/30th of the amount of roads, is well overdue, and essential to maintain pace with a booming economy and population. The roads and railways will need the requisite army of graders, bulldozers and excavators if they are going to be built.

Its 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.

(The Kingdom had hoped to share some of its energy burden with Egypt, but given the uncertainty in that country recently, spending on energy projects is more essential than ever.)

As such, nuclear energy plant construction has been identified as a crucial component for the Kingdom as it tries to offset its growing population and rising energy demands, while lessening its reliance on its reserves of black gold.

Expect heavy-lift equipment and cranes to be in high demand. Talking of demand, housing is also of paramount importance to the country’s development.

Over 70% of the population is 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 current dearth of housing is finally being addressed, encouraging housing construction, 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. Not that some observers are expecting rapid changes.

“It is not like Dubai; things move very slowly – carefully – in the Saudi market,” says Samir Jarrouche of drilling and foundation equipment supplier Soilmec. “It is part of the culture.”

The Jeddah-based sales manager adds: “But then outside of Saudi and Qatar, where can you say things are moving? Certainly not in Dubai,” he says candidly.

Sluggish heavyweight that it is, there are some notable fast-moving exceptions. The King Abdullah Financial District and the Princess Nora University are being built at almost unprecedented rates.

If anything, they 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 and supply lines rolling.

“Everyone is focusing on Saudi, and the projects are massive, not just in size. Take the challenge of Princess Nora,” explains Nabil al Zahlawi of NFT, Manitowoc dealer and one of the region’s leading suppliers and traders of heavy machinery.

“They went through the A-Z of everything that you need for the campus in just two years, which you normally expect to take ten to 15 years.” He adds ruefully: “This is a good challenge – fortunately, we like this kind of project.”

Understandably with the fallout of the downturn elsewhere, a lot of companies have had to redress their approach to the market. Some like 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.

Having started his company in Saudi Arabia in the late 1980s before moving to Abu Dhabi in 1995, Al Zahlawi says that maintaining a presence in the Kingdom has once again become one of the main pre-occupations for the trader.

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

Meanwhile, others consider themselves fortunate to have entered the market early (i.e. pre-collapse in Dubai), and are beginning to reap the rewards of building up long-term partnerships with the bigger contract players in the Kingdom.

“With Arabtec as our holding company, we have been able to work with some big names like Saudi Binladin,” says Waeil Mandalouti, general manager of machinery and equipment supplier House of Equipment.

Its 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).

CEO Thomas Barry told CW recently that he expects that $400billion will be spent over the next few years to improve residential areas, hospitals, schools and railways.

In October last year, the company secured a $1.33billion contract from Saudi Binladin 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.

The arch-trader Mandalouti puts it in perspective. “In terms of the sale of equipment, Dubai is a ‘neutral to sell’ market, while on the other hand I would say that Saudi is a ‘neutral to buy’ market.” Although it has become easier to set up business in the Kingdom, it remains a difficult place to gain traction for machine makers, especially those that lack the brand cachet of companies like, for example, a Volvo or a Caterpillar.

The Chinese manufacturers that have made such a big impact in the emerging markets are still behind the major OEMs in the Kingdom. As one observer puts it, “there is a still a degree of snobbery that works against 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 CW that the competitive nature of the domestic market in China was damaging efforts to develop 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, we need to be there, but it is not easy for us,” is the common refrain.

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