Saudi crackdown hits $26.6bn construction projects

Construction, transport and retail hit hardest according to report

Picture for illustrative purposes only
Picture for illustrative purposes only

Saudi Arabia’s crackdown on illegal workers has disrupted about $26.66bn worth of projects in the country’s construction industry, with completion dates likely to be pushed back.

According to Jadwa Investments, the kingdom’s three largest non-oil sectors – construction, transport and retail – have been hardest hit since the seven-month amnesty ended on November 3, due to their significant levels of foreign employment.

The delays have flowed onto cement sales. November saw the largest year-on-year contraction on record, down 19%, causing annual growth to slow to 4.72% compared to 4.89% in 2013, although it already appears to be recovering.

Total inflation rose to 3.5% in 2013 compared to 2.9% in 2012, according to the Saudi Ministry of Finance.

Jadwa Investments head of research Fahad Alturki said the kingdom was going through a transitional period while it adjusted to the loss of 1m of its 9m foreign workers and the impacts would not be long-term.

The economic results had been amplified because the three strongest non-oil sectors were the most significantly affected, he said.

“Despite this factor they’ll remain the strongest growing sectors over the next few years because of the resources put into these three sectors in terms of financial resources and a favourable operational environment,” Alturki said.

He also said there had been little effect on labour costs, most likely due to the government’s wage subsidies.

Saudi King Abdullah established the seven-month amnesty on illegal workers between April and November last year in a bid to reduce the kingdom’s reliance on expats and open up opportunities for locals.

Unemployment in Saudi Arabia is estimated to be about 12%, but as much as two-thirds of the adult population does not work.

The Saudi Labour Ministry says at least another 5m jobs will be needed by 2030 just to meet the needs of young Saudi men entering the workforce.

Labour Minister Adel Fakeih said in December 254,000 Saudis has gained jobs due to the amnesty.

Other measures also have been taken to encourage greater participation of nationals in the private sector, including setting quotas, greater training and improved education.

Fitch sovereign group director and former Jadwa chief economist Paul Gamble said the number of nationals in the private sector had risen 21% in the first seven months of 2013. 

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