Competitive edge

Opening Saudi markets for contractors should bring benefits for all

Michael Fahy
Michael Fahy

As this week’s magazine was going to print, a story emerged regarding an interesting development in Saudi Arabia’s construction market.

Fahd Al Hammadi, chairman of the Kingdom’s national contracting committee, reportedly told the Arabic language Aleqtisadiah newspaper that a decision had been issued in late August by the government that will ease rules of entry for major international contractors looking to break into the market.

Al Hammadi welcomed the move, taking the enlightened view that the gobal giants of the industry can bring large-scale investment and experience to help the Kingdom’s contractors with a growing pipeline.

The international firms would still need to work with local partners, but the impact they could have could be transformative on several aspects of Saudi society.

Our Analysis this week (see p.22) looks at the region’s quoted developers, and how they should benefit from the Ministry of Housing’s attempt to create hundreds of thousands of new homes of which the Kingdom is in dire need. The high cost (and lack of availability) of land is rightly highlighted as an issue, but another is the cost of construction.

Ewaan’s CEO Riyadh Al Thagafi highlighted this in an interview with CW in March, stating that there are only a handful of main contractors capable of completing major works – the likes of Saudi BinLadin, Saudi Oger, El Seif and Al Arrab spring to mind – and they all have full order books.

As a result, they can charge premiums just to take projects on, but their overburdening can lead to project delays.
One only needs to look at the Haramain High-Speed Rail project, originally due to arrive in January this year, but currently projected to take a further two years to reach its destination.

When you consider the raft of light and heavy rail projects planned for the Kingdom’s major cities over the next two years, you can see why relying solely on homegrown firms could be a problem.

As Arriyadh Development Authority found when assessing bids for the $23.5bn Riyadh Metro (pictured, right) getting teams together – even through consortiums – that have the necessary skills and experience to deliver projects of this nature is not easy.

Opening the market should allow for the creation of the type of partnerships which have the requisite knowledge to make sure tricky projects are completed on time and to budget – for the good of the entire country.

Also, it should allow a tier of contractors below Saudi’s biggest players the opportunity to learn from some of the best in the business. Even if this means going a little lighter on international firms in terms of Saudisation requirements, the knowledge that local engineers working on flagship schemes will gain will be better for the country’s future skills base than if it attempted to run a closed shop.

The top tier of coontractors would have to adapt and may feel some short-term pain, but even they will benefit from the rigour of increased competition in the long run.

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Sep 01, 2020