Construction firms to benefit from Saudi handout
Over $5bn pledged to connect remote areas to power and water networks as part of government shake-up and hand-out of two-month salary bonuses for public sector staff
The construction sector will be one of the main beneficiaries of the shake-up in Saudi government positions and decree of a further $29.2bn (SR110bn) of government spending, according to NCB Capital.
The move announced last Thursday includes a two-month bonus salary to all government employees, students and pensioners, as well as an extra $5.3bn (SR20bn) allocated to ungrading infrastructure to provide power and water links to remote areas.
The shake-up, which was announced following King Abdullah's death and his succession by King Salman, saw more than 30 government posts changing and a number of committees being dissolved, including the Supreme Economic Council and the national Security Council, which were replaced respectively by The Council for Political and Security Affairs and Finance and Development Council.
NCB Capital said that the last time a two-month bonus was paid to government and several private sector employees in March 2011, the retail sector saw an 8.3% upswing, while the construction sector picked up by 9.6%.
NCB Capital's analysts argued the construction sector would benefit "directly" from the additional infrastructure spend, while real estate and cement companies would benefit indirectly.
"We believe increasing the grid network will encourage further real estate development project," NCB Capital said in its report.
It added that the announcements "will benefit all social classes in Saudi".
"This is in line with the recently announced record budget, which continues focusing on infrastructure spending despite the recent steep decline in oil prices.
"The total additional spending represents around 4% of Saudi Arabia’s reserves, which amounts to around US$700bn. We believe these reserves will be the main source of financing for this additional spending."