Italy's interest in Middle East construction is good news for contractors

Italian contractors Saipem and Salini Impregilo differ in terms of current financial health, but their shared interest in the Middle East should buoy regional construction leaders

COMMENT, Business, Contractors, Italy, Middle east, Middle East construction, Milan

Thanks to their starkly contrasting fortunes, two Italian construction giants were in the spotlight last week.

Oil and gas specialist, Saipem, revealed plans to use its capital reserves and retained earnings to cover its 2017 loss, worth $593m.

The company, which is active in Saudi Arabia, Kuwait, and Oman, posted a $2.4m loss for Q1 2018. However, the figure was a marked improvement over the previous quarter, when Saipem reported a loss of $331m.

In its Q1 2018 financial report, Saipem said the revenues of its offshore engineering and construction business recorded a 17% year-on-year drop due to lower volumes recorded in other global markets. However, the decline was “partly offset by higher volumes registered in the Middle East”, indicating that the region remains a key growth market for the company.

This commitment is further evidenced by Saipem’s inventory; the company’s onshore drilling unit owned 84 rigs as of 31 March, of which 28 were in Saudi Arabia. The number of rigs in the kingdom is Saipem’s highest in its onshore drilling markets.

Following news of the Q1 2018 loss, Saipem’s chief executive officer, Stefano Cao, said the company hoped to generate approximately $9.7bn of revenue by the end of its financial year. Given its contract wins in Oman this February and Kuwait last August – which have a combined value of about $1.6bn – Saipem’s revenue target is not entirely unachievable, but it is clear that the company faces an uphill task.

On the other end of the spectrum is Salini Impregilo, the Milan-based civil infrastructure heavyweight that recorded a 3.8% annual hike in its revenue for 2017, valued at $7.2bn. The firm’s regional portfolio features a $435m (AED1.6bn) contract for Dubai’s Meydan Mall, and a $200m (AED734.6m) contract to design and build a 5km section of a transitway in Abu Dhabi. It is also involved in the construction of Line 3 – also known as the Orange Line – of Riyadh Metro.

Last week, Salini Impregilo revealed it was targeting an expansion in the Middle East, and bidding on work across the region worth $3bn. This followed the announcement that the firm had prequalified for The Avenues project in Riyadh, at an estimated value of $1bn (SAR3.75bn).

Salini Impregilo said it was also interested in participating in the region’s public sector-led “big investment plans”, including Neom, the $500bn (SAR1.87tn) mega-city located on the Red Sea, which was announced by Saudi Arabia’s Crown Prince Mohammad Bin Salman in 2017.

Given their international stature, the interest of Saipem and Salini Impregilo in the Middle East will undoubtedly satisfy local contractors in need of reassurances about the regional construction sector’s long-term prognosis. But more importantly, the Middle East’s construction leaders must explore how the priorities and strategies of both Italian contracting giants might help them to create, and reshape, their own future business plans.

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