Saudi construction boom: Value of awarded deals hits SAR235bn

Saudi Arabia’s construction and manufacturing will remain the key beneficiaries in 2013, growing at 10.5 percent and 8.5 percent, respectively.

During 2012, the value of awarded construction contracts remained above the SR 200 billion threshold, registering SR 235 billion, albeit falling short from the historical record of SR 270 billion in 2011, the National Commercial Bank ( NCB ) said in its Saudi Economic Review for April released here yesterday.

The awarded contracts in the manufacturing sector reached SR 17.8 billion in 2012, the fourth largest share across all sectors, surpassed only by the oil, transportation and power sectors, with Maaden aluminum smelter awarding the highest contracts by value. Ostensibly, the role of the government is critical, whereby it signed approximately 3,117 capex-related contracts with the private sector valued at SR 172.9 billion, according to the Ministry of Finance.

However, the bank said: “We are concerned about the recently released report by the Saudi Control and Investigation Board (SCIB) that detailed 650 projects facing delays and that will need to be financed from excess surpluses of previous budgets.”

The NCB report said government’s adamancy in pursuing diversification have to be matched by strong supervisory structure that ensures execution within strict timeframes given the enormity of the projects whether in size or number. Accordingly, the recent decision by the Ministry of Transportation to withdraw a number of failed projects from contractors facing myriad challenges is a step in the right direction. Looking ahead, among the various sectors surveyed in NCB ‘s Business Optimism Index (BOI), construction, trade & hospitality, and manufacturing were the only sectors to register index values similar to or above the composite index for the non-hydrocarbon sector in Q1, 2013, standing at 63, 57 and 55 points, respectively, which indicates expectations of further expansion on the back of higher volume of sales and new orders.

Optimism levels in the construction sector were the highest among all sectors, with 50 percent of the firms planning to invest in business expansion.

Obviously, approving the mortgage law back in July have impacted sentiments positively and will continue to do so as SAMA (Saudi Arabian Monetary Agency) finalizes the regulations on real estate financing and leasing along with the supervisory guidelines.

The role of the Real Estate Development Fund (REDF) will also be important in propelling residential building construction by accelerating loans to the 537 thousand applicants currently on the waiting list and the additional 1.7 million electronic applications that are yet to be examined for eligibility.

The REDF is apparently aware of the long-queue that will take more than 10 years to substantially reduce given the current capacity of the fund that can hand loans to just 40 thousand applicants per year, thus, it is in the process of devising and implementing an expedited loan scheme with local banks that will allow applicants to avail the SR 500,000 loan with REDF paying the interest.

The bank said, the momentum of awarded construction contracts coupled with expansionary business sentiment will ensue, thus, supporting both construction and manufacturing going forward.

© Arab News 2013, Apr 14 2013