Saudi construction sector to sustain solid growth this year

JEDDAH – The Saudi construction sector will witness a sustained robust growth this year, with project capital expenditures projected to reach SR269.7 billion in 2013, reflecting a modest 2 percent increase over 2012′s SR264 billion, the National Commercial Bank’s Construction Contracts Index (CCI) for the fourth quarter of 2012 released Sunday showed.

“The year 2012 provided the Saudi economy with a continued solid, sustainable outlook of the construction sector. The sheer volume of awarded contracts indicate that 2013 will extend the familiar trend of significant, ongoing construction projects in their execution phase, of which the majority that were awarded in 2012 have already been initiated.

The government’s projected expenditures for 2013 reveal that heavy capital spending will remain as status quo,” the report said.

It noted that the government’s intent to continue to spend heavily in the education, health, municipality, transportation and water sectors will allow for further growth of these sectors in 2013 compared to 2012. These sectors witnessed a significant increase in expenditures in 2012 to reach SR60 billion. Some of the anticipated capital expenditures for 2013 include the construction of 539 new schools, 19 new hospitals and the development of 3,700 km for new roads across the Kingdom.

Furthermore, the study forecast that anchor sectors like power, petrochemical, industrial and oil & gas would build on their impressive performances during 2012.

The CCI ended at 264.26 points last year. The CCI reached its highest level of 2012 during October as it climbed to 350.71 points. This was mainly attributed to the significant value of awarded contracts during the same month, which was SR44.5 billion. The CCI dropped to 317.25 points in November.

While the CCI ended the year 42 percent lower compared to 2011′s CCI of 453.64 points, the value of awarded contracts in 2012 achieved the second highest total since 2008.

The SR235.1 billion in contracts awards during 2012 reflected the construction industry’s continued vibrancy and its foundation as a fundamental building block of the Kingdom’s economy. The total value of awarded contracts during H2’12 reached SR108.3 billion versus H1’12, which accumulated to SR126.7 billion.

While anchor sectors garnered the majority of the value of awarded contracts, the government’s focus on capital expenditures toward building the Kingdom’s infrastructure in 2012 was evident as nearly SR52 billion was spent on the roads, education, healthcare and urban development sectors.

Besides, according to the Ministry of Finance’s end of year press statement, approximately 2,000 government projects worth SR137 billion were signed. The value of awarded contracts rebounded strongly in the fourth quarter following a relatively weak third quarter of 2012 to reach SR69.1 billion. The strong push during the fourth quarter allowed 2012 to end on a high note whereby approximately SR235.1 billion worth of contracts were awarded. Although the value of awarded contracts dipped compared to 2011′s SR270 billion, several sectors witnessed unprecedented capital spending compared to previous years such as the power (SR47 billion), petrochemicals (SR47 billion), healthcare (SR14 billion) and roads (SR17 billion).

In the fourth quarter alone, the contracts awarded in oil & gas sector amounted to approximately SR26 billion, while the power sector accounted for another SR16 billion. The industrial sector contributed SR6 billion during the fourth quarter, while the commercial real estate and education sectors had SR3.5 billion and SR3 billion worth of contracts awarded, respectively.

During Q4’12, the Jizan region accounted for a 38 percent share of awarded contracts as numerous mega-projects were awarded by Saudi Aramco for the development of the Jizan Refinery project.

The Makkah region’s share was 31 percent and was mainly attributed to the mega-project awarded by the Saudi Electricity Company (SEC) associated with building the Jeddah South thermal power plant. The Madinah region’s 13 percent share consisted of mega-projects in the water and industrial sectors. The Eastern Province, which normally attracts the highest value of awarded contracts due to the heavy presence of power, petrochemical and oil & gas projects slotted into the fourth position with a 10 percent share. There were numerous projects across several sectors that contributed to the Eastern Province’s share.

The Riyadh region, which also generally attracts a significant amount of large contracts, contributed only 3 percent of the awarded contracts by value, the report added.

The Saudi Gazette 2013, Feb 18 2013