Arab Today, arab today saudi spending energises regional construction industry
Last Updated : GMT 08:29:34
Arab Today, arab today
Arab Today, arab today

Saudi spending energises regional construction industry

Arab Today, arab today

Arab Today, arab today Saudi spending energises regional construction industry

DUBAI - Arabstoday

Saudi Arabia, which has awarded 26 projects in the last four months totalling almost $10 billion (Dh36.72 billion) is set to become the biggest player in the Mena construction industry. "Saudi Arabia has maintained a strong and sustainable demand for infrastructure projects, which is due to the growing Saudi national population, strong demographics [66 per cent of the population is under 25] and the expanding economy," Khaldoun Tabari, CEO of Drake and Scull International (DSI), said during a recent conference in Riyadh. According to a recent report released by CitiBank, Saudi Arabia's investment in construction makes up 31 per cent of the Mena region's total and forecasts show that the kingdom is likely to maintain its position with over $200 billion worth of projects under consideration or in the pipeline in the last 30 days alone. "The significant number of contracts in the tendering phase has also peaked investor interest in Saudi Arabia, with many regional construction companies focusing on the country for opportunities. Additionally, the 580-billion-riyal (Dh567.94-billion) national budget, the largest state expenditure to date, the 290-billion-riyal home-building fund and the latest mortgage law represent a strategic incentive for our company to further expand and seek growth in the kingdom's attractive market," said Tabari. Making up 26 per cent of construction related investments in the Mena region, the UAE is second with investments totalling $8.2 billion between January and April this year. supply pipeline "The supply pipeline has now peaked in Dubai, with 2010 representing the highest level of completions in most market sectors," said Craig Plumb, head of research at Jones Lang LaSalle Mena. Qatar is in third place with 19 per cent of the market, a figure that is likely to grow as the football World Cup that is scheduled to be held there nears. "The upcoming World-Cup in Qatar will lead to significant infrastructure and construction contracts being awarded in Qatar to facilitate the event, but also to develop the wider city offering and economic base to ensure sustainable levels of demand after the event," said Plumb. According to Graham Robinson, chairman of Global Construction Perspectives, out of their top 10 fastest-growing construction markets globally, Qatar is at the top of the list. "We expect the construction market in Qatar to grow by an average of 12.5 per cent year-on-year to 2020," said Robinson. The Global Construction 2020 report produced by Pricewaterhouse Coopers, Global Construction Perspectives and Oxford Economics stated that global construction will grow by 67 per cent from $7.2 trillion to $12 trillion annually by 2020. Investments into Mena countries are predicted to total $4.3 trillion by 2020. While Mena region growth is expected to be strong, other emerging markets in Asia are taking the bulk of worldwide investment. According to the report, China, India, the US, Indonesia, Canada, Russia and Australia will account for 65 per cent of the growth in global construction while the Mena will only represent 12 per cent of the bigger Asian emerging markets by 2020. While the construction industry is picking up across the region, recent conflicts across Mena have slowed down potential growth in the construction sector. "The construction market in Mena has been disrupted by the recent uprising and our forecasts indicate that this is depressing construction output and new orders through delaying new investment. But we expect this to be short-term. The key risk of oil prices rising to levels that would choke off demand internationally has now reduced. However, the key issues are yet to fully play out and be resolved and there will remain some uncertainty going forward," Robinson told Gulf News. The number of projects planned and under way across the region has dropped by 18 per cent to $1.9 trillion. This drop was similarly reflected in Kuwait and the UAE whose markets were down 43 per cent and 35 per cent respectively. In UBS' Mena construction report issued in 2010, analysts predicted strong growth for the region in 2011. "A close look at the individual budgets and plans of the Gulf Cooperation Council (GCC) and North African countries suggest that infrastructure spending will be a key focus in the future and we believe contracting companies operating in the region are likely to be key beneficiaries," said Mehrotra. However Citigroup's most recent report shows that investment in new projects grew only 1.7 per cent, which is below the historic average of 6.4 per cent since August 2010. Saudi Arabia's 8 per cent increase in cancelled and delayed projects "is most likely due to protests", states the report. According to the UBS report, Dubai has also had to cancel 495 projects as it grapples with mounting oversupply. Interestingly, Egypt reports a 32 per cent decline in delayed or cancelled projects which shows that, following the protests, the government is still looking to move ahead with project spend and development. "The impact of the Arab Spring has varied from country to country. In some instances this has led to governments committing to major funds to be invested in infrastructure and affordable housing to reduce social unrest and improve living conditions. The largest new stimulus package has been in Saudi Arabia where 50 per cent of the additional budget of 500 billion riyals has been allocated to providing 500,000 new affordable homes across the kingdom. Other countries such as Egypt and Bahrain have also seen major new commitments to the affordable housing sector as a direct consequence of the Arab Spring," Plumb told Gulf News. Petrochemicals The majority of upcoming projects are in the petrochemical sector. This industry which accounts for 33 per cent of the $7.5 billion worth of new projects announced last month has seen an increase of 20 per cent since March 2010, the majority of which are in Saudi Arabia. Gas processing on the other hand has seen a 48 per cent decrease, falling from $21 billion in January to $11 billion in April. The top three sectors receiving the most investment in the region are construction (32 per cent), infrastructure (23 per cent) and power (15 per cent). "Competition continues to be rife across the Mena markets. Infrastructure remains the most competitive segment, followed by construction. There is rising competition in oil/gas production, gas processing, petrochemicals and power," said Citigroup in its report. Portfolios diversified with eyes on growth Companies from outside the region expected to increase presence Dubai: According to a Merrill Lynch report released in October 2010, a large number of local-based contractors are looking outside their home country to growing markets such as Abu Dhabi, Saudi Arabia and Qatar to diversify their portfolio. This includes the Dubai-based contractor Arabtec, which is relying on investments in Saudi Arabia to strengthen growth over the next 12 months. "Some projects have been delayed, partly due to the political unrest in Egypt and Bahrain, but the most important thing is that the balance sheet has been healthy every quarter. The whole market is going through a major restructuring and new sectors are opening up, particularly in Abu Dhabi and Saudi Arabia," Ziad Makhzoumi, Arabtec's chief financial officer, told Gulf News during a previous interview. Arabtec was awarded a Dh900 million contract in February to build two colleges in Kuwait in conjunction with a local firm. Drake and Scull International (DSI) the Dubai-based construction and engineering company, is also focusing its efforts on diversifying. It recently announced a 2-billion-Saudi-riyal deal with Saudi Aramco to help build the King Abdullah Petroleum Studies and Research Centre in Riyadh. According to Robinson, Orascom Construction Industries is expected to be another big player in the region along with contractors coming from outside the region. "The Orascom Construction Industries led New Cairo waste project was the first PFI/PPP (Private Finance Initiative/Public Private Partnership) in Egypt, where there is now a pipeline of PFI/PPP projects. We also expect increased competition from outside the region, particularly from Korean contractors, some of the larger EU contractors such as Royal BAM Group and significantly those from southern European countries such as Greece and Turkey, and increasingly from the larger Indian contractors who already operate in the Gulf, such as Larsen & Toubro," said Robinson. Korean companies are looking towards the Mena region for contracts. According to the BofA Merrill Lynch and Meed Projects research, Korean contractors won only eight per cent of the UAE construction contracts in 2008, but snapped up 34 per cent in 2009.

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Arab Today, arab today saudi spending energises regional construction industry Arab Today, arab today saudi spending energises regional construction industry


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