Saudi construction industry to contract $27B in 2017

David Clifton, a leading regional PMO expert; forecasted $29.9bn (SAR112bn) of construction awards in Saudi Arabia with $18bn (SAR67.5bn) having already been awarded by Q3 2016 while awarding of the Mecca Metro in Q4 would be required, as per Royal Decree, for his upper estimates to be achieved with the private sector having delivered more than 70% of awards; an inversion compared to all previous years on record.

 

Clifton further estimated that in 2017 the Saudi Arabian market would witness further contraction with forecasted awards totalling approximately $27bn (SAR101bn), which represents a further contraction of more than 9%. This is a consequence of the PMO implementation, and the subsequent lack of government work therefore placing the construction market in a position where it’s reliant again on private developers and Saudi Aramco. The situation is expected to ease only in 2018, although there is a strong case for one-off major infrastructure awards, as in the instance of Mecca Metro.

 

Government efforts to modernise and cut costs within the kingdom’s construction sector have commenced with additional reductions in subsidies for power and water and a continued streamlining of the public sector is expected, and may bear witness to the amalgamation of ministries and governmental departments.

 

As for Saudi Arabia’s pipeline of schemes, the trillion-dollar question remains, not around the $20bn (SAR75bn) of cutbacks already announced, but in relation to reprioritisation and timelines. The government had planned to enact $700bn (SAR2.6tn) of projects on a 10-year horizon. Extending this timeframe to 20 years will have a dramatic effect on the industry as, in essence; it would involve the halving of public sector awards in the kingdom.

 

As Saudi Arabia’s short-term outlook has worsened at the end of 2016, and as awards struggle to meet general forecasts, Faithful+Gould now expects construction inflation to have turned negative by the end of 2016 with the expectation that 2017 will be slow in the kingdom. Nevertheless, Clifton and F+G have forecasted that 2018 will start to reflect the impact of regional event-driven spending, and the re-entry of Saudi Arabia’s government to the construction awards market.

 

Faithful+Gould was part of an advisory panel for the former Minister of Economy and Planning (MEP) that led to the draft of the NPMO Royal Decree in September 2015. This collaboration was part of a 2-year initiative implemented between Faithful+Gould and other industry players, in coordination with His Excellency Mohammed bin Sulaiman bin Mohammed Al-Jasser, Saudi Arabia’s previous Minister of Economy and Planning.