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Saudi construction recalibrates

30 May 2024

Commentary
Colin Foreman
Editor

Read the June 2024 issue of MEED Business Review

After two years of growth at breakneck speed for Saudi Arabia’s construction sector, signs of a recalibration began to surface towards the end of last year. Officials have indicated that projects are being strategically phased in a stepwise manner to prevent undue strain on the supply chain – a move that could potentially lead to inflationary pressures.

An alternative narrative that the kingdom does not have the funds available to meet the capital expenditure requirements for all planned projects has also emerged. To overcome this challenge, development companies are now being instructed to redouble their efforts to find external investment.

Regardless of the trigger, the project rethink will significantly impact construction. First, as budgets are reassessed, contract awards will slow down. This has already been evidenced this year, according to data from regional projects tracker MEED Projects.

Second, development companies will adapt their strategies to focus more on securing investment. This means project elements that are bankable and attractive to financiers will be the most likely to proceed, while other more speculative projects may not move ahead as quickly as first intended.

This is a key change because up till now, the organisations tasked with delivering most projects in the kingdom have had to consider both the financial return on investment and the broader economic impact. External investors will be much more laser-focused on the financial return.

The challenge for construction companies will be navigating this change and picking the right projects. Experience shows that projects that stop being a priority halfway through construction are typically loss-making.

If developers, financiers and construction companies can get it right, then the outlook remains little changed as they will be able to capitalise on Saudi Arabia’s strong economic fundamentals. If they do not, the challenges that have emerged during previous market corrections will have to be tackled.

Must-read sections in the June 2024 issue of MEED Business Review include:

> AGENDA: Riyadh reins in spending; PPP offers budget and efficiency routes; Opening up property sales; Aramco explores PPP pathway

> CURRENT AFFAIRS: ​Kuwait moves to expedite oil projects; Political crackdown in Tunisia causes concern

INDUSTRY REPORT:
MEED’s Top 100 Companies
> Middle East equities weather the storm

> ECONOMIC ACTIVITY INDEX: UAE economy regains regional lead

> LEADERSHIP: Decarbonising the global energy grid

> NUCLEAR: Nuclear power will help region achieve AI ambitions

> OIL & GAS: Petrofac projects worth $6.6bn at risk in Mena region

> INTERVIEW: Saudi Ministry of Culture leads design change

> BANKING AWARDS: Mena Banking Excellence Awards winners revealed

> IRAQ MARKET REPORT:

> COMMENT: Baghdad faces mounting pressure
> GOVERNMENT: Al Sudani struggles to maintain Iraq’s political stability
> ECONOMY: Iraq economic revival faces headwinds
> SECURITY: Iraq gas field attack to impact projects
> OIL & GAS: Iraqi oil and gas projects activity dips, but holds
> POWER: Iraq electricity sector makes slow progress
> CONSTRUCTION: Iraq steps up post-war revival

> MEED COMMENTS: 
> Al Maktoum airport expansion must go ahead this time
> Aramco keeps the project spending wheel turning
> Electric vehicles have a long way to go
> Boycotts are a boon for local brands

> GULF PROJECTS INDEX: UAE leads market expansion

> APRIL 2024 CONTRACTS: Five countries record multibillion-dollar deals

> MARKET SNAPSHOT: Mena PPP projects

> OPINION: US foreign policy approach remains adrift

> BUSINESS OUTLOOK: Finance, oil and gas, construction, power and water contracts

To see previous issues of MEED Business Review, please click here
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Colin Foreman

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