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Companies confirm Saudi gigaproject slowdown

11 September 2024

 

Companies working on Saudi Arabia’s gigaprojects have expressed concerns about the pace of development in the kingdom despite increased levels of contract awards this year. 

The concerns demonstrate how Saudi Arabia’s gigaprojects programme and the marketing hype it has generated risks falling short of market expectations in spite of delivering solid progress with contract awards. 

Companies in Saudi Arabia have reported a noticeable slowdown in activity on the kingdom’s gigaprojects programme this year. 

During MEED’s webinar on Saudi Arabia’s projects market in late August, attendees were asked: “Have you seen a noticeable slowdown in activity on the gigaprojects programme this year?”. Of the 362 respondents, 72% reported a slowdown, 19% said that activity levels are roughly the same, and 10% reported an increase in activity. 

The poll results reflect a significant change in sentiment towards the Saudi market since the start of this year. In January, attendees of another MEED webinar on the Saudi projects market were asked if they anticipated more contract awards in 2024 than in 2023. Over 92% answered that they expected more awards in 2024, building on the record numbers registered in 2023, when there were $44.5bn of contract awards in the kingdom across all sectors. 

Since January, there have been reports on how the delivery of The Line at Neom will be phased, as well as rephasing exercises for other projects as budgets come under strain. These exercises followed comments from the Finance Ministry at the end of last year, which admitted that some projects will be slowed down as the government manages its finances more tightly.

The perceived slowdown in activity on the gigaprojects expressed in August is also reflected by data from regional projects tracker MEED Projects. During August this year, no contract awards were recorded on the kingdom’s five official gigaprojects: Diriyah, Neom, Qiddiya, Roshn and the projects being developed by Red Sea Global.

The total value of contracts awarded by the gigaproject developers in August 2023 was $587m, which suggests the performance in August this year was not just a result of a typical seasonal summer slowdown. 

The lack of contract awards for the gigaprojects in August bucks the otherwise positive trend for the year. By the end of August, there had been $14bn of contract awards in 2024 compared to $9bn during the same period in 2023, representing a 55% increase on last year. The total registered by the end of August this year is close to achieving the $15.8bn total registered for the full 12 months of 2023.

Major awards this year have included the $4.7bn contract to build dams at Trojena that was won by Italy’s WeBuild and a $2bn contract won by a joint venture of local firm Albawani and Qatari contractor Urbacon Trading & Contracting for the construction of assets in the Wadi Safar development of the Diriyah project in Riyadh. An estimated $1bn design-and-build contract was also secured by a joint venture of local firm El-Seif Engineering Contracting, Egyptian contractor Hassan Allam Construction and Beijing-headquartered China Harbour Engineering Company to deliver infrastructure and building works for Terminal 1 of the port at the Oxagon industrial city development in Neom.

Wider market

The broader Saudi projects market has followed a similar trajectory. By the end of August this year, there had been $72bn of contract awards compared to $44.5bn of contract awards during the same period of 2023. During August 2024, there were $14bn of contract awards, and if the market replicates this performance again, it will have already outperformed the $86bn total recorded for all of 2023. 

Major highlights include the National Housing Company (NHC) signing an agreement with Beijing-headquartered China Machinery Engineering Corporation (CMEC) to construct 20,000 housing units for projects being developed by NHC. Another major signing was the Royal Commission for Riyadh City (RCRC) awarding a SR4bn ($1bn) design-and-build contract to upgrade the Wadi Laban cable bridge to the joint venture of Turkish contracting firm IC Ictas and Riyadh-based Al-Rashid Trading & Contracting Company.

Outside of the construction sector, Saudi Aramco has awarded billions of dollars worth of contracts for major projects such as the third phase of the kingdom’s Master Gas System and the Fadhili gas plant. 

For some contractors, it is not the volume of work being awarded that is the main issue but rather the pace at which contracts are awarded.

“We were rushed to submit bids for a major project before the end of last year. There have been changes to the scope and clarifications, but ultimately, there is still no decision on a contract award,” says an international contractor working in Saudi Arabia. 

Payments are another perennial concern for companies working on projects in Saudi Arabia and the rest of the GCC. Despite the buoyant market conditions, most companies still say that getting paid on time is a problem. During the MEED webinar in August, attendees were asked if their companies were being paid on time for work on projects in the GCC. Of the 382 respondents, 64% said they were not being paid on time, while 36% said they were being paid on time. 

While contractors remain optimistic about the volume of work planned in Saudi Arabia, the slowdown in spending is forcing a shift in contractors’ bidding strategies.

“Saudi Arabia is booming,” says an international contractor working in the kingdom. “A lot of oil and gas projects are moving forward, but for the civil construction, we have noticed a slowdown and some challenges with cashflow. We expect this trend to continue, and to avoid these problems, we will focus our efforts on the revenue-generating projects.”

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Colin Foreman

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    Mark Dowdall