Meed | Economic change is inevitable for major projects

Economic change is inevitable for major projects

11 September 2024

Commentary
Colin Foreman
Editor

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At the end of August, a Saudi government official said that Riyadh Metro would open this year. While similar comments were made by other government officials in 2023, this time, it feels like 2024 will be the year that Riyadh Metro finally opens.

The project is a timely reminder that major programmes of work are typically completed in very different circumstances than those in which they were launched.

Projects that take over a decade to complete almost inevitably straddle economic cycles and have to navigate disruptive geopolitical events. Since 2013, there have been major changes in Saudi Arabia, the region and the rest of the world, and many have directly impacted the delivery of the metro.

The first major economic change was the drop in oil prices from mid-2014 onwards. On 28 July 2013, when the Riyadh Metro contracts were signed, Brent Crude’s price was $108 a barrel. By early 2015, the price had fallen to $50 a barrel. The drop ushered in a new period of austerity across the region as governments cut back on spending and delayed payments, throttling contractors’ finances and ability to execute work effectively.

Political change came in January 2015, when King Salman Bin Abdulaziz Al-Saud took to the throne after his brother, King Abdullah Bin Abdulaziz Al-Saud, died. Further economic change followed with Crown Prince Mohammed Bin Salman launching Vision 2030, together with cultural change, including the decision to lift the ban on women driving in 2018.

In 2020, the global economy was paralysed by the Covid-19 pandemic, and in the years that have followed, ongoing supply chain bottlenecks and cost inflation have impacted project delivery – a very different scenario from the low interest rate environment that persisted through the 2010s.

With Saudi Arabia and others across the region embarking on major programmes of work that will take over a decade to complete, predicting how the world will change over the next 10 years will, as always, be a key challenge.

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Colin Foreman