meed-logo

line1 line2 line3
SIGN IN / REGISTER

Saudi Arabia under project pressure

28 March 2023

 

Saudi Arabia’s projects market is overheating. The volume of projects announced in the past six years vastly exceeds the resources that are available to work in the kingdom. 

Combined with tight deadlines to complete projects as part of Vision 2030, the pressure on the construction industry to deliver is ratcheting up and turning the tables on the supply chain as the shift from a buyer’s to a seller’s market accelerates.

For the five years from 2016 to 2020, there was an average of about $14bn-worth of contract awards a year in Saudi Arabia for the construction and transport sectors. After rising to $21bn in 2021, the total rose to $32bn in 2022 – the second-best year on record. 

The near doubling of the total annual value of contract awards by the end of 2022 has required a significant scale-up of resources in the kingdom, and the ramp-up is set to continue. 

Much of this pressure is due to the five official gigaprojects, which are major programmes of work that will involve a sustained flow of contract awards for years to come.

Gigaproject focus

The project most recently classified as a gigaproject by the Saudi authorities is the Diriyah Gate development on the western outskirts of Riyadh. It joins the $500bn Neom development in the northwest of the kingdom, Qiddiya entertainment city outside Riyadh, Red Sea Global’s projects on the Red Sea coast and Roshn’s housing developments across the kingdom.

These projects are relatively new. They began to be launched in 2017 and spent much of the following three years in the design phase. 

After a start that was hampered by the work and travel restrictions required to manage the Covid-19 pandemic, construction activity on these projects has accelerated sharply since the start of 2022. 

According to regional project tracker MEED Projects, there have been $36bn-worth of contract awards across these official gigaprojects since 2017. Compared to the entire Saudi projects market over the same period that represents 14.5 per cent of contract awards. 

The percentage rises to 20 per cent if a more recent time frame is used and only contract awards since the start of 2022 are included. As work gathers pace on the gigaprojects, their significance is expected to grow even further.

More major projects

Saudi Arabia’s ambitions are not limited to the five gigaprojects. In January, Crown Prince Mohammed bin Salman al-Saud launched the world’s largest modern downtown in Riyadh. 

Known as the New Murabba project, it involves the development of 19 square kilometres of land to the northwest of the capital. The centrepiece of the project is the Mukaab, which is a 400-metre-cubed structure with a tower standing inside it. 

New Murabba is part of a plan announced in January 2021 to double the size of Riyadh from 7.5 million residents to 15-20 million residents in 2030. Other major projects in the capital include King Salman International airport, King Salman Park, Sports Boulevard and Mohammed bin Salman Non-Profit City. 

Beyond the capital there are development projects planned in all major urban centres by Saudi Downtown Company, as well as entertainment centres being developed by Saudi Entertainment Ventures (Seven).

Connecting these cities and projects will be railways, roads, ports and airports that form part of the National Transport & Logistics strategy, which aims to turn the kingdom into a global hub for travel and trade by 2030.

World’s largest piling project shifts to The Line’s marina

Resourcing challenges  

One of the key challenges for the development firms and government agencies responsible for delivering these projects is securing the resources they need. 

As client bodies attempt to make their projects more attractive for companies to work on, the industry is changing. The first signs of this change can be seen in the consultancy market. 

After years of searching for project opportunities, the big consultancy businesses are now only selectively bidding for projects in the kingdom. This is because their orderbooks are already full, and for many international firms there is a concern that they could become over-exposed to the Saudi market. 

On contracts that have already been won there are also challenges. Staffing projects is proving difficult as the kingdom remains a hard sell for many project professionals, despite significant social reforms that have taken place in recent years. 

Then, once staff have been recruited and deployed on projects, there is the prospect of losing them to competitors or clients that require the same human resources.

Securing contractors

As activity on site accelerates, the bigger concern is contracting resources. As things stand, there are not enough contractors working in Saudi Arabia to deliver all of the planned projects. 

The first way to deal with this problem is to increase the capacity of contractors in the kingdom. In February this year, the Public Investment Fund (PIF) invested $1.3bn in four local construction firms: Al-Bawani Holding Company, Almabani General Contractors Company, El-Seif Engineering Contracting Company and Nesma & Partners Contracting Company. 

This investment will allow the companies to scale up their capacity, adopt advanced technologies and improve local supply chains. 

As these firms grow, the hope is that it will encourage other local companies to also expand.

International or regional companies can also help, and over the past two years foreign players have become active in the kingdom again. Firms such as Bouygues, Samsung C&T, Hyundai Engineering Construction, China State, Webuild, FCC, Alec, Consolidated Contractors Company and Urbacon Trading Contracting Company have all secured major orders. 

In some cases, these contract awards have been supported with foreign finance, which gives the contractor an additional level of comfort when it comes to potential payment for projects. For others, the contract awards reflect growing assurance in the Saudi market. 

Boosting appeal

Confidence has been lifted by measures to make the Saudi market more attractive. Payment terms are improving and many of the frustrations typically faced by contractors are being addressed. 

One example is the use of performance guarantees. Red Sea Global, which is developing the Red Sea Project and Amaala gigaprojects on the Red Sea coast, no longer requires contractors to submit bid bonds and returns performance bonds on completion of the project, along with half of the retention. 

Alternative procurement methods and contract types are also being used, notably early contractor involvement and design and build. 

These different approaches reduce risk for the contractor and allow the client to lock in resources at a much earlier stage of the procurement process. 

Red Sea Global has adopted a different approach and is self-delivering the bulk of its projects. By acting as its own management contractor, it engages with subcontractors itself. While this means it does not need to secure the services of a main contractor, it still requires engaging with the supply chain, which – like the main contractor market – has finite resources in Saudi Arabia.

Payment terms are improving and many of the frustrations typically faced by contractors are being addressed 

Driving efficiency

On the other side of the equation, making construction more efficient could also help to limit the resources required. 

Client bodies are exploring modern methods of construction to increase the speed of delivery, reduce costs and cut the amount of resources needed on site.

The market could also be self-limiting. Decision-making in the kingdom remains centralised, which means key project decisions can be slow. While this is changing as development companies are left to run their own projects, bureaucracy can impact the speed of delivery, which ultimately reduces the immediate demand for resources on a project. 

While slow decision-making could impact progress on some projects, the overriding story for 2023 will be one of sustained pressure on the kingdom’s construction sector as it becomes a seller’s market. 

With that, there is the likelihood that contractor margins will start to creep up, just as they did in the UAE when its construction market overheated in 2003 and 2008. 

So far, that does not appear to have happened, as clients in Saudi Arabia have managed to find sufficient resources. For that to remain the case will be a major challenge, however, as on-site activity for most projects in the kingdom is still several years away from peaking. 

Daniel King, director, Currie & Brown

International contractors continue to see a level of risk in the Saudi market

“There is a lot of opportunity. A large volume of work is being planned, designed and rolled out. With that, there is significant pressure right now on the market in terms of resources and supply chain. 

“On the consultancy side, the market is tremendously difficult. 

“Even with the best incentives and best set of practices, retaining staff is a challenge. People are being attracted elsewhere and the competition is fierce. 

“For the contractors, there are a lot of tenders being let. The perception that the market has risk remains, however. That is certainly the perception for international contractors, and they are still looking at the Saudi market with some level of risk appreciation in terms of how quickly they are going to be paid and what the margins really are. 

“That approach will likely prevail for the short to medium term, until clients’ practices change in terms of contractual frameworks and payment practices. 

“Varied procurement practices are coming into play to guarantee supply chain. It might be early contractor involvement or partnering, but the main purpose is to guarantee the right level of contractors.”

Adel Karem Jemah, senior vice-president, Hill International

To prevent resource shortages, supply chain and procurement must be carefully considered

“It is imperative to consider alternative methods of procurement during boom times, and the current boom in Saudi Arabia is unprecedented considering the types, size, nature and complexity of projects that have been announced in line with Vision 2030. 

“This necessitates giving due consideration to the supply chain and type of procurement.

“It is not enough to look for resources locally or even regionally to cope with such projects. One needs to reach out to where such resources are available globally, either due to slowdowns in certain regions or the completion of other major projects. 

“Cost-plus contracts were used previously in many projects in Saudi Arabia. However, the risk for such contracts rests with the client and sometimes the cost ends up much more than expected. That is why financiers prefer the lump-sum type of contracts. 

“Nonetheless, I can see this type of contract being used for fast-track projects with very tight schedules, for instance to meet deadlines for facilities required for international or regional sporting events. 

“In any case, the evaluation and selection of contractors needs to be done with extreme diligence.”

MEED's April 2023 special report on Saudi Arabia includes:

> ECONOMY: Riyadh steps up the Vision 2030 tempo

> CONSTRUCTION: Saudi construction project ramp-up accelerates

> UPSTREAM: Aramco slated to escalate upstream spending

> DOWNSTREAM: Petchems ambitions define Saudi downstream

> POWER: Saudi Arabia reinvigorates power sector

> WATER: Saudi water begins next growth phase

> BANKING: Saudi banks bid to keep ahead of the pack

https://image.digitalinsightresearch.in/uploads/NewsArticle/10705629/main.gif
Colin Foreman

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Dubai seeks consultants to develop drainage strategy

    18 March 2026

    Dubai Municipality has issued a request for qualifications (RFQ) for a study to develop a sustainable urban drainage systems (Suds) strategy across the emirate.

    The bid submission deadline is 9 April.

    The tender, issued through the Sewerage and Recycled Water Projects Department, covers the development of a strategy and conceptual implementation plan for Suds in Dubai.

    It follows a separate RFQ issued by the municipality in March for consultancy services to study the emirate’s sewage treatment strategy.

    The Suds project, designated TF-23-D1, aims to support the emirate’s flood protection and drainage infrastructure by promoting a more sustainable approach to stormwater management.

    The scope of work includes a review of international best practices in Suds and their applicability to Dubai. It also involves undertaking a Suds opportunity study and carrying out catchment-scale modelling and financial evaluation for a pilot study area.

    Consultants will be required to develop Suds design guidelines, specifications and standard drawings. The project also includes establishing a strategy, policy, legal and regulatory framework to support a Suds implementation roadmap.

    Dubai Municipality said the initiative represents “a significant step towards a more resilient, sustainable and forward-looking stormwater management approach for Dubai.”

    The study forms part of a broader review of Dubai’s water and wastewater infrastructure. Earlier this month, the municipality issued a separate consultancy tender (P115-D1) to assess the emirate’s sewage treatment and recycled water distribution strategy. 

    The study will focus on infrastructure requirements to support future population growth. 

    This includes identifying locations for potential future facilities such as treatment plants and pumping stations.

    The bid submission deadline is 23 March.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/16027434/main.jpg
    Mark Dowdall
  • Oman awards power purchase agreements

    18 March 2026

    Oman’s Nama Power & Water Procurement Company (PWP) has issued letters of award (LoA) for new power purchase agreements (PPAs) to three independent power producers (IPPs), according to regulatory filings.

    The new PPAs will extend the operating life of existing gas-fired power plants beyond the expiry of their current contracts.

    The projects have a combined capacity of about 3,500MW.

    The agreements have been awarded to Phoenix Power Company, Al-Batinah Power Company and Al-Suwadi Power Company.

    Phoenix Power Company operates the 2,000MW Sur IPP.  It is owned by a consortium of international and regional investors, including Japan’s Marubeni Corporation and Chubu Electric Power, Qatar’s Nebras Power, Qatar Electricity & Water Company and Multitech of Oman’s Bahwan Engineering Company.

    Al-Batinah Power Company and Al-Suwadi Power Company operate the 750MW Sohar 2 IPP and the 750MW Barka 3 IPP, respectively.

    According to regional projects tracker MEED Projects, Nama PWP signed the original PPA for the Barka 3 project in 2010 with a consortium led by Gaz de France (GDF) Suez under a special purpose vehicle (SPC) called Al-Suwadi Power Company.

    The shareholders comprised GDF Suez (46%), Bahwan Engineering Company (22%), Shikoku Electric Power Corporation (11%), Sojitz Corporation (11%)  and the Public Authority for Social Insurance (10%).

    In 2015, GDF Suez was rebranded as Engie following a strategic shift towards low-carbon energy and utilities.

    All three companies said the new PPAs will run for 15 years under agreed commercial terms. Acceptance of the LOAs has been requested by 18 March 2026.

    The new agreements for Sohar 2 and Barka 3 will take effect on 1 April 2028 and run until 31 March 2043. The agreement for the Sur IPP will commence on 1 April 2029 and run until 31 March 2044.

    The awards form part of Nama PWP’s 2028-29 procurement programme. The programme aims to secure firm generation capacity from existing assets whose current PPAs are due to expire during that period.

    In Oman, IPP projects are developed under a build-own-operate model. This allows plant operators to continue running assets beyond the initial PPA term, either through contract extensions or by selling power into a future electricity market.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/16027001/main.jpg
    Mark Dowdall
  • DP World awards Jafza warehouse construction deal

    18 March 2026

    Dubai-based ports operator DP World has awarded a contract to build a multi-tenant warehouse development at Jebel Ali Freezone in Dubai, UAE.

    The contract was awarded to local firm Group Amana.

    The development spans 141,916 square metres (sq m) and comprises 187 units across seven blocks.

    These comprise warehouses, light industrial units, a retail shop, a mosque and other associated infrastructure.

    The new contract builds on their existing partnership to deliver the logistics park at Jeddah Islamic Port in Saudi Arabia.

    In February last year, MEED exclusively reported that Dubai’s DP World and the Saudi Ports Authority (Mawani) had awarded a SR347m ($92m) design-and-build contract to Group Amana for the project.

    The scope of the contract covers construction work on the buildings under package two of the project’s first phase.

    Earlier this week, MEED reported that DP World has kept its 2026 capital expenditure budget at nearly $3bn, focusing on two domestic assets and four overseas projects.

    The company said in a statement that the priority developments include Jebel Ali and Drydocks World in Dubai.

    Earlier this month, the group announced record financial results for 2025, with revenue up 22% to $24.4bn and adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) up 18% to $6.4bn, delivering a 26.3% margin.

    DP World said this performance was driven by strong momentum across its ports and terminals and logistics business.

    The group’s gross throughput rose 5.8% to 93.4 million 20-foot equivalent units.

    Profit for the year increased 32.2% to $1.96bn, and operating cash flow grew 14% to $6.3bn.

    Return on capital employed increased to 9.9% in 2025, up from 8.9% in 2024, reflecting stronger earnings despite ongoing geopolitical and trade uncertainty.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/16026660/main.png
    Yasir Iqbal
  • Egyptian firm starts building Sal’s Riyadh logistics centre

    18 March 2026

    Egyptian contractor Rowad Modern Engineering, a subsidiary of the Elsewedy Electric Group, has begun construction on the expansion of Saudi Logistics Services Company (Sal) facilities at King Khalid International airport in Riyadh.

    The scope of work includes the rehabilitation and upgrade of existing infrastructure, as well as the construction of new supporting facilities and services.

    Sal started the tendering process for its SR4.2bn ($1bn) logistics zone in the north of Riyadh in September last year, as MEED reported.

    UAE-based Global Engineering Consultants is the project consultant.

    The logistics hub aims to meet the demand for customised warehouses located near King Khalid International airport and the Riyadh Metro.

    The project is in line with Vision 2030 and the National Transport & Logistics Strategy, which aims to support the kingdom’s logistics sector and enhance Saudi Arabia’s position as a global logistics hub.

    Sal and Sela signed an agreement to develop the project in March last year.

    This was followed by another lease agreement for the project, which will span about 1.57 million square metres. 

    According to an official statement: “The lease will extend for 30 years, which is further extendable to an additional 15 years upon agreement of both parties.”

    GlobalData expects the kingdom’s construction industry to record an annual average growth rate of 5.2% in 2025-28, supported by investments in transport, electricity, housing and tourism infrastructure projects, as well as the $850bn-plus gigaprojects programme.

    Growth will also be supported by government investments in rail, dams, industrial and road infrastructure projects. 

    The industrial sector is estimated to grow by 3.3% in 2025-28, supported by investments in the development of manufacturing, logistics, chemicals and pharmaceuticals plants.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/16026154/main.gif
    Yasir Iqbal
  • Jabal Omar plans next phase of its Mecca development

    18 March 2026

    Saudi Arabian developer Jabal Omar Development Company is carrying out planning for phase seven of its Jabal Omar master development in Mecca, according to a fourth-quarter 2025 financial presentation.

    The company said phase seven will be a mixed-use scheme comprising hotels, retail and residential components, but did not disclose a breakdown of the project elements.

    Jabal Omar plans to use a development partnership model for the phase to minimise capital expenditure.

    Separately, the developer said it is targeting the delivery of 1,346 hotel keys and more than 20,000 square metres of gross leasing area in phase four by 2027.

    Rotana Jabal Omar Makkah, comprising 655 keys, is due to be fully operational in the first quarter of 2026, after 450 keys began operating in the final week of December 2025.

    The 1,141-key Sofitel is scheduled to become operational in the fourth quarter of 2026, while the 20,000 square metres of gross leasable area is expected to be ready in 2027.

    Jabal Omar estimates its 2026 capital expenditure at SR1.1bn ($293m), with spending expected to fall once the phase four hotels are completed.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/16026145/main.png
    Yasir Iqbal