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
  • Chinese contractor wins Morocco solar plant deal

    10 August 2026

    China Harbour Engineering Company (CHEC), a subsidiary of China Communications Construction Company (CCCC), has won a contract to build a solar photovoltaic (PV) power plant in Fez in northern Morocco.

    Known as GreenPower Morocco 4 (GPM4), the project is being developed by Moroccan company GPM Holding through its utility-scale solar subsidiary GPM Parks.

    The project covers engineering design, equipment procurement and installation, construction of an operation and maintenance building, grid connection and commissioning. It also includes upgrades to the associated substation.

    According to CHEC, the completed plant will supply electricity to the local grid, although it did not disclose the project’s capacity or contract value. 

    The project is being developed under Law 13-09, which provides Morocco’s framework for private renewable energy generation.

    According to its website, GPM Holding is also developing another solar PV project called GreenPower Morocco 2 (GPM2). This follows the completion of its first solar project, the 34MW project (GPM1) commissioned in Tangier in 2024. 

    GPM1 was developed by Green Power Morocco, a special purpose vehicle owned by GPM Holding and UAE-based Amea Power. The $30m project covers 75 hectares and includes 91,000 PV panels. It is expected to generate about 66,149MWh a year.

    The project has a 25-year power purchase agreement in place with Amendis, a subsidiary of Veolia Morocco. PowerChina was the main engineering, procurement and construction (EPC) contractor.

    Chinese contractors have previously been involved in other projects in Morocco’s renewable energy sector.

    Shandong Electric Power Construction Company (Sepco 3), a subsidiary of PowerChina, was part of the EPC consortium for the 200MW Noor 2 concentrated solar plants and 150MW Noor 3 concentrated solar power projects at the Noor Ouarzazate complex.

    New contract awards have been limited in Morocco in 2026, although six solar PV plants are now in the execution stage under phases one and two of the 305MW Noor Atlas solar PV programme.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18263680/main.jpg
    Mark Dowdall
  • Shamal picks Dutco for Dubai Zoo site homes

    10 August 2026

    Dubai-based Shamal Holding has awarded local contractor Dutco Construction the main construction works contract for a low-rise residential project on the site of the former Dubai Zoo in Jumeirah 1.

    The project will comprise 90 low-rise homes and is designed as a residential leasing community that will remain under Shamal’s ownership, with all homes offered for premium leasing.

    The development will retain mature trees from the former zoo and is planned around shared courtyards, landscaped open spaces and a central park. Residents will have access to a clubhouse, wellness area, children’s play area, family pool, lounge and gym.

    The architect is DXB Lab. The local H&H is the development manager for the project.

    Dutco has previously worked with Shamal on infrastructure elements of the Dubai Harbour and Dubai Harbour Marinas developments.

    Shamal’s wider real estate portfolio includes the Naia Island, Dubai Harbour and Nad Al-Sheba Gardens developments. The company also holds hospitality and leisure assets, including partnerships with Jumeirah, Hilton and Baccarat, and operates attractions such as Skydive Dubai and Deep Dive Dubai.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18262386/main.png
    Colin Foreman
  • WEBINAR: Mena Oil & Gas Projects Market 2026-27

    10 August 2026

    Webinar: Mena Oil & Gas Projects Market 2026-27 
    Thursday 27 August 2026 | 11:00 AM GST  |  Register now

    Agenda:

    • Summary of the Mena oil, gas and petrochemicals projects market 
    • Overview of major megaprojects, including project programmes
    • Analysis of active contracts and spending to date
    • Review of top contracts by work already awarded
    • Long-term capital expenditure outlays and forecasts
    • Key contracts expected to be tendered and awarded over the next 18 months
    • Leading clients, contractors and market participants
    • Spending by segment: oil, gas and petrochemicals (upstream, downstream, onshore and offshore) 
    • Audience Q&A 

    Hosted by: Indrajit Sen, MEED’s oil & gas editor

    Click here to register

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18260597/main.gif
    Indrajit Sen
  • Spanish firm renews Yanbu desalination O&M contract

    10 August 2026

    Spain’s Aqualia has announced it has renewed a contract to operate and maintain three floating desalination plants in Yanbu on Saudi Arabia’s Red Sea coast.

    The contract was awarded by the National Shipping Company of Saudi Arabia (Bahri) and will run until 14 September 2028, with an option to extend for a further two years.

    The three reverse osmosis (RO) plants are mounted on barges and have a combined production capacity of 150,000 cubic metres a day (cm/d). Each plant has a capacity of 50,000 cm/d.

    The three plants were originally deployed at Al-Shuqaiq and are designed to be relocated along Saudi Arabia’s coastline according to water demand. The barges are currently located at Yanbu.

    The $255m floating desalination project was commissioned for the Saudi Water Authority in 2022, with Bahri as the developer and UAE-based Metitio as the main contractor.

    Bahri is publicly listed on the Saudi Exchange but has significant government ownership, with the Public Investment Fund (PIF) holding 22.5% and Saudi Aramco Development Company owning 20% of the company.

    Aqualia is providing operation and maintenance services in Saudi Arabia through its joint venture Haji Abdullah Alireza Integrated Services Company (Haaisco), in which it holds a 51% stake.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18259350/main.jpg
    Mark Dowdall
  • Kuwait shows tentative signs of economic development

    7 August 2026

     

    Kuwait was one of the chief targets of Iranian drone and missile strikes during July, but against the backdrop of regional instability, the Kuwaiti authorities also managed to conclude a series of significant deals during the month. That suggests that, if the US and Iran can come to some sort of agreement to end their conflict, there is the potential for the Kuwaiti economy to diversify and expand in a way that it has, until now, struggled to do.

    The sense of nascent progress was bolstered in early August, when a survey of local businesses found that the non-oil sector had returned to growth at the start of the third quarter, having been in a slump since the start of the war. However, the risk of renewed fighting means most observers remain deeply cautious about whether the latest purchasing managers index (PMI) is just a blip, or the start of a longer trend.

    Debt deals

    The first big deal came on 22 July, when the government sold $6bn-worth of bonds. It was the second debt issuance by the authorities since a long-awaited public debt law was passed by decree last year. The latest package included debt with tenors of three, five and 10 years. In a sign of the turbulent geopolitical environment, the bonds were priced at 70-85 basis points over US Treasuries. Notably higher than the 40-50 basis point spread the government achieved in its bond sale late last year.

    The second significant development came just a few days later, with Kuwait Oil Company (KOC) unveiling a $16bn deal with international investors Blackstone, Brookfield and KKR for its crude oil pipeline network. In a similar structure to deals struck in the past by Abu Dhabi National Oil Company (Adnoc) and Saudi Aramco, KOC will lease the country’s domestic and export pipelines to a new joint venture it has set up with the trio of international partners. The Kuwaiti energy company will then lease back the pipelines on an exclusive basis, in return for a volume-based tariff.

    KOC will have a 51% stake in the joint venture and – in line with Kuwaiti law – will retain full ownership and operational control of the 320-kilometre network.

    It was the largest energy infrastructure deal ever agreed in Kuwait and, according to KOC, the largest foreign direct investment made in the country. The $7.85bn that the three international partners will invest upfront will be used to support KOC parent company Kuwait Petroleum Corporation’s wider capital expenditure plans.

    The fact that the country was able to secure the deal at a time when its only existing export route – through the Strait of Hormuz – has been effectively closed off is an important vote of confidence by investors in the country’s longer-term prospects. According to energy consultancy Wood Mackenzie, Kuwait’s crude export volumes had fallen from 1.2 million barrels a day before the year to zero in April.

    It was the largest energy infrastructure deal ever agreed in Kuwait and, according to KOC, the largest foreign direct investment made in the country

    UK-based Oxford Economics noted that the bond issue and the pipeline deal came at a time when Kuwait “faces elevated fiscal funding needs and remains one of the GCC’s most exposed oil exporters to any disruption in the Strait of Hormuz given its limited alternative export infrastructure”.

    Blackstone said it also plans to open an office in Kuwait this year. There was a further show of investor interest in early August, when the Kuwait Investment Authority (KIA) reportedly agreed a $4.25bn, three-year loan from a group of 14 banks. The facility will be used for general corporate purposes, according to Bloomberg.

    In a further notable development, Kuwait’s Ministry of Public Works also handed a contract in late July to China State Construction Engineering Corporation (CSCEC) to build the country’s largest wastewater treatment plant. The North Kabd plant will have a capacity of up to 1 million cubic metres a day (cm/d). Kuwaiti water desalination plants have been hit on several occasions by Iranian drones during this year’s war, causing fires and other damage.

    Policy reforms

    On a smaller level, some notable reforms have been rolled out to try to shape the direction of the non-oil economy too. In late July, the Ministry of Commerce & Industry stopped issuing any more sole-trader or freelance business licences, while a review is carried out into the sector and official oversight is tightened.

    The authorities went a step further on 2 August, when a decree was issued to stop businesses offering goods and services without the right sort of licence. Anyone found to be working without the required permit could now face a prison term of up to three years and a fine of up to KD100,000 ($323,000) – or a sum equivalent to the profits generated by the unlicensed activity, whichever is greater.

    Some steps have been taken to ease restrictions in other areas. In early August, a change to the visa system was announced that will allow some foreign nationals to convert a visit visa into a regular residency permit in return for a fee of KD150. The measure proved immediately popular, but many applicants had failed to read the small print and, according to local media reports, several hundred were rejected. The scheme is primarily aimed at those seeking to bring their wives or children to Kuwait, as well as humanitarian cases and others with exceptional circumstances.

    Economic recovery

    The wider economy is showing tentative signs of improvement. The latest PMI survey delivered an unexpectedly strong result, showing that the non-oil private sector returned to growth in July for the first time since the war began.

    S&P Global Market Intelligence, which compiles the index, said the resumption of flights at Kuwait International airport had helped to support a rise in output and new orders – the first for five months. That in turn supported greater purchasing and hiring activity by local businesses and took the index up to 50.8 points – just above the 50-point threshold that separates growth from contraction.

    Even so, S&P warned that market conditions remain “challenging” while local bank NBK Capital warned in early August that “it remains to be seen how much of this improvement [in the PMI] will be sustained … following the reescalation in US-Iran tensions in the past weeks”.

    If the Kuwaiti economy is to make the most of its potential, the country needs the war between Iran and the US to come to a definitive end.

    MEED’s September 2026 report on Kuwait also includes:

    > BANKING: Necessity is the mother of invention for Kuwaiti lenders
    > OIL & GAS: Regional war to have lasting impact on Kuwaiti oil sector
    > CONSTRUCTION: Kuwait construction holds up despite regional strife

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18199239/main.gif
    Dominic Dudley