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Saudi Arabia Infrastructure Report Q1 2012
Business Monitor International, Nov 2011, Pages: 82
Business Monitor International's Saudi Arabia Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Saudi Arabia's infrastructure industry.
BMI View: Saudi Arabia’s buoyant construction sector has stepped up a level over recent months, with government investment in social and economic infrastructure, aimed at staving off public discontent, having borne fruit. The country awarded contracts worth US$22.5bn in H1 2011;following a flurry of recent contract awards, a bumper H2 2011 is also expected. For this reason we are forecasting construction industry growth rates to accelerate over 2012 and 2013, as awarded contracts enter their construction phase.
We are forecasting 5.4% and 5.2% real growth in 2012 and 2013 respectively, reflecting the increase in government spending over 2011. Saudi Arabia’s construction sector is being fuelled predominantly by public spending on economic and social infrastructure; therefore the government allocations pledged in H1 2011 will make a significant impact. We have seen contracts filtering through over H2 2011, which is building upon strong activity seen earlier in the year. The second half of 2011 has seen significant contracts in the power sector, in addition to a key rail contract, an increase in road project funds and investments into social infrastructure -specifically housing.
With contract awards expected to surpass 2010, we should see construction industry real growth accelerate over the coming years. On top of this, greater government spending should continue into 2012, as the government carries out its sizable development plan and executes additional funding pledged in response to popular discontent, fuelled by the Arab Spring in Q1 2011. Over the medium-term we are therefore penciling in robust growth, averaging 3.9% between 2014 and 2016.
- Sectors To Watch Are:The most dynamic subsector in Saudi Arabia has been the power plants and T&D sector, where billions of dollars in contracts have been awarded. The US$80bn 10-year investment plan for electricity infrastructure (2008-2018) has led to significant activity in the energy sector. BMI estimates that there are power projects worth US$34bn currently either underway or in the pipeline, with the majority of these – around US$30bn- the construction of new capacity. It is estimated that there is 30GW currently in development.
- Huge investments into the social infrastructure sector are in the pipeline, in part to appease the populace. Both the SAR1.44trn (US$385bn) Ninth Development Plan (2010-2014) and social benefit packages worth a total of US$130bn,announced in response to protests which broke out in Q1 2011, are heavy on social infrastructure spending. Healthcare and education investments are growing, and the potential for private sector participation is increasing. On the other hand, huge social housing projects are in the pipeline, with SAR250bn pledged and 500,000 housing units currently in the planning stages.
- Transport is also booming, especially rail infrastructure where US$24bn of projects are currently either underway or in the pipeline. The Haramain High Speed Railway has taken centre stage, with award of the final contract for this project (worth US$1.4bn and awarded to a Spanish consortium) having taken place in July 2011. Attention should now turn to the SAR26bn (US$7bn) Saudi Landbridge project, an east-west rail line which will link Jeddah and Dammam. The railway has been in the pipeline for a number of years, and was initially launched as a PPP concession. However, it has now been approved for construction using government funds (October 2011) and we expect it to go to tender imminently.
- Whilst rail has overshadowed road investment over the past couple of years, it is noted that around US$1bn in transport projects were announced during the course of Q3 2011.
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