Saudi Construction & Ongoing Projects

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October 03, 2009 by Conrad Egbert

With real estate investments in the kingdom touching US $334 billion (SAR1.2 trillion) currently, and further estimated to reach $400 billion by 2010, according to the lastest research by Global Investment House (GIH), can Saudi Arabia be called the sleeping giant anymore?

Its $40 billion Sudair City development, along with its $10 billion Landbridge Railway project, which are both currently in bidding, are witness to this GCC state’s resilience to the economic downturn.

In another report by research house Proleads, Saudi Arabia is placed on top, in terms of the number of ongoing projects in the kingdom, with 442 projects still proceeding and a rather low 19% cancellation and postponement rate.

A fortnight ago, GIH also revealed that the demand for business and housing projects in Saudi Arabia has led to a projected 7% growth in the kingdom’s real estate sector from now until 2012 – a time during which most countries would merely be recovering from the effects of the crisis.

Further, recent reports have shown that if the kingdom wants to sustain its rapidly growing population it needs to build around 1.5 million new homes by 2015, which is around 250,000 housing units annually. These figures are further broken down city-wise including Al Khobar with a 25% increase in housing demand, 21% in Jeddah and around 17% in Riyadh. Jeddah is also looking to invest more than $1.3 billion in the construction of bridges, tunnels, roads and parks.

But while Saudi Arabia appears to have escaped the clutches of the evil crisis, one cannot deny the many projects that have been cancelled across the GCC, including a few within Saudi Arabia. But that is not beyond normal says Dammam-based GTSC general manager, Husain Al Omani.

“You will find that many projects have already been signed, including billion dollar ones by Saudi Aramco, Saudi Electric Company and Sabic, along with various other ongoing infrastructure jobs in the kingdom. Yes, some projects are on hold but that’s because they’re backed by companies based outside Saudi Arabia and may have been affected by the downturn. But no major projects have been cancelled,” he added.

And Omani isn’t the only one who feels confident about the Saudi market. Big Saudi construction companies are still picking up jobs in the country and have said they have no reason to look elsewhere just yet.

“There is so much work in Saudi Arabia that we still have the option to decide if we want to take a job or not,” says Jeddah-based Saudi Binladin Group (SBG) corporate development director Ahmed Anees. “And that is a luxury most countries within the GCC and the world over do not have. That in itself is testament to the strength of the Saudi Arabian market.”

Power and automation technology company ABB Group goes a step further saying its order book has never been this filled up.

“We’ve seen and experienced a rise in demand for our power and automation technology solutions in the Kingdom over the past 12 months due to the Saudi government’s efforts to upgrade the energy and utilities sector,” said Mohammed Samkari, president and local business unit manager for substations at ABB in Saudi Arabia.

“Based on orders, we’ve seen no downturn in the Saudi market. Oil prices are stable and the kingdom is still enjoying strong economic growth. In general, government projects are going ahead on time and as budgeted. We’ve been adding staff to our operations here to cope with the rise in demand for power generation solutions. ABB now has over 1300 employees in Saudi Arabia and we’re still growing.”

The sheer size of the country and its population of 27 million could be one of the main reasons for its promising future. Yousef Hajeir, estimation and support manager at one of the leading construction firms in the kingdom, Consolidated Contracting Company (CCC) based in Al Khobar, says that Saudi Arabia is now the central focus of construction companies in and around the GCC and that looking elsewhere for work is not even on the agenda at the moment.

“Only recently one of Kuwait’s biggest construction companies opened up offices here in order to find more jobs. Construction companies from all over the world seem to be rushing to Saudi to take advantage of all the opportunities available. The UAE’s biggest construction company, Arabtec, has even opened up an office here.”

Good news seems to be in abudance in Saudi but angels come with demons and with the yin there’s the yang. There’s no doubt that Saudi appears to be the next construction superpower, but power can often wield a disregard for the practical, and issues which are now of international concern across all GCC countries, could be overshadowed by murky ideas of grandeur.Take the green issue for example. Are Saudi Arabian construction companies, the government and other construction related industries, like building product manufacturers, focusing on environment-friendly construction techniques or have they been blinded by the rich promises this industry seems to offer?

“To be honest, not all companies are focusing on going green,” says Hajeir. “The big ones are gradually aligning themselves with green practices, but it is no where close to the standards that are being implemented across Europe.”

The Saudi government’s enforcement of environment-friendly practices is essential to take the green initiative in the kingdom to the next level.

Omani agrees. “I can’t really say if the green issue is being taken seriously or not, but if the implementation of health and safety regulations is anything to go by, then I think more definitely needs to be done. Yes, you can find some regulations about safety, or concern about safety, but only 25% of these are enforced. And I think this is exactly the same for the green issue.”

But a scandalous 25% enforcement of green regulations quickly loses importance when compared to the can of worms that the crisis cracked open.

It has exposed serious problems across the GCC construction and real estate industry, which were being overlooked during the boom years including quality nightmares, poor facilities management standards and inadequate real estate regulations.

“The downturn exposed flaws in the investment and financing process for certain projects,” says Riyadh-based Al Muhaidib Technical Supplies marketing support manager Mohammed Dahlan. “In some instances, investments were made with faulty economic assumptions. And the government has stepped in to assure that the downturn is not as pronounced in Saudi Arabia.”

But due to the conservative nature of the kingdom, caution during development has appeared naturally and Saudi seems to be treading a little more carefully than its neighbours.

The country has placed a lot of emphasis on developing its education sector including mega projects such as the 8 million m2 Princess Noura Bint Abdul Rahman University for Women in Riyadh where it has banned the use of Chinese products in order to maintain a “quality” end-product.

The country has also carried on construction with its economic cities, none of which have been put on hold or have been cancelled. Optimists feel that the downturn has offered a new chance to the construction industry to begin afresh, and in the correct manner, where developers and contractors can set the tone for things to come.

Dahlan adds, “At many levels, the downturn has also created opportunities to refine and improve some projects, especially, when you read about the results of rebidding some of the mega-projects with multi-billion dollar savings.”

Omani too feels the same and says Saudi could soon be leading the way in this regard. “There have been several problems all over the region but companies are now looking to become international names, and for that they’re going to have to adhere to the highest standards; this is a fresh start.

“The construction sector has been affected from the downturn, in that, it has offered many companies the chance to go back to the drawing board and rethink their projects according to more practical terms. Everyone has learnt from the past and the way ahead only looks better,” says Omani.

The kingdom is on the edge of its own little construction boom, but what turn is taken is now in the hands of its government. With only three months to the close of 2009, 2010 could see Saudi become the greenest pastures yet.