Construction & Engineering
From The Report: Saudi Arabia 2015
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Despite the recent fall in oil prices, Saudi Arabia’s government is pushing ahead with its ambitious development agenda. The outlook is thus bright for the Kingdom’s construction firms, with projects planned under government’s 10th Development Plan including investments worth $258.2bn in real estate; $151.5bn in petrochemicals; and $126.7bn in electricity, gas and water. Indeed, in the short term, costs for contractors and the wider construction industry are improving as a result of the fall in oil prices. Meanwhile, foreign firms are becoming increasingly active in the market thanks to recent measures to help smooth the process of market entry for foreign contractors, an illustration of the government’s commitment to engaging foreign firms in the construction industry.

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Overview

Solid foundations: The sector remains competitive despite changes in the global marketplace
OBG
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As the largest member of the GCC and blessed with considerable hydrocarbons reserves, it is not hard to see why Saudi Arabia is often touted as the next big construction market in the region. Despite operating challenges and associated risks, the government’s decision to push forward with an ambitious development agenda has alerted numerous construction firms to the country’s potential. The energy sector especially is expected to see a number of promising developments. Gasem S Al Shaikh, CEO…

Analysis

The bottom line: Oversupply of building materials is causing cost fluctuations throughout the industry
OBG
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The building materials sector serves as both a barometer of the wider health of the construction industry and as a critical factor in the bottom line of local contractors. As with the industry in general, sub-sectors such as cement have entered a period of uncertainty. While the government’s extensive development programme has buoyed cement sales and demand over the last decade, current uncertainties surrounding the labour market and global oil price have led to short-term challenges for producers.…

Analysis

Adjusting expectations: New labour laws are forcing contractors to tighten budgets
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While competitive bid prices are putting pressure on margins, contractors in Saudi Arabia are now feeling the effects of new labour regulations on operations and costs. Since the government concluded an amnesty for illegal expatriate workers and began clamping down on illegal labour in November 2013, contractors have been having a more difficult time meeting their labour needs. Riyad Ahmed Al Thagafi, CEO of real estate firm Ewaan, told OBG, “With the Saudiisation policy having been implemented…