Saudi construction under pressure to deliver on its promise

October 30, 2023, 1:43 PM

Saudi Real Estate Refinance Company said the issuance had garnered interest from institutional investors

Sector worth $1.25trn
China increasingly important partner
Sustainability demands changing practices

The Saudi construction sector is growing as the state showers money on giga-projects while oil prices are high, but the industry is under increasing government pressure to deliver, industry players say.

A market that was previously dominated by favoured government contractors such as Binladin Group and the now defunct Saudi Oger has been liberalised. This has allowed hundreds of local and global companies a piece of the action as Saudi Arabia embarks on a mammoth development programme to create a non-oil economy.

“It’s a golden opportunity now; there is enough for everyone,” says Yousef Al Sabhan, deputy general manager of Saudi Zaas Construction.

“Especially with the government making the regulations so easy. We’ve been in the market for 30 years, and now it’s much more open.”

The total value of real estate and infrastructure projects has been valued at $1.25 trillion, in addition to $250 billion of commissioned projects.

The giga-projects include the city Neom, the Red Sea Project and Amaala tourist resorts, education and sports city Qiddiyya. Entertainment district Seven, the Roshn and Jeddah Central housing projects, make up the others, as well as five economic zones and other infrastructure schemes.

China’s growing influence

Chinese companies have become new players for sourcing of supplies, reflecting closer political and economic ties between Riyadh and Beijing. This has alarmed the US, Saudi Arabia’s traditional ally.

“China has also been investing in building material capacity, setting up ceramic tile plants in the last couple of years,” says Anoop Mark Fernandes, vice-president of research at Sico Capital in Bahrain.

Bidding processes and documentation have become more transparent and easier through the government’s Etimad platform.

Many online contracting systems are being developed, as well as drone technology that allows builders to monitor sites from every angle.

Saudi Arabia’s $500 billion giga-project Neom includes luxury destination Sindalah

Getting it done

But both developers and contractors are under pressure to produce results.

“How do you translate a pretty image or vision that’s not going into too much detail at the early stage into something tangible?” Anastasios Dimas, regional digital delivery lead at AtkinsRéalis consulting firm asked at a construction conference in Riyadh this month.

“Getting everyone on board with that vision is a big task in itself. There is also a lot of effort required to bring it down to scale, and it’s getting more and more difficult. It’s hard for the market to catch up with the visions.”

Non-payment, which has blighted the sector in periods of low oil in the past, is also an issue.

Khaled Gharaibeh, contracts director at developer Rua Al Madinah, says developers are shifting to a more collaborative approach in which contractors bid for specific elements.

“Once chosen, they sit around the table and agree on a target budget,” Gharaibeh said at the conference.

Phase One of Saudi developer Red Sea Global's Amaala is focused on the Triple Bay masterplan and will be ready by early 2025 — Tourism forms a key element of giga-projects including the Amaala tourist resort

Adapting to sustainability

Projects such as Neom also have sustainability requirements that for many companies are a new way of working, requiring them to hire sustainability managers who make sure they work with certified vendors and suppliers.

“Each project of Neom has different sustainability standards,” says Maryam Telmesani, sustainability officer at India’s MLB Infrastructure.

“So, if you don’t have a company that’s ready to learn and asks questions, it’s going to be the main challenge.”

Confidence within the sector about its progress over the next year far outstrips other regions around the world, according to a recent report by construction industry analysts Procore

“Our region is not putting its foot on the brakes, irrespective of the macroeconomic headwinds and political instability,” says Madeleine Skillen a, marketing manager there. “This, for me, is a declaration.

“More than half of businesses expect projects to expand by 20 percent over the next 12 months. This is incredibly positive, a declaration for the growth that we expect over the coming years.”