Saudi Arabia: A kingdom in transformation

Four giga-projects symbolise Saudi’s transformation and economic diversification from oil to technology and tourism – but global problems could delay progress

In December last year the neighbourhood of Al-Balad in Jeddah played host to the first edition of the Red Sea International Film Festival. Held only three years after Saudi Arabia allowed cinemas to reopen the festival was defined by gala screenings, red carpet glamour, uncensored films and bumper audiences. For even the most optimistic, this would have been unthinkable just a few short years ago. 

One of the most remarkable examples yet of Saudi Arabia’s surge towards liberalisation, the festival was not only a potent symbol of the country’s transformation but a window into a changing society. 

• Qiddiya for entertainment, sports and the arts
• Inside NEOM: Saudi’s $500bn smart megacity

• The Red Sea Project: Showcasing the kingdom’s natural abundance
• Diriyah Gate: The kingdom’s cultural heart

Ever since Vision 2030 was unveiled by Crown Prince Mohammed Bin Salman in 2016 the country has sought to create a progressive kingdom capable of tapping into its social, cultural and economic potential. One that attracts foreign direct investment, boosts economic growth and attracts foreign visitors. 

A big part of that transformation is being driven by a series of ambitious giga-projects. Designed to stimulate economic diversification and to reduce the country’s dependence on oil, these developments include NEOM and The Red Sea Project, both of which are fully owned by Saudi Arabia’s Public Investment Fund (PIF).

The scale of the undertakings is not only powering the country’s $7 trillion development plan, but has boosted construction growth in the kingdom. According to MEED, projects with a combined value of $41.3 billion were awarded in 2021.

That figure represents the highest national total in the Middle East and North Africa, outstripping both Egypt and the UAE. It is also double the total for 2020, with a significant volume of work coming on stream in the past year. That volume is set to increase as developments ramp up their construction activity in the coming 12 months. 

Global problems cause delays to giga-projects

Despite the activity, the coronavirus pandemic, supply chain disruptions and inflation have impacted schedules, says Maroun Deeb, national director and head of project and development services for JLL in Saudi Arabia and Bahrain.

Ongoing inflationary challenges will characterise the market in the near future while the spectre of new coronavirus variants means the possibility of lockdown restrictions being re-implemented cannot be dismissed. This would impact construction activities, labour movements and supply chains. “However, there is still the ambition to finish projects on time and to mitigate any such delays where possible,” says Deeb.

As these projects accelerate strain is also being placed on the country’s resources. Despite rising workforce participation there is a shortage of skilled and experienced talent, and a continual increase in the cost of construction materials is expected across the medium term. 

“Increased global demand, supply chain disruptions and rising global inflation are the main influences,” says Deeb. “A key cost driver is rising demand against supply availability, whether related to labour, construction supply chain or materials. This is considered a risk factor that will impact future projects as the unmeasurable inflation will dictate cost uncertainty.”

Oil price boosts recovery

Rising oil prices and production will help Saudi Arabia’s economic growth accelerate to 7.3 percent this year, up from 3.3 percent in 2021, according to the Institute of International Finance. This will not only boost the country’s economic recovery following Covid-19, but could lead to an increase in government spending of at least 7 percent this year. This could be a double-edged sword for the construction industry. 

“Higher oil prices may encourage construction investment and growth but will directly impact increasing construction prices due to the cost of manufacturing and transportation,” says Deeb. “There is also a need for the introduction of regional international contractors in order to ensure there is enough capacity to deliver all Vision 2030 projects.”