Private money leading charge in Saudi construction industry

Unsplash/Josue Isai Ramos Figueroa

• Private share of investment up
• Government share down
• Record number of awarded contracts

Private sector participation in Saudi Arabia’s construction industry is powering investment in the sector, according to a senior economist.

Overall gross fixed capital formation – a measure of investment in an economy’s infrastructure, schools and other physical assets, as well as related tools and machinery – is up 3 percent year on year in the kingdom.

But private companies are leading the charge, and their share is increasing even faster, at 5 percent annually.

The figures were shared by ​​Albara’a Alwazir, director for economic research at the US-Saudi Business Council, during a webinar on Wednesday.

Alwazir said the private sector had increased its contribution to gross fixed capital formation, while there had been a fall of 8 percent year over year in the government’s share.

“This is a positive step and what the kingdom has been aiming for,” he said.

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In the past seven years, Saudi Arabia has committed to spend vast sums to fuel a socio-economic development push, both directly and through many of its arms, such as the Public Investment Fund. 

In recent months, Saudi authorities have also undertaken efforts to boost the input of private investors and companies, both domestic and foreign, in the Vision 2030 project, through fund raisings and public-private partnerships across industries such as construction.

Alwazir said private sector participation in the Saudi construction sector and larger economy was likely to pick up this decade and beyond, as confidence grew. An increasingly favourable regulatory environment was helping, as was the substantial support the government was giving to private sector companies to set up in the kingdom. 

Awarded contracts this year are due to pass 2023’s record even as giga-projects come under review and with reported delays at Neom. 

In the first half of 2024, the value of awarded contracts reached SAR185 billion ($49 billion), a 47 percent jump from the same time last year, data from the US-Saudi Business Council shows. 

Oil and gas, residential real estate and water infrastructure have been driving this growth, Alwazir said.

Elias Abou Samra, chief executive of Saudi real estate company Rafal, said Vision 2030 and parallel initiatives have made “the productivity of government spending much higher”, with benefits spilling over across the economy.

“As local developers, we are witnessing strong interest from regional and international investors and developers,” Abou Samra said during the webinar on Wednesday.