2013-03-01 16:48:55 - New Construction market report from Business Monitor International: "Saudi Arabia Infrastructure Report Q2 2013"
BMI Industry View
BMI View: Fuelled by a flurry of contract awards in 2012, we expect to see a buoyant 2013. Whilst the sheer size of the Saudi construction industry will force the growth to moderate in the longer term - due to base effects - we nevertheless highlight the opportunities within the wider construction sector. Funding - largely unhampered by any financial woes - is unlikely to run dry, nor lose support, as the government's vast infrastructure investment scheme aims to both diversify away from oil, keep protests at bay and stave off public discontent. In an economy where the government is largely responsible for the generation of the state's total GDP, any budget delay will cause a significant negative
chain-reaction, resulting in nonpayment to contractors.
We forecast a robust 7.5% real industry growth for 2013. This reflects the significant number of contracts awarded both in 2011 (140% year-on-year (y-o-y) increase), and in H212 (50% increase y-o-y), as well as increased government spending, which was pledged in response to popular discontent and the Arab Spring. Over the medium term, we forecast healthy annual average growth of 5.9% between 2013 and 2017.
Full Report Details at
- www.fastmr.com/prod/541274_saudi_arabia_infrastructure_report_q2 ..
Factors Underpinning Growth:
* Transport Upgrade: The transport sector is receiving preferential treatment, especially rail infrastructure, with projects worth US$24bn under way or in the pipeline. To support this flurry of transport contracts and to ease layers of red tape, the government set up a Public Transport Commission in October 2012.
* Strong Chemical Integration: A growing number of petrochemicals projects are also boosting construction activity, as the country attempts to diversify its industrial sector away from oil and gas. In fact, we are seeing a rapid expansion of downstream capacity to meet the growing economic needs of the region, with operators rushing to capture an increasing slice of the market.
* Electricity Revamp: Another dynamic sub-sector in Saudi Arabia continues to be power plants and transmission and distribution (T&D). The US$80bn (excluding nuclear), 10-year investment plan for electricity infrastructure (2008-2018) has led to significant activity in the energy sector.
* Generous Social Spending: Huge investment into the social infrastructure sector is likewise in the pipeline, in part to appease the populace. Both the SAR1.44trn (US$385bn) Ninth Development Plan (2010-2014), and social benefit packages worth a total of US$130bn - the latter announced in response to the protests which swept the region during 2011 - are heavy on social infrastructure spending.
* Courting Private Partners: The government continues to promote the private sector's participation in the construction industry. According to the Ministry of Finance's end of year press release in 2011, around 2,600 government projects worth an estimated US$38.0bn were signed with the private sector over the course of the year. However, the courtship has yet to fully recover from the failed bellwether Saudi Landbridge PPP rail project, which was eventually approved for construction using government funds in October 2011. Likewise, continued delays in government payment to contractors are causing another deterrent to many industry players willingness to participate.
* New Mortgage Law: A draft law revolutionising the mortgage market has also been approved in Saudi Arabia, presaging the formation of a more liberalised housing sector. If it goes ahead, and if accompanied by corresponding uptick in banks' willingness to lend, it would be a major development in the sector - fundamentally changing the approach to home buying in the country, followed by a significant increase in credit growth and construction activity.
* Religious Tourism: The annual Hajj (the Muslim pilgrimage to Mecca) continues to place intense pressure on the Saudi infrastructure framework. To cater for the growing - if uneven - demand picture the government announced in H212 a US$16.5bn transport revamp to modernise the transport system in the holy city of Mecca. The scheme is accompanied by plans to increase its current hotel capacity of 53,000 rooms (32,000 of these are in Mecca and Medina), by 60% over the next few years.
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