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Recent Study: Saudi Arabia Infrastructure Report Q1 2014

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2013-12-30 05:08:22 - New Construction market report from Business Monitor International: "Saudi Arabia Infrastructure Report Q1 2014"

Capacity constraints have hit the Saudi construction sector over 2013, which supports our move to downgrade our short-term forecast for the industry last quarter. We have priced in the anticipated delays in projects as a result of shortages in labour and materials, and therefore see growth at 7.2% in 2014. However, with project awards continuing at rapid pace, and a sizable backlog awarded since 2011, we believe the sheer size of the project pipeline in Saudi Arabia will ensure high growth rates over the medium term. As such, we anticipate activity to return to its buoyant trend from 2015 onwards.

Full Report Details at
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In Q413 we downgraded our near-term outlook for growth as labour shortages, as a result

of the government's crack-down on visas and drive for Saudisation, were set to delay projects. This has played out as the industry reports serious delays and project cancellations over 2013. At the same time, a severe cement shortage led the government to initiate measures including emergency funds to import 10mn tonnes of cement and construction of new facilities which should ease the shortfall over the year. Whilst we believe these issues will continue to weigh on growth into H1 2014, we see them as near term, especially given the impact of the labour shortages on the construction industry, a sector of strategic importance to the government. Once resolved, the clearing of the backlog, combined with more recently awarded contracts, such as the US$22.5bn Riyadh Metro project, should see growth return strongly from 2015, with 10% estimated.

Recent developments:

* Rail Projects: In August the contracts for construction of Lines 1-6 of the Riyadh Metro project were awarded to three consortia formed of international and local companies. In total, project is expected to cost US$22.5bn and be fully complete in 2019. Construction is hoped to start in 2014, although we anticipate some delays. In July, it was announced that the first phase of the US$16.8bn Mecca Public Transport Program was to enter construction in 2014, and be completed in 2017. The long-delayed Land Bridge project is also moving forward, with a contract for design work on the US$7bn railway awarded in August. The design phase is expected to last two years.
* 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. Contract awards continued in 2013, with Hyundai Heavy awarded a US$3.3bn contract for the 2,640MW Shuqaiq Steam Power Plant, which will be oil fired. In August, Siemens signed a US$966mn contract with Saudi Aramco to supply components for the 4,000MW Jazan combined cycle power plant - which will be the world's largest regasification-based power plant.
* 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.
* 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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