Red tape, poor bank financing hold up projects


Published — Friday 18 January 2013

Last update 18 January 2013 2:53 pm

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Bureaucratic red tape and poor bank financing of involved parties in the private sector are the main reasons behind delays in the completion of development projects in the Kingdom, analysts say.
Additionally, the number of construction companies operating in the Kingdom is not sufficient to manage and complete the numerous and large construction projects around the Kingdom. This is especially true in light of the decision not to use foreign contractors due to unsatisfactory performance by many of them in previous projects.
Samir Al-Shubaily, deputy CEO of Roots Group Arabia, which specializes in the distribution of heavy construction equipment and materials in the Kingdom and the region, predicted that the growth rate for the construction sector over the coming seven years will exceed SR 3 trillion.
"The development boom experienced by the Kingdom centered on building and construction because Saudi Arabia continues to suffer from infrastructure deficiencies in many of its facilities," Al-Shubaily told Asharq Al-Awsat newspaper.
"The Kingdom is now operating as a workshop in order to meet the growing demand for building in the government, education, health care and housing industries. This is in addition to road construction projects of various types."
Al-Shubaily attributed the stalled projects in the Kingdom to several factors, the most prominent being the bureaucratic hurdles presented by government agencies. About half of all stalled projects are delayed for bureaucratic reasons, Al Shubaily said.
The reluctance of banks to loan sufficient amounts of money is another major reason for the delays. "Because of the growing number of projects, prices have increased. Consequently, the contractor whose projects used to have cost limits around SR 40 million is now up to SR 400 million. And because of his financial straits, his need for borrowing from banks has increased. The banks, in turn, are cautious about the increasing rate of loans, especially loans to small and medium-sized companies (SMEs)."
The deputy CEO of Roots Group Arabia pointed out that the Kingdom is still suffering from a shortage of trained engineers and international consultants capable of working on large projects.
Hence, there is an urgent need for such professionals so that local companies and workers can learn from them. At the same time, Al Shubaily stressed the need for increasing the number of educated Saudi professionals in the construction industry.
With regard to the merger of contracting companies, Al-Shubaily argued that the idea of mergers, which arose many years ago in the construction sector, is untenable and only met with failure when attempted.
In the same vein, Abdullah Amoluth, an economist, said that the budget allocation of SR 250 billion for the construction sector will strengthen it and support contractors, as well as create numerous job opportunities.
Thus, the number of contracting companies in the Kingdom could increase to meet the growing need if there are no obstacles to their growth, such as the scarcity of funding or the shortage of a sufficiently professional work force.

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