Experts confident of Saudi construction sector returning to normal soon

Experts confident of Saudi construction sector returning to normal soon
Figures in the USSBC report revealed that the majority of the awarded contracts during Q3 were in the transportation, power, and real estate sectors. (SPA)
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Updated 08 December 2020

Experts confident of Saudi construction sector returning to normal soon

Experts confident of Saudi construction sector returning to normal soon
  • Coronavirus causes slump in contracts but recovery predicted

JEDDAH: The total value of construction contracts awarded in Saudi Arabia during the third quarter (Q3) of this year collapsed by 84 percent on figures for the same period in 2019 as the economic impact of the coronavirus disease (COVID-19) pandemic continued to bite.

Despite the large drop, industry experts remained upbeat, pointing out that the Q3 figure was a statistical anomaly, as 2019 was a record year, and predicting that once the short-term impact of the global health crisis had passed the construction sector would bounce back.

According to the latest Contract Awards Index (CAI) produced by the US-Saudi Business Council (USSBC), the total value of construction contracts awarded in the Kingdom during July, August, and September declined by SR40.4 billion ($10.8 billion) to SR7.4 billion.

Within the quarter itself, the figure also gradually declined, going from SR2.958 billion in July to SR2.613 billion in August, and SR1,842 billion in September. One of the main reasons for the slump was budgetary constraints, as the Ministry of Finance looked to absorb the economic impact of the pandemic and reined in capital expenditure.

Looking back on the year as a whole, the data compiled by the USSBC found that during the first three quarters of 2019 construction contracts worth a total of SR161.8 billion were handed out. By comparison, during the same period this year the figure fell to SR63.6 billion, a drop of 60.69 percent.

Albara’a Alwazir, economist and author of the USSBC report, told Arab News that he was confident the sector would rebound, just as it had done after the downturn between 2016 and 2018.

“The Kingdom was pursuing a market share leadership strategy as an oil producer in 2016 whereby oil prices decreased as a result of high global oil inventories. 

The slowdown in global demand for oil led to the reduction in the Kingdom’s budgetary spending, with a particular slowdown in capital expenditures,” he said.

He pointed out that the current downturn was somewhat similar in that lower oil revenues necessitated a revaluation of the Kingdom’s expenditures in the face of reduced global oil demand, but the long-term impact would be minimal, as the sector returned to normal after the COVID-19 slowdown. 

“The Saudi economic outlook appears promising as the number of COVID-19 cases have sharply decreased coupled with the recent news that vaccines are showing promising results and are reported to be available by the middle of 2021.

“Furthermore, while numerous projects have been delayed because of the pandemic, the government has stated that there will be a continued focus on megaprojects especially those that relate to Vision 2030,” he added.

Alwazir was also optimistic that decisive government actions would also mean the long-term impact had been reduced. “The recent announcement that the Public Investment Fund (PIF) will inject SR150 billion annually into the economy in 2021 and 2022 is a positive development.

“The PIF’s role in keeping the economy buoyant in the face of a global downturn will be pivotal in progressing through Vision 2030’s mandates,” he said.

Taimur Khan, an associate partner at real estate consultancy Knight Frank, noted that the dramatic year-on-year drop in Q3 was mainly down to statistics and the fact that the figures were being compared to a record-breaking 2019.

The PIF’s role in keeping the economy buoyant in the face of a global downturn will be pivotal in progressing through Vision 2030’s mandates.

Albara’a Alwazir, Economist

“It is important to note that the total value of contracts awarded in 2019 was the highest level since 2015 and 95.4 percent higher than total awards in 2018, so we are comparing against a high base,” he said.

“Whilst the total value of new contracts has decreased, the level of activity underway in Saudi Arabia still remains high compared to previous years and considering new financing agreements signed during the course of 2020, particularly those relating to urban and real estate development, we expect new contracts activity levels to begin to return to pre-pandemic highs in 2021,” he added.

Figures in the USSBC report revealed that the majority of the awarded contracts during Q3 were in the transportation, power, and real estate sectors, which jointly accounted for 59 percent of the total. The transportation sector registered the highest value of contract awards with SR1.7 billion to three major road development projects linked to the Red Sea Development, Qiddiya, and Amaala megaprojects.

The largest Q3 contract was for SR938 million, awarded by the Red Sea Development Co. to Almabani, and Nesma and Partners for the construction of a 3.7-km runway and taxiways at the Red Sea International Airport. In terms of geography, the Eastern Province continued to be the focus for activity, accounting for SR2.3 billion worth of deals, or 32 percent of all contracts awarded, including a new chlorine derivatives plant and an industrial wastewater processing plant in Jubail.

Makkah Province accounted for 20 percent of contracts, primarily in the power and real estate sectors, followed by Tabuk province with 19 percent.

According to Alwazir, the Saudi Contractors Authority has maintained that the government’s megaprojects related to Vision 2030 would continue to be its focal point in the near-term, with investments continuing into these strategically important areas.


Indonesia campaign helps SMEs enter Saudi market

Indonesia campaign helps SMEs enter Saudi market
Updated 25 min 44 sec ago

Indonesia campaign helps SMEs enter Saudi market

Indonesia campaign helps SMEs enter Saudi market
  • They will be the main target of the export initiative, which is estimated by the Indonesian Ministry of Trade to be able to generate $60 million

JAKARTA: Indonesia has launched a campaign to help small firms in the country compete for millions of dollars-worth of food trade in Saudi Arabia.

The government aims to help small and medium-sized enterprises (SMEs) improve the quality and competitiveness of their products to meet the Kingdom’s required standards, Indonesian trade and commerce officials have said.

Under normal circumstances, before the coronavirus disease (COVID-19) pandemic, around 1.5 million Indonesians a year make the pilgrimage to Saudi Arabia to perform Hajj and Umrah and hundreds of thousands work in the Kingdom.

They will be the main target of the export initiative, which is estimated by the Indonesian Ministry of Trade to be able to generate $60 million.

To meet the Saudi food regulator’s standards, the Indonesian Chamber of Commerce (Kadin), the Ministry of Trade, and the Ministry of Cooperatives and Small-Medium Enterprises have teamed up to assist SMEs in improving products such as bottled chili sauce, soya sauce, coffee, tea, and sugar that are in highest demand among Indonesians in Saudi Arabia.

Kadin chairman, Rosan Roeslani, told Arab News: “We have facilitated five small-medium enterprises that produce soya sauce to obtain Saudi Food and Drug Authority approval for distribution, while nine tea and coffee producers are in the pipeline to also obtain a license. We have also submitted the application for four bottled chili sauce producers.”

While travel and pilgrimage restrictions remain in place due to the COVID-19 outbreak, he said that the time before things get back to normal will be used to prepare the SMEs — which contribute 60 percent to the country’s gross domestic product and employ up to 90 percent of its workforce — for expansion into the Saudi market as soon as the pilgrimage sector resumes.

“We still have time to groom them as there are many aspects such as hygiene, and consistency in their product quality and quantity that they need to improve,” Roeslani added.

In 2014, the Ministry of Religious Affairs issued a regulation obliging catering companies that provided food and drink to Indonesian pilgrims in Saudi Arabia to source their products from Indonesian producers whenever possible.

Indonesia’s vice religious affairs minister, Zainut Tauhid Sa’adi, said that as each Indonesian pilgrim received food from caterers an average 75 times during his or her pilgrimage, demand was high but supply in Saudi Arabia remained limited and similar products from India and Thailand had been used instead.

Kasan Muhri, director general for export development at the Ministry of Trade, told Arab News that the program to prepare the SMEs had been in the making since 2017 and officials eventually decided to launch it this year despite the COVID-19 restrictions.

“Just because there are few Umrah pilgrims now and this year’s Hajj remains uncertain, it does not mean that the market is gone.

“People from around the world would still go to Saudi Arabia to perform the pilgrimage, not just Indonesians, so we are doing this to anticipate the market when the economy revives, and things are recovered. We don’t want to be left behind,” Muhri said.

Besides food and beverage products, officials say they are also looking into the possibility of exporting items such as goodie bags, prayer beads, and other pilgrimage accessories made by Indonesian SMEs.