ABU DHABI, 20 March 2003 — Strong oil prices and ongoing reforms boosted Saudi Arabia’s construction sector last year and the upward trend is expected to continue in the coming years and support a government drive to find jobs for citizens, according to a bank report.
The boom will also be spurred by government plans to pump more than $100 billion into projects to expand the Kingdom’s electricity network to meet growing domestic consumption caused by a rapid increase in the population and expanding industries and other sectors, said the report by the National Commercial Bank (NCB).
“As the oil market in 2002 behaved in the way that OPEC was aiming and Brent crude prices averaged around $24.9 in the first 10 months of last year, it strengthened the fiscal foundation of the Saudi economy and created a solid platform in the vital task of increasing investment,” NCB said in the report provided to Gulf News yesterday.
“The large number of contracts awarded in the first nine months of 2002 are expected to generate ample construction activities during the next two to three years.”
Bankers said the sector was expected to maintain an upward trend over the coming 10 years as the private sector is gaining momentum in reform programs being carried out by the government to offset volatile oil export earnings.
They noted the private sector pumped at least 60 percent of the total investments in the construction and contracting activities in Saudi Arabia over the past decade.
NCB said a large increase in Saudi Arabia’s oil revenues last year also prompted banks to expand their credits to contractors since this means the government would not delay payments for local businessmen. The expansion in credits was among the factors that enabled banks to make higher profits last year, it added.
After a 13.8 percent decline to 16.7 billion riyals ($4.45 billion) for 2001, bank credits to builders and construction-related contractors expanded to 19.89 billion riyals ($5.03 billion) in the first nine months of last year, the report said.
This constituted an additional lending of around 2.14 billion riyals ($570 million) and is expected to rise further in the coming months as the growth in credit demand is still intact in the wake of the construction boom going forward.
“With the improved fiscal position of the government, contractors are not expected to face any problem due to payment delays, in turn encouraging banks to expand lending.”
“Another important factor in the construction expansion is the ongoing long-term electrification plan which calls for an installation of some 50,500 MW of additional generating capacity that would require an investment of 438 billion riyals ($117 billion) in the next 20 years...this implies that the government has to make an annual allocation of requisite funds amounting to around 17.5 billion riyals ($4.67 billion), while the construction component related to power sector alone is believed to be around 2.6 billion riyals ($693 million).”
It said the government’s initiative to liberalize the domestic economy will likely generate enormous opportunities in the construction sector in the years ahead, adding that this will allow the Kingdom to create thousands of new jobs for citizens.
It noted that the value of construction contracts awarded during the first nine months of last year soared by 36 percent compared with the same period of 2001.
Around 900 construction contracts were awarded during the January-September period of last year with a combined value of around 12.7 billion riyals ($3.38 billion).
“The construction sector alone provided employment to more than one million workers in 2001 and accounted for nearly 14.4 percent of the Kingdom’s total 7.3 million labor force...the construction sector GDP grew by 5.8 percent in 2000 and again increased by 3.1 percent to 43 billion riyals ($11.4 billion) in 2001, and is expected to have grown by around five percent in 2002 on the back of accelerated construction activities being carried out.”
The report estimated the gross fixed capital formation, or total investments, in the construction sector at around 56.5 billion riyals ($15 billion) in 2001 and 61.5 billion riyals ($16.4 billion) in 2002.
It expected the level to climb to around 64.5 billion riyals ($17.2 billion) this year and to 66 billion riyals ($17.6 billion) in 2004.
