The extraordinary industrial and infrastructural expansion now under way across the Kingdom promises massive opportunities for the construction sector. However, a report compiled by the Council of Saudi Chambers of Commerce and Industry (CSCCI) warns that as Saudi Arabia is a member of the World Trade Organization, local contractors will face challenging competition from experienced international companies.
The CSCCI predicts the new wave of investment will boost the value of the contracting sector by a cumulative annual average of 6.7 percent in the next five years, thus increasing the sector’s contribution to the GDP from 6.6 percent to 7.3 percent in 2009.
“There is no doubt real estate and industrial projects will have a positive effect on the contracting sector,” says contractor Mohammed Al-Kheraiji. “The trend will compensate for the sluggish period in the real estate and construction sector during the past few years. There is no fear of foreign competition because Saudi contractors have the experience and are more familiar with local needs.
“However, foreign companies might have more experience in specific industries such as petrochemical projects. I expect that there will be alliances and collaboration between local and international companies.”
A report by the Saudi Arabian General Investment Authority (SAGIA) points to the Kingdom’s need for $600 billion in capital investment in the coming two decades in order to achieve its economic goals. Mega-developmental projects in real estate and infrastructure such as the King Abdullah Economic City, Jizan Economic City, Prince Abdul Aziz bin Musaed City, Jubail II and Yanbu industrial cities, railways, port expansion and water, power and petrochemical enterprises will involve construction work worth some $300 billion.
Based on these figures, the CSCCI has tried to prepare the contracting sector and bring it up to international standards. It has drawn up a general strategy for the sector and studied projects and contractual arrangements. In this, it has been working closely with the National Committee for Contractors in the Arab Contractors Union. It has also been involved in a project to allow the posting of government contracts and bids on the CSCCI website. This resource is in addition to the magazine that the organization now publishes for the construction sector.
Local contractors are, meanwhile, pressing for other changes. “I would suggest making regulations more flexible in order to speed up the process of implementing projects,” says Al-Kheraiji, “and also allowing the private sector a larger role rather than the public sector taking the lead in establishing projects.”
He also points to the problem of huge price fluctuations in the raw material for construction. These put pressure on the contractors, increase project costs and cause delays, all of which is rarely taken into consideration during planning.
Among the main challenges facing the sector is the ability and capacity of local companies. There are some 139,000 licensed contracting companies. However, no more than 9,000 of these have the financial, technical, administrative and executive qualifications to compete for government projects. This represents only seven percent of all companies licensed for contracting activities. The remaining 93 percent cannot be classified as professional contractors with the required standards and qualifications to compete at the minimum level.
Another major challenge that could threaten the construction boom is a skills shortage. According to the research released recently by GulfTalent.com, a Middle East recruitment firm, the Gulf’s growing construction sector is facing severe staffing challenges as too many companies compete for a limited supply of talent. With large-scale projects being announced all over the Gulf, the supply of engineering and managerial talent is not keeping up with demand, leading to acute shortages in some areas.
The competition in attracting expertise in quality and quantity is not only among Gulf-based companies but is also the case in India and China, which are also experiencing construction booms.
Visa restrictions are an additional constraint. The new visa and expatriate recruitment regulations in Saudi Arabia could slow down the implementation of projects. According to the study, areas experiencing the most acute shortages include structural specialists, quantity surveyors, planning engineers, project directors, design managers, contract administrators and urban planners.
The competition for talent is having a notable impact on compensation levels. This also adds to the strain on local companies. In addition, “with the Saudization drive, we are facing a problem in fulfilling our quotas because few Saudis want to work in the contracting sector due to the tough and unpredictable nature of the job,” says Al-Kheraiji.
Although he considers Saudization a national commitment rather than an option, he recommends appropriate recruitment mechanisms that take into consideration the nature of the contracting sector. He commends the efforts under way in training Saudi youths, as most of those applying for construction work are not qualified.
Another major issue identified by the GulfTalent.com’s report was the six-day working week prevalent in the sector across the region. Contractors complained they were losing professional staff to consultancies, to other sectors or to other parts of the world where staff could enjoy a five-day working week.
Although employers might consider switching to a five-day week, given the intensity of competition and the pressure to deliver projects on time and within budget, firms probably cannot afford to make that decision.
The study suggested that the tightening labor market for construction professionals was forcing employers to reach out to new sources of talent such as Egypt, as well as to less experienced candidates and even fresh graduates. This in turn was increasing the need for investment in training and development in order to bring the new recruits up to the required skill levels.
The contracting sector employs about around 1.3 million people or some 20 percent of the total work force in Saudi Arabia.
