Following the crush in oil prices in 2015 and the associated drop in government revenue, the SAG canceled many projects, construction activities slowed down significantly, and many contractors reported experiencing payment delays. The ambitious $7.8 billion project to build the King Abdullah Financial District (KAFD) in Riyadh is a prime example of mega projects that came under renewed government scrutiny. Since 2015, the KAFD project has faced serious challenges, including project delays, cost-overruns, and withholding of payments to contractors and workers. These challenges, coupled with questions about the future viability of the financial district, have triggered a review of the publicly-funded project by the government. However, the SAG has recently shown signs of interest to revive the project. Ownership of the project is expected to transfer from the Public Pension Fund (the original owner) to the Public Investment Fund (PIF), and some construction activity has resumed under a revised project plan.
Under the revised plan, the project is expected to open in sequential phases, starting with Phase I, comprising a small area of the project housing some office, residential and retail space, and a conference center. Phase II will likely see the opening of the core financial plaza, expected to house the various financial and banking institutions. The revised plan also incorporates strategies to convert projected excess office space into residential quarters. As a sign of progress, a few prominent tenants have signed lease agreements, including: the Saudi Capital Markets Authority (to occupy the tallest 75-story tower), the Saudi Stock Exchange (Tadawul), and Samba Bank among others. According to the PIF, Wyndham, Intercontinental, and Indigo are slated to open five-star hotels within the district.
As an additional sign of progress, the SAG has, beginning in late 2016, started repaying debts owed to contractors that squeezed their finances and hurt business confidence. Despite these challenges, the construction equipment market in Saudi Arabia is expected to grow to approximately $4.8 billion by 2017, according to a new report from the World Market Intelligence. Population growth and a modest recovery in oil revenues are the key dynamics stimulating both public and private sector investment in housing construction and infrastructure projects.
The Saudi government has channeled a significant portion of its pre-2015 oil windfall towards upgrading and building new infrastructure in recent years, increasing the region’s attractivenessto both local and foreign investors. Large-scale infrastructure investments have been made in various fundamental sectors, including energy, utilities, transportation, education and health care.
Airports in Riyadh, Jeddah, Medina, Nijran, and Tabuk are expected to be upgraded and expanded at a cost of $10 billion to meet the growing number of passengers, and the requirements of new domestic airlines. The General Authority of Civil Aviation (GACA) has already launched a $1.8 billion upgrade of Jeddah’s King Abdulaziz International Airport (KAIA), which is designed to accommodate the world’s largest aircraft, and will increase the airport’s annual capacity to 21 million passengers.
Saudi Arabia has also set ambitious plans for additional rail links in the country, and has earmarked $8 billion for new rail expansion projects that will contribute to the rise in private investment in infrastructure, particularly in the transport sector. The King Abdullah Economic City (KAEC) is another mega project considered the largest in the Middle East. When completed, KAEC will have a seaport, industrial valley, central business district, financial island, resort area, educational zone, residential area and other projects. The Kingdom Tower mega-project under construction in Jeddah will rise one kilometer high. Valued at $1.2 billion, it will be by far the tallest tower ever built. At over 3,280 feet and with a total construction area of 5.7 million square feet, the Kingdom Tower will be the centerpiece and first construction phase of the $20 billion Kingdom City development in Jeddah.
Industry sources anticipate that the Government of Saudi Arabia would continue to finance transportation, healthcare, strategic, and residential/non-residential infrastructure work in the Kingdom. Projects that have yet to be awarded would likely be pushed back on timeline or be potentially scaled back in terms of scope of work.
Sub-Sector Best Prospects
The Saudi government is gearing up to meet the residential, health, and education needs of its rapidly growing population. Over 3.2 million new housing units will be needed, with over 800,000 for the capital city of Riyadh alone, as well as hospitals, schools, universities and leisure centers. The country’s electricity sector is to be expanded by 300 percent over the next two decades. The telecom sector is being developed, and the water sector is being upgraded, to include more desalination plants, better drinking water networks, and broadened pipeline networks. Hundreds of projects are creating unprecedented demand for the latest construction industry machinery, technology and tools, from the world’s leading companies. Water will remain a key demand in these expansions.
The NTP calls for increasing the percentage of treated water produced through strategic partners from zero to 20 percent and to triple the percentage of desalinated water produced through strategic partners to 52 percent by 2020. Saudi Arabia plans to increase the percentage of cities receiving water and sewerage services by the National Water Company from 40 -percent to 70 percent by 2020 and to increase the percentage of citizens covered by water services to 92 percent, and by sewerage to 65 percent by 2020.
The construction element related to power supply expansion alone is estimated at nearly $1.2 billion. In total, current infrastructure and public sector building programs are valued at some $40 billion. The Ministry of Education has outlined a $4.5 billion plan to build another 4,000 schools. The NTP lists the following priority initiatives in the next five years:
- Build light and medium industries in Ras Abu Gamis and Bani;
- Triple the percentage of desalinated water by 2020;
- Increase the percentage of treated water from 0 to 20 percent by 2020;
- Increase the percentage of cities receiving water and sewerage services from 40 to 70 -percent by 2020;
- Increase percentage of citizens with access to water services to 92- percent, and sewerage to 65 percent by 2020;
- Increase the percentage of Saudi homeownership from 47 to 52 percent by 2020;
- Encourage private sector real estate developers through issuance of fast track licenses and provide necessary financing;
- Develop government land for large scale residential projects to supply affordable housing;
- Increase the number of cities with public transportation plans from 11 to 16 by 2020;
- Upgrade the national railway network, enhance efficiency of ports, and increase private sector participation in railway projects from 5 to 50 percent by 2020; and
- Develop five new tourism and cultural heritage sites throughout the Kingdom by 2020, including in Farasan Islands, Okaz City, Al-Ras Al-Abyad Beach, Ola City Development, and Uqair Development.
There are attractive opportunities for U.S. companies in the following areas: earth-moving machinery and equipment; construction tools; construction equipment; excavation and earth drilling equipment; construction chemicals; safety and security equipment; tools and hardware equipment; rock tools and systems; drill rigs and rock drills; load and haul equipment; continuous mining and tunneling machines; crushers and screens; conveyors and conveyor components; bulk materials handling equipment; breakers and demolition tools; mine automation systems; safety and environmental products; engineering & contracting services; project management services; and training services for skilled workers such as civil, electrical and mechanical engineers.