Abstract
In BMI’s Q409 Saudi Arabia Infrastructure Report we have new historical
data for the period up to 2008,
and have extended our forecast from 2009
to 2014. We have upwardly revised our forecast for 2009 and
are now
expecting real growth of 2.86% y-o-y in the construction industry, to reach a
value of
SAR78.71bn (US$21.02bn).
Last quarter we had maintained risks
to the upside for our forecasts, and this quarter, based on continued
positive news from the country, we have incorporated these upside risks into a
revised forecast. Activity
has been ongoing in the majority of the major
infrastructure projects currently under way, with
government support
providing the lynchpin for much of this.
In the transport sector work is
continuing on the country’s attempts to establish three new railway
lines,
the North-South, the Haramain High-Speed Project and the Saudi
Landbridge. Upgrading airports is also
a major priority; a number of
airports will be expanded, including the Medina (Prince Mohammed Bin
Abdel-Aziz Airport), for which a US$2.4bn expansion project is in the
pipeline, and the King Abdel-Aziz
Airport, which is undergoing a US$11.3bn
expansion.
The utilities sector has seen perhaps the most new activity
over the last quarter. The government approved
the Medina power and water
plant, and the tender for a 2,000MW independent power project (IPP) in
Riyadh was launched. A contract was awarded to KEPCO for the Rabigh IWPP.
Regionally, the first
phase of the GCC power grid was completed,
signifying the linking of the power grids of Saudi Arabia,
Kuwait, Bahrain
and Qatar.
The industrial construction sector received a major boost from
the awarding of engineering, procurement
and construction (EPC) contracts
for the Jubail Oil refinery. Saudi Aramco and Total awarded US$9.6bn
worth
of contracts to develop the refinery in 13 packages. The refinery is due to be
completed in 2013.
Ongoing activity in the country substantiates our
previous upside risks, and thus prompted an upward
revision in our
forecasts. However, the forecasts in real terms are dampened to an extent due
to high
levels of inflation in the country over the short term. Despite
this, activity is still down on previous years,
with financing remaining
hard to come by, and demand in residential and commercial construction far
reduced
Demand for cement and steel has been rising, illustrating
construction activity, which has been fuelled by
private companies looking
for growth markets in the region, where demand fundamentals are strong.
Saudi Arabia stands apart from many of its regional peers as demand for
infrastructure and construction
projects is fuelled by domestic demand, as
opposed to tourism or international demand, and thus is still
evident
during the global downturn.
A further, more comprehensive, driver of
growth is the government’s efforts to sustain much needed
infrastructure projects. Reports in Gulf News suggest that the government has
so far extended US$3bn in
financing to offset the impact of the global
downturn on raising financing from the banking sector, and
this is
expected to grow to US$5.3bn by the end of 2009. The government’s
commitment to infrastructure
projects continues to present upside risks to
our forecasts.
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