Commentary
Colin Foreman
Deputy editor

The Public Investment Fund’s (PIF's) plan to invest in contracting companies in Saudi Arabia is an investment banking solution to a construction problem.

The problem facing Saudi Arabia in 2022 has been well documented in recent years: the kingdom may not be able to secure sufficient resources to complete the projects that it plans to deliver for Vision 2030.

By buying significant stakes in contractors, reported to be about 30 per cent, the PIF will enable the construction sector to take on more work by enhancing the finances of four of the kingdom’s most active local contractors: Al-Bawani, Almabani General Contractors, El-Seif Group and Nesma Holding.

The PIF could also look to acquire stakes in international contractors. It already owns stakes in South Korea’s Posco and Dubai-based Depa.

Acwa experience

For the local companies, one option for the PIF could be emulating the success it had with its investment in utilities developer Acwa Power. The PIF built a stake in that company before helping Acwa Power list on the Saudi Stock Exchange (Tadawul). Initial public offerings (IPOs) would give the contractors even more capital, put them on a path of rapid growth, give the PIF a prompt return on its investment, and support the government’s aim of developing the local stock market.

While the deals work from an investment banking perspective, the concern is that the underlying problem hindering the ramp-up of Saudi Arabia’s construction sector remains.

Saudi Arabia has yet to regain the contracting community’s confidence when it comes to payments – an image that has not improved in recent years with the collapse of its two biggest contracting companies: Saudi Oger and Saudi Binladin Group.

Contractor reticence

The result is that contractors – particularly international firms that can work in other markets – are wary of taking on work in the kingdom. As one major international contractor recently told MEED: “Clients in Saudi Arabia do not seem to understand that by paying us late it costs us money.”

Contractors’ reluctance to work on projects in the kingdom is one of the main reasons for the resource problem in Saudi Arabia today, and promptly making payments could easily reverse this trend.

Contractors the world over typically complain about two things – lack of work and payments. Saudi Arabia arguably has the largest announced pipeline of major construction projects in the world, and that would ordinarily present attractive opportunities for the global construction industry.

If Riyadh can solve the payments problem, contractors will be queueing up to work in the kingdom. The problem for Saudi construction will then shift from securing resources to what should be its main challenge: delivering the most ambitious and technically challenging projects in the world.

Cover story: Saudi Arabia's race for delivery