Contractors in Saudi Arabia are bracing themselves for a leap in construction costs after the kingdom’s acute cement shortage dramatically hit home in June, when the price of cement jumped an astonishing 52 per cent in a month.

Figures compiled for MEED by UK cost consultant Davis Langdon show that cement prices jumped to $5.86 a bag in June from $3.85 in May (see table). With no sign of any let-up in the kingdom’s booming construction market and no significant increase in capacity expected soon, contractors are expecting the increases to continue.

Six new production lines are already under way, which will increase cement capacity from 23 million tonnes a year (t/y) to about 34 million t/y. But not all of this will come on stream until 2008. Seven more new plants are anticipated to come from the 27 new production licences issued by Riyadh in the past 12 months. But even this is likely to be too little, too late. Demand for cement in the kingdom is expected to rise to about 39 million t/y by 2010 from the current 27 million t/y. In the meantime, the government and contractors will need to find new supply sources.

Riyadh recently lifted custom duties on imported cement. Although this has not immediately solved the problem, it is likely that cement imports to the kingdom will increase, particularly from Egypt. However, with demand increasing across the region, Riyadh can expect the cost of imported building materials to rise substantially.

Price rises continue in Qatar, where aggregate jumped about $2 a tonne in June, taking the material to $15.06 a tonne in June from $13.70 in May.

With so many major projects coming on stream in the UAE, it was inevitable that there would be a crunch on key human resources. This is reflected in a rise in the cost of locally hired project managers and engineers. Project managers on landmark schemes in the UAE can now demand up to about $6,000 a month, with this figure rising by nearly 10 per cent a month – Dubai is second only to Qatar in the cost of project management services. Site engineers’ salaries in the UAE jumped 17 per cent in the same period to about $3,500 a month – the highest engineer’s rates in the region.

‘In general, prices in the UAE are increasing gradually and that is reflected in salaries,’ says Steven Coates, Davis Langdon’s resident partner in the Gulf. ‘What concerns us is that not enough qualified professionals outside the region are seeing the Middle East as a career move. The region is buoyant, has some of the most prestigious projects around the globe and all construction professionals should take note.’

It is not only professional skills that are in short supply. ‘The key issue is not the shortage of professional people,’ says one Dubai-based contractor. ‘We are seeing a lot of engineers and other professionals moving over from Hong Kong. The shortages that we are seeing are in the trades. The skills base here is weak and so we rely on the subcontinent to supply skilled tradesmen. But with India booming it is becoming difficult to hang on to people.’

Necessity is the mother of invention and the skills shortages have led contractors to seek new ways to develop and retain the necessary skills through training and by providing better living and working conditions. Others have launched international recruitment drives. For the time being, however, contractors and clients will continue to feel the pinch.