CONSTRUCTION: Bright lights beckon after the downturn

03 November 1995

CONSTRUCTION companies in Saudi Arabia are emerging from the doldrums of the last two years. The savage government budget cuts of 20 per cent in 1994 and 6 per cent in 1995 reduced public contracts to a trickle and badly dented private sector confidence. A series of more positive economic indicators in the first three quarters of this year has done much to improve sentiment, however. Public sector activity remains subdued, but an increasingly confident private sector is beginning to dust off projects which were shelved as the country went into recession.

Contractors say the great majority of the public projects going to tender are for maintenance and renovation rather than completely new infrastructure developments. The work is welcome, nevertheless. Many of the buildings and much of the infrastructure which was thrown up during the boom years of the late 1970s and early 1980s is coming up for refurbishment.

Islamic initiatives

With an eye to their shrinking budgets, ministries and government agencies are seeking private sector assistance with the funding of future public infrastructure projects. The education ministry has explored the possibility that local companies rather than the government might be able to build new schools. One idea under discussion is that a company would build a school and let it to the ministry on a rent-to-own basis over a 25-year period. In such a venture the company would be sharing in the risk of the investment, satisfying Islamic financing principles.

Such initiatives apart, it is the private sector which is growing in importance as a source of work for contractors. This is true not only of traditional areas of private sector activity such as housing and hotels, but it now includes hospitals, factories, and petrochemicals ventures. Not all contractors are happy about the new reality, however. 'When you do work for the government, delays in payment are usually manageable,' says one contractor. 'At the end of the day you know you will be paid. The trouble with the private sector is that they're often slow in paying up. Clients want a first class job for a second class fee.'

Below is a region-by-region survey of construction opportunities in the kingdom:

Western Region. Real estate construction in the west of the kingdom is growing so rapidly that the burst of new building may have created a temporary excess of capacity. 'It's a buyer's market,' says one local contractor. 'A lot of people are building, so customers are going for quality and extra facilities. They are also looking at brand name builders.' However, population growth will soon absorb any excess capacity, industry observers say.

Tourism and the pilgrimage are major factors in the construction market in the western region. Increasing numbers of Saudis are taking holidays within the kingdom as vacations become shorter and more frequent. The west coast of the kingdom is proving a popular destination for nationals and is also attracting visitors from other parts of the GCC. Recreational facilities are not just for tourists, however. Providing distractions and entertainment for Saudi Arabia's booming population of youngsters is seen as vital for future stability.

One of the largest tourism projects under execution is the SR 1,300 million Durrat Alarus resort city being developed by the local Dallah Albaraka Group on a coastal site 60 kilometres north of Jeddah. The city comprises a five star hotel, golf course, horse racing track, theme park, water park, shopping facilities, marina, houses, and 225 residential villas. The total site area is 2.2 million square metres. The first phase of the scheme is due for completion in mid-1996, with the resort scheduled to be fully operational by 1998.

In Mecca and Medina, the expectation of ever increasing numbers of Muslims making the pilgrimage is encouraging developers to plan new hotels. Some 15 million pilgrims visit Mecca and Medina each year. Between 2.5 million- 3 million of these come for the Hajj pilgrimage. Dallah Albaraka is planning six new four-star hotels in Mecca and two in Medina to take advantage of the anticipated growth. The local Rawafid Holding Company is planning two five-star hotels in Mecca and Medina in collaboration with the US' ITT Sheraton. An invitation to bid for construction of the Medina hotel is expected in late 1995. The local Taiba Investment & Real Estate Company is also planning a hotel, the Taiba Visitors Palace, just north of the Prophet's mosque in Medina.

Riyadh. The capital city no longer provides the steady stream of government building construction opportunities that it once did. The one exception is a major scheme to build a supreme court complex which is planned by the Justice Ministry. However, the private sector is taking up the slack with some landmark developments. The most striking is the Al- Faisaliah Centre, a multi-million dollar office, hotel, retail, and residential complex in the city's Olaya district. At the heart of the 120,000-square-metre complex is an 800-foot tower. The client, the King Faisal Foundation, is expected to shortlist about eight contractors soon to bid for the construction which is likely to be divided into several packages. The UK's Sir Norman Foster & Partners is drawing up the designs for the complex, while the UK's Buro Happold is doing the civil, structural, mechanical and electrical design work.

Capital ideas

Further development of the city is being planned by Arriyadh Development Company (ADA), a publicly listed company with a capital of SR 1,000 million. The company is planning a SR 250 million shopping, residential and office complex in the Dirra district. The complex, known as the Tameer Centre, will cover an 80,000-square-metre-site and consist of some 800 shops in four market areas, office space, and 110 residential units. Bid documents were issued to contractors in September and bidding is set to close in December. Buro Happold is the review consultant on the scheme with the Jordanian/Egyptian Dar al-Mimar, which drew up the designs. ADA is also planning a SR 250 million wholesale vegetable and fruit market in the city centre. A consultant has been appointed for the scheme and the next step is selection of an architect to draw up the designs.

Eastern Province. Saudi Aramco and the Saudi Basic Industries Corporation continue to provide the bulk of civil construction opportunities in the east of the kingdom (see Projects, page 65). In addition, the construction tender is due in November or December for the planned headquarters of the Arabian Petroleum Investment Corporation (Apicorp), to be built in Al-Khobar. The $25 million complex is being designed by the UK's DEGW. Tourist developments are also going ahead in the Half Moon Bay area to the south of Al-Khobar.

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