Infrastructure an inflation risk

22 September 2013

Plans to increase infrastructure development will require capping the cost of implementing them

Saudi Arabia is readying itself for a boom in infrastructure development as it ramps up investment in sectors such as transport, housing and power.

The country’s plans will transform Saudi’s economy, helping it diversify from oil and gas industries. Yet, the project boom will increase pressure on regional resources and Saudi Arabia will need to keep a cap on inflation costs.

There are about $960bn-worth of projects planned or under way in Saudi Arabia, according to regional projects tracker MEED Projects

The kingdom’s transport sector is being revolutionised, with $22bn-worth of construction contracts awarded this year for the Riyadh metro. Other municipalities are now hot on the heels of the country’s capital, developing their own urban transport, with both Mecca and Jeddah aiming to tender metro and bus contracts before the end of the year.

The water sector is also attracting investment. Speaking at MEED’s Saudi Mega Infrastructure Projects conference, Yahya Alyousef, asset director at the National Water Company said the organisation is planning to spend SR50bn ($13bn) in capital investments.

The sheer number of projects in the pipeline could lead to bottle necks in the supply of construction materials. It will also squeeze the supply of staff and companies with the necessary industry expertise. All this will drive up the cost of implementing these projects.

According to research by UK firm EC Harris, the level of infrastructure spending in Saudi Arabia and across the GCC has the potential to push inflation up to 16-20 per cent between 2016 and 2019.

The kingdom will need to carefully manage its infrastructure boom to ensure it can keep control over the cost of completing all its planned projects. 

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