The award of the $1.2bn contract to the local Saudi Binladin Group to build the world’s tallest tower in Jeddah could be a defining moment in the kingdom’s construction sector.

On 2 August, Binladin signed a contract with Kingdom Holding to deliver what will become one of the most iconic projects in the world. If completed, the 1 kilometre-high tower would replace the Burj Khalifa in Dubai as the tallest structure in the world, and could signify the beginning of an unprecedented construction and infrastructure-building programme in the kingdom.

The award of the Binladin contract coincided with the news that Emaar, the Economic City had terminated a contract with the local Al-Redwan Contracting to build a residential section of its $27bn King Abdullah Economic City development near Jeddah.

Like many extravagant construction projects planned during the boom years, the economic city projects have suffered from slow progress since the onset of the global economic downturn. But if the Kingdom Tower goes ahead it could provide a significant catalyst for projects planned in Saudi Arabia and ensure that many megaprojects in the pipeline come to fruition.

In Dubai, the construction of the current tallest tower in the world, the 828-m Burj Khalifa, which was awarded in late 2004 and completed in 2009, was instrumental in driving forward the emirate’s construction boom. The difference is the Burj Khalifa project was launched in a time of easy credit, whereas the Jeddah scheme will be built during a period of financial austerity. The developers will be hoping the economics are different in Saudi Arabia.

With a current oil production rate of 9 million barrels a day, Riyadh has the resources to fund large-scale projects. But what such schemes require is substantial private investment. The challenge for Kingdom Holding will be to attract the private backing it needed, otherwise it may be forced to look for government support.