Saudi Arabia to lead construction recovery

17 February 2013

For 2013 to be a good year for contractors, the region’s largest construction market needs to perform. Momentum on major projects in the UAE and Qatar will also support growth

As 2013 began, Saudi Arabia’s Interior Ministry selected the local ABV Rock to build a multibillion-dollar medical city in Riyadh. Estimated to be worth more than $3bn, the scheme is one of the largest construction projects in the kingdom.

Contractors had been expecting an award in early 2012, after submitting bids in August 2011. Their year-long wait was a typical experience for contractors hoping to win work in the kingdom last year as contract awards for major government projects stalled.

Saudi slump

According to regional projects tracker MEED Projects, the value of construction and infrastructure awards in Saudi Arabia nearly halved from $30bn in 2011, to $16bn in 2012. The peak of activity was in 2010, when $47bn contracts were awarded.

There were some major awards in 2012, notably the $1.5bn contract to Saudi Binladin Group for the Haram mosque expansion in Medina; the $765m contract secured by a consortium led by Turkey’s TAV for an aircraft maintenance hangar at Jeddah airport; and the $720m award to a joint venture of Lebanon’s Saudi Arabian Construction Company and UAE-based Drake & Scull International for work at the Jabal Omar Development in Mecca.

Despite this, the majority of contractors found securing new work in Saudi Arabia in 2012 a frustrating experience, especially since the kingdom is the region’s largest construction market with $114bn of projects under way and $210bn of upcoming work.

“Saudi Arabia is not just the region’s largest construction market, it is also a long-term market,” says a regional contractor. “Our long-term future depends on that market, so we hope the slowdown last year is just temporary.”

So far, 2013 seems to be a year of resurgence, with a series of major contract awards following on from ABV Rock’s Jeddah medical city award. Saudi Binladin Group has been awarded the estimated $470m contract to expand the King Faisal Specialist Hospital and Research Centre in Jeddah. In the transport sector, TAV and the local Al-Arrab Contracting Company have won the estimated $400m contract to build the new Terminal 5 building at King Khalid International airport in Riyadh.

Combined, the January awards total $4.2bn, more than a quarter of last year’s total. If the performance is repeated each month this year, the end-of-year figure will top the 2010 peak.

More awards are expected in the short term. The Interior Ministry is evaluating bids for the construction of the third and fourth phases of its security compounds programme for which bids were submitted in July 2011 and May 2012. In January, the ministry invited contractors to submit bids to build the fifth phase of the programme.

For healthcare projects, contractors have been invited to prequalify for the contract to build the estimated $1.2bn King Khaled Medical City in Dammam. Firms have also been approached for a medical complex in the Western Region, 28 kilometres from Mecca and 56km from Jeddah.

Real estate projects are also expected to contribute to the increased volume of contract awards in Saudi Arabia. Selected contractors have been invited to bid by 6 February for the contract to build the Abraj Kudai development in Mecca. The multibillion-riyal mixed-use scheme involves the construction of 12 towers ranging in height from 30 to 45 storeys sitting on top of a large podium and three basement floors.

Dubai resurgence

Another market that is experiencing resurgence is Dubai. Once the leading light of the region’s construction industry, work effectively stopped in 2008-09 as the emirate struggled with a series of debt problems at government-related construction clients, such as Nakheel and Dubai Holding.

In early 2012, the emirate started moving ahead with new large-scale infrastructure projects such as concourse 4 at Dubai International airport and expansions to Jebel Ali Port. Later in the year, contracts to build private sector projects such as The Address The BLVD and the Al-Fattan Crystal tower were awarded. The hope is that as the real estate market strengthens further, there will be more work on new projects.

The largest GCC contracts due to be awarded in 2013
Project ClientCountry  Budget ($m)
Jeddah security forces medical complexInterior MinistrySaudi Arabia3,350
Kuwait airport expansion: new terminal building (phase 3)Public Works MinistryKuwait3,253
Riyadh light-rail transit: phase 3 (Riyadh metro)ADASaudi Arabia3,000
Qatar integrated rail project: Doha metro (Green Line – tunnelling works)Qatar Railways Company (Qrail)Qatar3,000
Qatar integrated rail project: Doha metro (Golden Line – tunnelling works)QrailQatar3,000
Riyadh light-rail transit: Phase 4, 5 and 6 (Riyadh metro)ADASaudi Arabia2,500
Riyadh light-rail transit: Phase 1 and 2 (Riyadh metro)ADASaudi Arabia2,500
Shamkha South: villasMusanadaUAE2,500
Al-Furjan development: villasNakheelUAE2,000
Al-Wakrah and Al-Khor citiesMMAAQatar2,000
Tameer Towers (Shams Abu Dhabi – Al-Reem Island)Tameer HoldingUAE1,900
Msheireb: phase 3Msheireb PropertiesQatar1,872
Lusail Marina Iconic DevelopmentKatara HospitalityQatar1,750
Local roads and drainage programme – Qatar SouthPublic Works Authority (Ashghal)Qatar1,588
Qatar integrated rail project: Doha metro (Red Line South –tunnelling works)QrailQatar1,500
Qatar integrated rail project: Doha metro (Red Line North –tunnelling works)QrailQatar1,500
Saudi housing project: phase 1 ( 7,000 units in Riyadh)Housing MinistrySaudi Arabia1,500
New Refinery Project: package 5 (marine facilities)KNPCKuwait1,500
Jeddah Gate: Abraj al-Hilal phase 2EMESaudi Arabia1,300
Security compounds programme (also known as KAP 5)Interior MinistrySaudi Arabia1,200
ADC=Arriyadh Development Authority; MMAA=Ministry of Municipal Affairs & Agriculture; KNPC=Kuwait National Petroleum Company; EME=Emaar Middle East. Source: MEED Projects

In December, the government approved a series of projects aimed at upgrading the emirate’s infrastructure and creating new tourist attractions.

The largest scheme is the $408m Business Bay canal extension, which will take the waters of Dubai Creek out to the Gulf under Sheikh Zayed road, Al-Wasl road and Jumeirah Beach road. Contractors are preparing to submit bids for the first phase of the construction work in early March. Other schemes include the Creek Panorama project, the first pedestrian bridge across Dubai Creek from Bur Dubai to Shindagha, and a fourth phase of the Madinat Jumeirah, which is valued at $680m.

As Dubai’s fortunes change, so do those of its neighbour, Abu Dhabi. In January, the government announced that it had allocated $90bn for new projects between 2013 and 2017.

The spending is focused at new housing schemes for Emiratis and landmark infrastructure projects.

Abu Dhabi projects

Some of the work has already started. In mid-2012, a consortium of TAV, Athens-based Consolidated Contractors Company (CCC) and the local Arabtec Construction won the estimated $2.87bn contract to build the Midfield Terminal at Abu Dhabi International airport – one of the largest construction contracts ever awarded in the emirate.

In January this year, a joint venture of the local Arabtec, Spain’s Constructora San Jose and Oger Abu Dhabi won the $653m main construction contract to build the Louvre Abu Dhabi museum on Saadiyat Island. The long-awaited award indicates that Abu Dhabi may be keen to move ahead with projects again after two years of indecision caused the volume of work in the emirate to plummet during 2011 and 2012.

As more work is awarded in Dubai and Abu Dhabi, firms expect the UAE construction market to return to normality after a decade of extreme boom and dramatic bust. “After the highs and lows of recent years, the UAE construction market is now more stable, although the key construction markets of Abu Dhabi and Dubai are at differing stages of the cycle,” says Chris Seymour, head of property for UAE at UK consultant EC Harris. “High quality, well-designed and well-located developments remain in demand and the focus is increasingly on revenue-generating developments. Although this may sound like an obvious condition, it has not always been the case.”

The outlook for Qatar stands in contrast to the steady forecast for the UAE. In 2010, Qatar secured the rights to host football’s Fifa World Cup. Since then, consultants, contractors and suppliers have been eagerly waiting for the government to start work on the $70bn of projects it has pledged to build ahead of the tournament in 2022.

So far, the market has fallen short of expectations, with many contractors complaining that work has been slow to materialise. That is starting to change. After two years of appointing consultants, construction contracts are now being tendered, and most importantly, awarded. Last year, there were $10.87bn of construction and infrastructure contracts awarded in Qatar, an 11 per cent increase on the $9.69bn awarded in 2011.

The major awards last year included the $1.2bn award to Germany’s Siemens for a tram system serving Qatar Foundation’s Education City campus on the outskirts of Doha; a $1.2bn contract won by a team of the local/Belgian Dredging International and Middle East Dredging Company (Medco) for the phase 2 works at the new port project; and several big construction contracts at the Msheireb development in downtown Doha.

This year, there will be more awards on a range of major projects, including the Doha metro. Contractors submitted technical bids for the Golden Line, Green Line, Red Line North, Red Line South, and the two major stations at the end of 2012. Awards are expected following the opening of commercial bids during the first half of this year. Companies are also preparing to submit bids for the manufacture and supply of rail coaches, as well as for a control systems package.

Smaller markets

For the smaller markets, the performance in 2013 is expected to be more muted. Kuwait had a positive year last year, with the award of the contract to build the $2.6bn Subiya Causeway to a consortium led by South Korea’s Hyundai Engineering & Construction. That project, together with other government infrastructure schemes, meant the total value of contracts awarded in Kuwait in 2012 nearly doubled to $7.2bn, from the $3.9bn awarded in 2011.

For 2013 and beyond, the value of awards in Kuwait will depend on the progress of proposed public-private partnership deals for projects, such as the Kuwait metro. In early January, it was confirmed that four schemes including the metro and rail schemes are being reviewed by the Communications Ministry, leading to uncertainty about their implementation.

The focus in Oman will be the new convention and exhibition centre next to Muscat International airport, road projects and civil construction work supporting the $15bn Khazzan gas field development. In Bahrain, the government’s focus will be on developing housing schemes to help tackle some of the social issues that have threatened to completely destabilise the country in recent years.

Ultimately, the industry needs Saudi Arabia to recover for 2013 to be branded a success. As the GCC’s biggest economy, it is already the region’s largest construction market, and as its population continues to grows, its projects market will expand concurrently. This growth will be supplemented by schemes in the UAE, which, despite concerns of oversupply, has started developing real estate again. Qatar will also invest heavily in projects as the 2022 World Cup draws nearer.

Key fact

The value of construction awards in Saudi Arabia nearly halved from $30bn in 2011, to $16bn in 2012

Source: MEED Projects

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