Saudi construction needs new work, not old money

15 February 2017

The releasing of delayed payments will not be enough to ignite a strong recovery 

Although the Saudi government took steps towards mending the wounds caused by major payment delays over the past two years, the construction sector could be forced to wait until 2018 before real recovery materialises.

Recently released payments offer some promise, but what contractors need is more work and with contract awards declining by 62 per cent last year, the kingdom finds itself searching for growth from a significantly lower baseline despite a promising pipeline of projects needed to manage a growing population.

The continued pressure on government finances means Riyadh’s desperation to press ahead with key schemes is equaled by its desire to increase the participation of the private sector.

Although the private sector offers contractors the hope of better contracts, greater payment certainty and more efficient project cycles, the process of privatising or part-privatising future projects is a lengthy one.

The best example of this is the public private partnership (PPP) model, which the government has been keen to promote. Consultants and lawyers may find the Saudi market a fruitful one this year as they work on putting together the required regulatory framework for such partnerships. On the other hand, contractors may have to wait with many projects under the PPP model unlikely to see any concrete poured in the next 12 months.

The government is aware of this and that’s why when Riyadh released delayed payments of up to $10bn at the end of 2016, and has promised to pay a further $26.6bn by the second quarter of this year it was seen as a major relief for some of the country’s largest construction companies.

While this will be welcomed by the kingdom’s battered contractors, it may not be enough to drive the recovery that everyone is waiting for. 

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