Saudi contractors hungry for more

06 April 2010

Local firms show increasing appetite for growth by bidding aggressively on new projects in the kingdom

The biggest construction tenders of the year were submitted in late March for two design and build contracts for the upgrade of the expansion of King Abdulaziz International airport in Jeddah.

The low-bid for the airport’s terminal is SR11.3bn ($3.01bn) and for the infrastructure, the lowest price is SR13.9bn. Both offers are about SR3bn lower than the nearest bids,
which will test the aviation authority’s preferred option of awarding contracts to two separate contractors.

The fact that the low-bidder for both packages is local construction giant Saudi Binladin Group (SBG) demonstrates the dominance that the company has in Saudi Arabia’s construction market. According to regional projects tracker MEED Projects, it has an order book worth $15.4bn, close to three times that of its national rival Saudi Oger.

The market leading position of SBG, and other local contractors such as Oger, mean that it is difficult for regional and international construction companies to win work in the kingdom. According to MEED Projects, local firms are working on 83 per cent of the construction and infrastructure contracts that are currently under way.

But this situation could change. Unlike the smaller Gulf states, such as the UAE, where the construction market has contracted sharply following collapse in real estate prices, Saudi Arabia still offers long-term potential as it needs to build homes and infrastructure for its population of around 28 million people.

As the kingdom moves ahead with new projects, local companies will need to grow to match the demands of the market. If they are unable to do so it will leave billions of dollars of opportunities for foreign firms to capitalise on, but So far this does not appear to be the case.

SBG’s bids at Jeddah airport suggest that local firms still have an appetite for growth, and they are prepared to compete aggressively to achieve it.

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