As cash flow issues relating to government projects continue to slowdown Saudi Arabia’s construction sector, many contractors are being put under immense pressure.

In addition to this, the financing of private sector projects also poses concerns as a general economic slo down has made borrowing trickier than before.

Moving forward the industry will need to look at ways to alleviate such issues and ensure that if government projects dry up, the private sector is well financed.

Some have called for a contractor’s bank to help manage these issues. The setting up of a financial institution, under the mandate of the government, could serve as a solution to ensure that key infrastructure and real estate projects being implemented by the private sector can be well financed.

Payment delays and stalled government projects off the back of a decline in oil prices have severely impacted the entire industry. There were $4.5bn of awards in Saudi Arabia during the first half of this year, down 77 per cent on the $19.9bn awarded in the first half of 2015.

Many contractors in the kingdom have suffered from payment delays, which has resulted in the laying off of thousands of employees. Cash flow has been a major issue since the government decided to halt payments on many projects earlier this year. Project activity and contract awards have also declined in the kingdom

Saudi Binladin Group (SBG) and Saudi Oger are among the hardest hit by the current cash flow problem. SBG has laid off approximately 70,000 of its 200,000 workers, with local media suggesting Oger has let go up to 30,000 employees.

Recent reports claim that the government is looking to take over Saudi Oger. Instead of nationalising construction firms, Riyadh must ensure that contractors are supported by a well-financed market. With Saudi Arabia’s Vision 2030 looking at diversifying the economy, it will be interesting to see how the authorities will try to support the private sector moving forward.