Market analysis Saudi Arabia

Jumana Abdel-Razzaq |
February 28 , 2016

undefinedAs the largest construction market in the GCC, Saudi Arabia continues to bolster its development plans, focusing on ongoing projects despite low oil prices and budget cuts.

In 2015, the Saudi government announced record spending of $229 billion dollars, up from $227.9bn in 2014, as a way to counter the negative effects of the oil price slump by continuing to spend on development projects.

And this year is no different.  With a multitude of megaprojects continuing throughout the kingdom, many sectors will precede regardless of the current economic downturn, including the residential, transport and healthcare sectors.

In the short term, the Saudi government has no plans to roll back its ambitious development and building agenda so contractor order books will remain healthy, according to the Oxford Business Group.

However, with the unveiling of its 2016 budget last December, which predicted a deficit of $87bn (SR326 billion) this year, it is clear that Saudi Arabia would be more careful with its spending in 2016.

“Our economy has the potential to meet challenges,” King Salman said in a speech, adding the 2016 budget launched a phase in which the kingdom would diversify its revenues.

The kingdom will continue to focus on housing and residential projects as a main priority, an initiative taken in 2015 due to an ongoing housing shortage in many parts of the country.

There are also 500,000 housing units planned in different areas of Saudi Arabia to be completed by Q3 2025, marked by the need to complete at least 400,000 to meet the needs of the growing population.

Saudi rail projects will also carry through with several rail and transport developments in Riyadh, Jeddah and the holy cities including the Riyadh Light Rail Network, Jeddah Light Rail Transit, and the Makkah Mass Rail Transit (MMRT) - Makkah Metro.

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But the healthcare sector continues to be the kingdoms strongest.  Saudi Arabia’s health sector is expected to drive in a demand for 70,000 more hospital beds by 2016.

With a number of healthcare projects in the pipeline to commence in 2016, including King Abdulaziz Specialist Hospital in Madinah and King Khaled Medical City in Dammam, Saudi will continue with its ten-year strategic healthcare plan regardless of budget cuts.

Saudi Arabia says it expects to spend $224bn (SR840 billion) in 2016, which is $5bn (SR20 billion) less than what had been projected for this year. However, the government has also put aside $49bn (SR183 billion) in discretionary spending to use on infrastructure projects if oil prices improve.

And, budgeted investment spending is estimated to be reduced to around $53bn (SR204 billion) in 2016, with spending on key social infrastructure projects maintained. And though this points to a gradual consolidation in the fiscal stance, it also still shows the government’s sustained commitment on maintaining a high level of spending on human capital and social infrastructure.

The construction industry may be slowing down, but contractors, designers, project managers and other construction suppliers and buyers are still investing in the market to boost ongoing projects in the kingdom and around the GCC.

 

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