Saudi Focus

The construction sector’s resolve, led by government infrastructure and housing projects, is expected to help in its resurgence as the negative effects of Covid-19 subside.

The construction sector’s resolve, led by government infrastructure and housing projects, is expected to help in its resurgence as the negative effects of Covid-19 subside.

Contract values down amid Covid crisis

November 2020

The total value of awarded construction contracts across Saudi Arabia during the second quarter fell to SR11 billion ($2.9 billion) as the widespread negative effects of Covid-19 delayed projects across many sectors, according to the US Saudi Business Council (USSBC).

The value of awarded contracts decreased after a strong showing in the previous quarter, it stated.

The total value of awarded contracts through the first half of 2020 reached SR56.2 billion ($15 billion), stated USSBC in its Contract Awards Index (CAI), which fell to 150.81 points by the end of the second quarter. The index steadily declined each month on the back of increased volatility thus far in 2020, the USSBC said.

This reflects a decrease of 65.79 points compared to the first quarter as the value of awarded contracts precipitously declined during the second quarter. The CAI ended at 197.51 in April, 174.63 in May, and 150.81 in June.

The CAI’s performance compared to H1 last year reflected an 89.63 point decrease, highlighting the pace of awarded contracts that were witnessed in 2019.The strong showing during the first quarter lifted the CAI above the 100 point mark but will be tested in the coming quarters as contracts are still expected to be suspended or cancelled.

Prior to fall out from the pandemic, the CAI was returning to the form it witnessed during the construction boom period prior to 2016 whereby index values of 200 or more were common. The rebound in 2019 and into Q1 öf ’20 reflected the resurgence the construction sector was witnessing, which would likely have had continued into 2020, said the report.

The resolve of the construction sector, led by government infrastructure and housing projects, will assist in the resurgence of the sector as the negative effects of the pandemic subside, it added.

Value-wise, the contracts were dominated by the water sector, which accounted for SR4.3 billion ($1.2 billion) or 39 per cent of all the deals. There were two awarded contracts in the water sector and both pertained to the construction of desalination plants in the Eastern Province on behalf of the Saudi Water Partnership Company (SWPC) and the Saline Water Conversion Corporation (SWCC).

The water sector has garnered approximately SR7.1 billion ($1.9 billion) through H1, accounting for 13 per cent of all awarded contracts by value.

The oil and gas sector came second with SR1.8 billion ($475 million) contracts, accounting for 16 per cent of all contracts. Saudi Aramco awarded two contracts during the second quarter that included transmission line work and installation in the Eastern Province.  Oil and gas led all other sectors through the first six months with approximately SR13 billion ($3.5 billion), accounting for 23 per cent of all awarded contracts by value followed by the real estate sector at a close third place. With SR1.7 billion ($440 million) deals, it accounted for 15 per cent of all awarded contracts by value.

Within the real estate sector, the hospitality and mixed-use categories awarded contracts across the kingdom. The real estate sector has generated SR4.4 billion ($1.2 billion) or eight per cent of all awarded contracts by value. Other supporting sectors included healthcare, transportation, industrial and power, it added.

Through H1, the total value of awarded contract reached SR56.2 billion ($11 billion), down SR57.8 billion ($15.4 billion) compared to last year.

Construction activities are expected to recover in the coming months after a tough second quarter. The remainder of 2020 will still be challenging but construction activity has already picked up slightly as the number of coronavirus cases in the kingdom decline and the recovery of oil prices continues.

In order to achieve one of Vision 2030’s most important objectives of a 70 per cent homeownership rate, the Ministry of Housing continues to construct housing units at an historic pace.  The “Sakani” programme plans to build 100,000 housing units in 2020 and this will drive the growth of the construction sector. The Public Investment Fund’s recent establishment of “Roshn” is expected to attract more private sector involvement while lessening the burden on government resources to allocate housing to citizens.

Another positive sign is the resurgence of cement sales. Total cement sales of the 17 local producers jumped by 38 per cent in August compared to the same period last year. Domestic sales increased by 41 per cent.

Looking ahead, there are a number of projects on the horizon that should drive construction activities for the remainder of 2020, said the USSBC. These projects include the construction of the public facilities phase of the Qiddiya project, the Red Sea airport packages, and Saudi Aramco oil and gas related projects, it added.  

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