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Infrastructure boom in Saudi Arabia
An unprecedented construction boom is gaining momentum in Saudi Arabia with a raft of highly ambitious, multibillion-dollar projects to upgrade infrastructure and meet pressing social challenges beginning to have an effect.
- By Andrew England, Financial Times
- Published: 23:39 November 2, 2007
- Sagia, the kingdom's investment authority, has drawn attention to a $624 billion investment programme launched last year to take the country through to 2020 as King Abdullah and his government look to utilise the immense oil wealth the state is enjoying.
- Image Credit: AP
An unprecedented construction boom is gaining momentum in Saudi Arabia with a raft of highly ambitious, multibillion-dollar projects to upgrade infrastructure and meet pressing social challenges beginning to have an effect.
The boom may be less visible than in the kingdom's smaller Gulf neighbours, such as Dubai and Qatar, but the needs and the numbers are massive - thousands of kilometres of new roads and railways; billions of dollars of water, sewerage and electricity plants; and four million new housing units over the next decade, with investment of $320 billion estimated to be required in housing through to 2020, according to Sagia, the kingdom's investment authority.
Estimates of the total value of projects vary as observers try to determine the difference between real and potential schemes. However, none doubts the huge scale of the plans.
Sagia officials cite a $624 billion investment programme launched last year to take the country through to 2020 as King Abdullah and his government look to utilise the immense oil wealth the state is enjoying.
Economists put the value of projects announced so far at more than $300 billion, with the construction sector growing at about seven per cent and expected to sustain similar or higher growth through to at least 2010.
Swathe of investment
"If you look at the sheer numbers in Saudi Arabia the amount of project work that is required... it is much more than what is happening in the rest of the region," says John Sfakianakis, chief econ-omist at SABB bank.
The upshot is a swathe of public and private investment that is providing opportunities for both foreign and local investors, including a grandiose flagship project to build six new "econ-omic cities". In 2006, Sagia granted licences to foreign companies for projects with an estimated value of $65 billion. This year it is expected to reach $75 billion, Sagia officials say.
The hope is that the boom will have a multiplier effect on non-oil private-sector growth, develop infrastructure that is in need of repair following periods of little or no growth in the 1980s and 1990s and provide scope for more diversified economic activity.
In spite of its image as a vastly rich country boasting 25 per cent of the world's known oil reserves, Saudi Arabia faces huge challenges as it seeks to improve services, reduce its dependence on oil, broaden the economy beyond the main centres, improve the skills of Saudi workers and tackle unemployment, which is about 12 per cent.
The kingdom has the Gulf's largest population, with 24 million people (including some 6.5 million expatriate workers) but its gross domestic product per capita is lower than the other Gulf Co-operation Council states, with the exception of Oman, according to consultants McKinsey.
Historically, Saudi Arabia has invested in infrastructure at a rate of about 17 per cent of GDP but now it is about 30-35 per cent, says McKinsey.
Not like 1970
Experts also say one of the key differences between this boom and that of the 1970s is the participation of the Saudi private sector, from cement companies that are ramping up production to small and large building contractors. Still, there are some suggestions that companies have been slow to realise the potential.
"The capacity for them to deliver against what's going on in a competitive way is low," says Gassan Al Kibsi at McKinsey. "There are maybe only three or four who have the institutional skills and who can service the cycles in the construction industry. That's why any large project not with one of those few Saudi companies is looking for construction partners from outside."
In August inflation reached 4.4 per cent, a seven-year high, partly because of rising rents. These could affect the pace of growth and cause some projects to be scaled back. But the overall mood is positive.
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