A surge in public spending to a record high in 2011 boosted the value of awarded construction projects in Saudi Arabia to an all time high and activity will remain strong through 2012, the Gulf kingdom’s largest bank said on Wednesday.
The total value of awarded contracts jumped by 155 per cent to SR270 billion during 2011, surpassing the previous record value of SR207 in 2009, National Commercial Bank (NCB) said in its latest construction index report.
Nearly 70 per cent of the contracts awarded in 2010 were in the second half of the year while the fourth quarter alone accounted for more than a third, with the value of contracts standing at nearly SR93 billion.
In the second half of 2011, the value of awarded contracts reached an impressive SR188.2 billion, which was higher than the total value of awarded contracts during all of 2010, said the report, sent to Emirates 24/7.
“The unprecedented SR270 billion in awarded contracts during 2011was propelled by the amount of mega-projects that were awarded during the second half of last year…. nearly 69 per cent of the value of contracts during the year were awarded during the second half,” it said.
“Moreover, the value of awarded contracts in 2011 grew by 155 per cent over 2010 and by 32 per cent over 2009. The government took an active role to increase the private sector’s participation in strengthening the economy.
It said a drive by the Kingdom, the world’s oil powerhouse, to increase its capital expenditures coupled with a growing participation from the private sector to help implement these projects, played a crucial role in making 2011 a record year in terms of construction contract awards.
It cited data by the Saudi Ministry of Finance showing nearly 2,600 government projects were signed with the private sector at a value of about SR148.3 billion.
“The Construction Contract Index (CCI) ended the year by achieving its highest level in December, which was 453.6 points. The CCI reached 406.5 and 419.8 points during October and November, respectively.”
A breakdown showed the transportation, power and industrial sectors were the main growth drivers in the 2011 projects, contributing approximately 48 per cent of the total value of awarded contracts.
While the Eastern Province has provided the largest share of the value of awarded contracts by region in 2011, the Makkah region made a significant contribution in the fourth quarter with approximately 37 per cent or SR33.6 billion worth of contracts being awarded, it said.
The jump in the Makkah region was mainly due to large contracts in the transportation and power sectors, it added.
The report showed the Eastern Province accounted for nearly 20 per cent of the total awarded contracts as many large projects were awarded in the petrochemical and industrial sectors.
“While we project total government expenditures to decrease slightly in 2012 compared to 2011, mainly due to lesser current expenditures, the government’s ongoing expansionary policy that reflects its commitment to support the economy and enhance the Kingdom’s infrastructure will not change,” NCB said.
“Moreover, our forecast capital expenditures of SR234 billion for 2012 represents a four per cent increase over 2011’s actual capital expenditures.”
The report said it believes the government’s plan to spend heavily for the development education and healthcare sectors will be the driving force in the growing value of awarded contracts in 2012.
“Consequently, the government’s 2012 budget includes plans to construct 742 new schools and the renovation of 2,000 schools along with the construction of numerous new hospitals and social/welfare centers. Furthermore, heavy capital spending sectors such as power, petrochemicals, oil & gas and real estate will continue to anchor the CCI throughout 2012.”
Actual Saudi government spending peaked at around SR804 billion in 2011, sharply higher than the budgeted expenditure of nearly SR580 billion. But actual revenue also nearly doubled to about SR1,110 billion, reversing a forecast SR40-billion deficit into a surplus of SR306 billion, the second highest positive balance after the 2008 record surplus of SR560 billion.