Saudi construction sector seen slower in 2013

Saudi Arabia’s massive construction sector has slackened over the past few months mainly due to heavy expatriate exodus and is expected to record lower growth through 2013 compared with 2012, an analyst in the Gulf kingdom said on Sunday.

Although the sector may recover in the 4th quarter, overall performance will be slower through the year mainly because of lower fiscal surpluses and the departure of more than one million foreigners under a government amnesty, said James Reeve, deputy chief economist at the Saudi American Bank (Samba) group.

But Reeve told Emirates24|7 that major state companies like Saudi Aramco and Sabic are expected to maintain spending on mega projects, adding that this would help the country’s construction sector to recover through 2014.

“It is fair to say that there is something of a slowdown this year, mainly because of the crackdown on illegal workers….I think this will keep construction growth muted this year, with hints of an upturn in the fourth quarter,” he said by telephone.

“In general, we think the pace of central government capital spending will slow: oil prices are likely to stagnate and the government will be mindful that its fiscal position is not as strong as it was, say, two years ago.”

Citing forecasts by Samba, Reeve said such large Saudi firms as Sabic and Saudi Aramco would continue to spend on a number of large projects.

“This should help the construction sector to recover somewhat in 2014 as the shockwaves from the labour crackdown dissipate.”
More than one million expatriates have left Saudi Arabia since April under a pardon announced by King Abdullah in a bid to flush out illegal foreign migrants. Hundreds of them were reported to have stayed in the Kingdom and legalized their position under the pardon which ended Monday.

Figures by National Commercial Bank (NCB), the largest bank in Saudi Arabia, showed contracts awarded by the government have already started to slow down in 2013, with their value slumping by 19 per cent to SR102.7 ($27.4 billion) in the first half of 2013 from SR126.7 billion ($33.8 billion) in the first half of 2012.

“The magnitude of construction activities in the real estate sector in particular, reflects the need for continual large-scale projects to accommodate growing demand,” it said.

Furthermore, sectors such as petrochemical and industrial have yet to take off in 2013 but are expected to account for a respectable share of the value of awarded contracts for the remainder of 2013,” it said in a study released recently.

A breakdown showed mixed use real estate received the lion’s share of those contracts, accounting for around 27 per cent of the total contracts awarded in the second quarter.

The government sector came second, with a share of 19 per cent while residential real estate amounted to 12 per cent.

The share stood at 10 per cent in power, nine per cent oil and gas, seven per cent in roads, four per cent in transportation, three per cent in water and two per cent in petrochemicals. The remaining seven per cent went to other sectors.
 

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