Saudi set to award more contracts in 2010

Saudi Arabia sharply boosted construction activity in the second quarter of 2010 and is expected to award more projects through the year within its post-crisis fiscal expansion strategy, its largest bank said on Wednesday.

The value of awarded contracts in 2008 and 2009 reached a total of SR111 billion and nearly SR207, respectively, National Commercial Bank (NCB) said in its Construction Index Survey, sent to Emirates 24|7.

It said the value of awarded contracts confirmed the commitment by both, government and private entities that construction activities has become a focal point for the economy and will continue to do so into the future.

Creating January 2008 as the base year (100 points), the construction contract index steadily rose to 170.2 points by December 2008, owed to many large contracts led by the real estate and power sectors, it said.

The index continued its accelerating pace to reach its peak of 307.9 points in July 2009 but ended the year at 259.4 points.

Mainly attributed to the methodology of using a six-month moving average in which the effects of the large contracts in mid-2009 steadily dissipated along with fewer and lower valued contracts in the first quarter of 2010, the index dropped to 79.02 points, according to the study.

But it added that the second quarter of 2010 witnessed a consistent increase in the value of awarded contracts, with the total awarded deals during leaping to more than SR24.2 billion from around SR8.8 billion during the first quarter.

The sectors that contributed to the majority of the growth in awarded contracts during the first half of 2010 were power (SR11.7 billion), residential real estate (SR5.9 billion), roads (SR3.9 billion), mixed-use real estate (SR2 billion), and urban development (SR2 billion), the survey showed.

“The number of construction contract awards in recent years has dramatically increased on the back of priorities set forth by the government as well as private institutions. These priorities have spurred numerous mega-projects across the kingdom as the focus on construction activities signaled the intention

to expand the infrastructure capabilities as well as increasing the production capacity of all of the sectors affecting the construction industry,” NCB said.

“Given the growth trend exhibited during the second quarter of 2010, the value of awarded contracts is expected to further expand during the rest of the year.”

According to the study, recently announced projects that are currently in the bidding process and are expected to be awarded during 2010 include projects such as Saudi Aramco’s major onshore construction package for its Wasit gas development program in the amount of SR22.5 billion.

Other projects that are expected to be awarded in 2010 include Saudi Aramco’s design and construction of the first phase of the Jizan Refinery, which will be built near Jizan City at a cost of SR26 billion.

“In general the number of awarded contracts increase during the second half of the year after plans and bids have been finalized within the various sectors that conduct construction activities,” the study said.

“Continuing the positive economic outlook in which high oil prices are predicted to continue to fuel growth across the whole economy, the number of awarded contracts are expected to continue to increase in the near to medium-term.”

NCB’s figures showed growth in the Kingdom’s construction sector, the second largest in the Middle East after the UAE, is projected to reach 6.4 per cent in 2010 to widen its contribution to GDP to around SR64.1 billion.

The growth in this sector will surpass the 4.4 per cent expansion in the non-hydrocarbon sector in 2010 and will boost it share of GDP to 10.4 per cent.

Furthermore, the construction sector alone provided employment to more than 2.51 million workers in 2008 and accounted for nearly 40.4 per cent of the Kingdom’s total labor force, up 1.5 per cent from the previous year, it said.

“The increase in demand for construction labor reflects the growing volume of work being implemented. We estimate that the investments made in 2009 would have increased the size of the construction sector’s labor force by four per ce3nt to reach 2.62 million workers. With this rise, we anticipate that sector’s share of the Kingdom’s total labor force to have remained unchanged,” it said.

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