Saudi construction sector's growth seen at 6.4% in '10

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JEDDAH - The Kingdom of Saudi Arabia is forecast to award more construction projects this year, sustaining the strong activity recorded in the second quarter of 2010, National Commercial Bank (NCB) said in its latest Construction Index Survey.

NCB's data showed that growth in the Kingdom's construction sector is projected to reach 6.4 percent in 2010 to widen its contribution to GDP to around SR64.1 billion.

The growth in the 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 percent.

The value of awarded contracts in 2009 and 2008 reached SR207 billion and nearly SR111, respectively, it said.

The value of awarded contracts reflected the commitment of both the government and private sectors that construction activities remain and will continue to propel the economy.

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

Other projects set for awarding in 2010 include Saudi AramcoSaudi 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 noted.

"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," it added.

The construction sector alone provided employment to more than 2.51 million workers in 2008 and accounted for nearly 40.4 percent of the Kingdom's total labor force, up 1.5 percent 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.

With 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.

But the index dropped to 79.02 points in the first quarter of 2010 impacted by fewer and lower valued contracts in the period, the report said.

However, 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 report 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 report 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," it added.

© The Saudi Gazette 2010