Saudi Arabia – Construction & Materials 2019

The Construction Sector in Saudi Arabia Is Still Hoping for a Recovery

Published: 20 February 2019

 

1. Building construction

1.1 Market situation

The real estate service provider Knight Frank expects that population growth and support measures by the Saudi Arabian government will drive the housing market in the long term. Purchase prices and rents have fallen in recent years as a result of low oil prices and weak economic growth. This has been aggravated by a lack of liquidity, limited access to financing, meager supply in the medium- to lower-price segment and inadequate housing stock.

In Riyadh, project developers are concentrating on creating affordable housing under the auspices of government programs. In the second quarter of 2018 alone, the Ministry of Housing announced eight new public-private partnership (PPP) projects for affordable housing, including East Gate (Hamad and Ahmad Al-Muzaini Company, 5,968 villas/single-family homes), Dawaween Al Jazira (Dawaween Real Estate Development Company, 4,400 villas) and Ishraq Living (Tahaluf, 2,229 townhouses and villas).

Other developers are expanding their range of high-priced housing, reports real estate service provider JLL. However, it is stated that large numbers of high-earning foreigners have left the country.

According to JLL, the housing supply in Riyadh remained virtually unchanged in the second quarter of 2018, at 1.26 million units. By the end of 2018, 15,000 units should have been added. Although most buyers prefer villas, the sale of apartments has exceeded that of villas by a factor of ten, as apartments are cheaper on average.

In recent years, project developers have concentrated primarily on residential rental projects in the upmarket price segment. As a result, the supply of housing in Riyadh has increased for managers, foreign workers and their families as well as for short-term residents. But there has been a shortage of affordable housing for the local population for some time now, and the problem is worsening because of the young, rapidly growing population.

Affordable housing is a politically sensitive issue and is on the agenda of Vision 2030. The ownership rate is expected to rise from 47% to 70% by 2030. For the construction of privately-owned homes, the government is focusing more on financing projects with the private sector.

In early 2018, Saudi Arabia presented a US$ 32 billion housing program running until 2030. Around US$ 4.8 billion will flow into a loan guarantee program, and US$ 3 billion will support down payments. Launched in February 2017, the Sakani (“My Residence”) program of the Housing Ministry and the governmental Real Estate Development Fund (REDF) aimed to provide 300,000 support measures to needy families nationwide in 2018 in the form of: 125,000 subsidized homes (in partnership with the private sector), 75,000 free residential properties and 100,000 subsidized home loans. According to government figures, Sakani allocated around 280,000 such measures in 2017.

The success of previous government programs in creating affordable housing has been modest. The 2011 Saudi Housing Program announced a plan to construct 500,000 homes, with less than 1% of these completed as of 2017.

1.2 Commercial construction

The oversupply of offices in metropolitan areas is increasing, and the weak economy has worsened the situation. Many projects have been delayed. Building owners have not been able to raise necessary capital or are waiting for conditions to improve before investing in new projects. The vacancy rate in the second quarter of 2018 was 8% in Riyadh (Q2 2017: 16%), 21% in Jeddah (Q2 2017: 16%) and a staggering 30% in the first half of 2018 in the metropolitan region of Dammam.

In Riyadh, office space was expected to increase by 151,000 m² m² to a total of 4 million m² in the second half of 2018, while only 51,000 m² were completed in the first half of the year. Still, the city is expanding to the north, and the demand for offices is likely to increase, especially in the vicinity of metro stations. The Riyadh Metro is scheduled for completion in 2019.

In Jeddah, the completion of 82,000 m² of office space has been announced for the second half of 2018. Another 84,000 m² are under construction, according to JLL, and will be launched in 2019 and 2020. The office stock at the end of June 2018 amounted to almost 1 million m².

JLL expects temporary office demand to decline when Jeddah’s new international airport, one of the city’s largest infrastructure projects, is completed, presumably in 2019. The improved air connection it will provide could attract new companies and investors.

Vacancy rates in the greater Dammam area are high. JLL expects oversupply to rise even further by mid-2019, since projects are coming onto the market faster than demand is increasing. JLL sees a preference among tenants for modern office space, as was proven by the Adeer Towers completed in 2017, which were rented out within six months. In contrast, rent fees in older buildings have fallen drastically in order to retain tenants. In the first half of 2018, office space in Dammam increased by 21,400 m² to 840,000 m². A further 53,000 m² were to be added in the second half of the year.

The expansion of tourism is one of the priorities of Vision 2030. The number of locals employed in the sector is expected to rise by 50% to around 1.2 million by the year 2030. Saudi Arabia once again has been issuing tourism visas since April 2018. The Kingdom competes in the region with established tourism markets such as the United Arab Emirates (UAE) and Oman.

Millions of religious pilgrims visit Saudi Arabia every year. Their number is expected to almost double by 2030, and they are expected to stay for longer periods. According to Vision 2030, the number of Hajj pilgrims from abroad will rise to 2.5 million by 2020 (from 2 million in 2017), and the number of year-round Umrah pilgrims from 6.5 million to 19 million.

The number of pilgrims during the Hajj season will be limited in order to ensure adequate infrastructure and accommodation. The high-speed train connection between the holy cities of Mecca and Medina, opened in September 2018, and a metro in Mecca will enable more efficient transport of pilgrims as well as an expansion of the Hajj pilgrim limit. In addition, the pilgrimage experience will be enhanced by a wider range of luxurious hotel accommodations and Artificial Intelligence (AI) technologies.

Instead of spending money abroad, the population is expected to spend more leisure time in the Kingdom. The Qiddiyah entertainment district, including a Six Flags theme park, is being constructed just outside Riyadh. The country’s first cinema in 35 years opened in spring 2018. Numerous cultural and sporting events are now taking place; in fact, Jeddah has announced the construction of an opera house, and the Art Jameel artists’ hub “Hayy” is also under construction.

Non-religious tourism is barely developed and still has potential, for example, the pristine excavation site Al-Hijr (Mada’in Saleh), 400 km from Medina. The coral reefs on the Red Sea are ideal for diving holidays. In the summer of 2017, the Crown Prince announced the Red Sea Tourism Project. The beach resort, with hotels and luxury residences, will extend over 50 islands in a lagoon covering an area equivalent to that of Belgium. Richard Branson, founder of the Virgin Group, is a consultant to the project, for which construction is scheduled to start at the end of 2019. The seed capital will come from the PIF sovereign wealth fund, but the bulk of the money will come from private investors, both domestically and abroad.

The Kingdom hosts many business travelers. International companies usually serve the Saudi Arabian market from their sales offices outside the country, mainly the UAE. The number of trips is unlikely to have increased recently due to the weak economy.

Nationwide, there are 1,885 licensed hotels and 5,265 houses with serviced apartments. In the next two years, the Copthorne, Shangri-La and Ibis hotel chains are expected to enter the market, as well as some new serviced-apartment providers.

The Saudi Commission for Tourism and National Heritage (SCTH) wants to increase the number of hotel rooms to 600,000 by 2020 (end of 2017: 500,000). According to JLL, the number of hotel rooms available in Riyadh at the end of June 2018 was 12,300 (12,000 at the end of December 2017). By the end of 2020, the number is expected to increase to 16,800. Some projects scheduled for 2018 could be postponed to 2019 and 2020 due to currently weak market development.

Delays are also expected in the Dammam area. From the end of June 2018 to the end of 2020, the room count here is to increase from 7,700 to 8,800. In Jeddah, 11,200 rooms were available at the end of June, with 14,000 expected by the end of 2020.

Saudi Arabia is already the most important market in the Gulf region for most retailers because of its population size. Retail space has been steadily expanded in recent years, especially in Riyadh and Jeddah. New malls have been built, and existing ones have been expanded.

The consumer climate is weak. Moreover, 12 retail segments are only allowed to employ local sales staff, a policy which began in September 2018. Retailers fear a drop in sales until new staff are trained.

The development of an entertainment/leisure industry should have a positive impact on the retail sector in the medium term, as many offers are being created in shopping centers, which will attract more customers. The need for investment in the entertainment sector is high. The country’s first movie theaters are opening and the number of musical, cultural and sporting events has increased rapidly. The variety of food and beverages has expanded as well.

JLL expects retail space in shopping centers in Riyadh to increase from 2.1 million m² at the end of June 2018 to 2.4 million m² at the end of 2020. Supply in Jeddah is expected to rise from 1.4 million to 1.7 million m², and in the greater Dammam area from 1.0 million to 1.1 million m². Project delays are expected due to the weaker economy, however. Dammam in particular could benefit from the expansion of its leisure facilities if more locals stay in the city instead of tens of thousands travelling to neighboring Bahrain on weekends.

Petrochemicals currently dominate industrial construction. Within the framework of Vision 2030, huge investments are expected in refineries and the downstream industry. Their product range is expected to be diversified. Mixed-feed crackers will cushion volatile oil and gas prices and stabilize margins. A domestic defense industry and the expansion of pharmaceutical production are also envisioned. However, projects are currently slowing down.

In April 2018, Saudi Aramco and Total signed a letter of intent for a US$9 billion petrochemical complex next to the Saudi Aramco Total Refining and Petrochemical (SATORP) refinery in Jubail with a new mixed-feed cracker. The cracker will also rely on third-party projects worth an additional US$4 billion.

The Saudi Arabian Mining Company (Maaden), together with Mosaic and Sabic, are planning a large phosphate project costing US$ 550 million in the petrochemical complex Wa’ad Al Shamal Minerals Industrial City. Total production at the complex is expected to be just under 16 tons per year (TPA), including three million tons of fertilizers and 440,000 tons of downstream products. Complementary ammonia and phosphate-based fertilizer production facilities will be built near Ras Al-Khair Harbor. An EPC construction contract was awarded to the South Korean company Daelim in October 2018.

Yanbu National Petrochemical Company is planning a US$ 500 million butadiene plant in the port city of Yanbu. The bids for the main contract were submitted in April 2018 but have not yet been awarded. According to press reports, negotiations with the South Korean construction group eTec E&C are underway.

1.3 Health and education sector

The healthcare market is growing, driven by population growth, an aging society and the increasing prevalence of chronic diseases. According to official figures, the population of Saudi Arabia is 32.5 million. By 2035, the number of people over age 60 will triple. The market research company BMI forecasted an increase in health care spending of 4.6% to US$ 37 billion in 2018. The presence of compulsory health insurance is also contributing to the growth of the sector.

However, hospital capacities are insufficient and will need to be expanded. Also, the number of health centers should be increased greatly. Last year 65 new centers were added, the total number reaching 2,390.

The Ministry of Health (MOH) is by far the most important player in the health sector. It operates 279 hospitals nationwide, treating more than 16 million patients annually and providing almost 60% of the total bed capacity. According to the MOH, the number of beds in the Islamic year 1438 AH (October 2016 to October 2017) rose to 72,981 (1437 AH: 70,844) in 487 (470) hospitals. The government sector accounted for 53,263 (52,746) beds in 318 (317) hospitals. By 2020, MOH intends to increase its number of beds from 43,080 to 73,000.

This goal seems ambitious, especially as the Ministry wants to act as the project operator in many cases, but it is looking for private investors. The government intends to reduce its role in health care, thus involving the private sector more closely. Another goal of Vision 2030 is the privatization of entire clinics, individual departments and services.

Despite high demand, the implementation of hospital projects is progressing slowly. According to the database MEED Projects, there are currently 68 frozen hospital projects with a total value of over US$ 17 billion. Three projects were cancelled in the first three quarters of 2018, including the first phase of Military Medical City in Riyadh (US$ 3.8 billion) and the expansion of King Khaled Medical City in Dammam (US$ 1.2 billion).

About 66 hospital projects valued at more than US$ 16 billion are under construction. The largest projects are two military hospitals for US$ 3.4 billion each, one in Jeddah and one in Riyadh. Also, the main contract for 20 other projects with a total value of almost US$ 3 billion is expected to be awarded before the end of 2019. For more information, please see the tables in the Appendix.

Saudi Arabia wants to invest more in education. Numerous university projects are being planned, and investments are also being made in vocational training, although progress has been slow. Private investors are often sought for financing and also in part to operate the projects. Twenty-one projects with a total value of US$ 1.1 billion are currently being planned in the education sector, particularly colleges and universities, whose main contracts will be awarded before the end of 2019. Additionally, 129 projects worth US$ 5 billion are already under construction.

1.4 Energy efficiency / Building modernization and renovation

According to official estimates, projects in the energy efficiency sector have a total value of US$ 11 billion, or around US$ 800 million annually. The reduction of subsidies for electricity could give further stimulus to energy-efficient construction. In autumn 2017, the Energy Services Company (Super ESCO) was founded with a capital endowment of US$ 510 million. Its main task is to finance and manage subsequent improvement of the energy efficiency of government and public buildings. These projects account for approximately 70% of all energy efficiency projects. “Super ESCO” is designed to create new investment opportunities and PPP projects. It cooperates with the Ministry of Energy, Industry and Mineral Resources, the Ministry of Finance and the Saudi Energy Efficiency Center (SEEC).

The modernization and renovation of existing buildings plays a subordinate role. Even young buildings decay quickly, so refurbishment is often not economical. Even the demolition and new construction of entire city districts is currently planned.

The LEED certification system (Leadership in Energy and Environmental Design) of the USGBC (US Green Building Council) dominates as the benchmark for “green building”. According to the USGBC, more than 303 projects were aiming for LEED certification in Saudi Arabia by the end of September. Riyadh’s King Abdullah Financial District (KAFD) alone intends to achieve certification for around 50 projects but faces an uncertain future. So far, 48 projects nationwide have been LEED certified, including five with the highest certification (Platinum), such as the King Abdullah University for Science and Technology (KAUST) campus in Thuwal, which received Platinum status in 2009. The most recent certification took place in April 2018, when the 3M production facility in Dammam received LEED Gold in the “New Construction” category.

1.5 Megacity Neom

By far the largest project on the drawing board is the Megacity Neom on the Red Sea. Neom is to be built in the Tabuk province on 26,500 square kilometers in an largely undeveloped area. The investment requirement is estimated at US$ 500 billion, with the infrastructure alone expected to cost US$ 100 billion.

Several companies are interested in investing in Neom. The megacity has its own legal and legislative systems. Although there are no concrete commitments yet, according to reports Saudi Arabia is looking for a major investor to act as a driving force. Nadhmi Al Nasr has been CEO since July 2018 and is responsible for the strategy and development of the project. Al-Nasr was most recently President of the King Abdullah University of Science and Technology (KAUST) and has more than 30 years of experience at the oil giant Saudi Aramco.

The Public Investment Fund is responsible for the project (Jayson Miragliotta, Executive Director Master Planning Neom, phone +966 50 9036838). The Project Management Contract was awarded to BuroHappold Engineering (Andrew Robertson, Project Director/Manager and Sherif Amar, Project Manager, phone +966 11 4191992). Work on the master plan is underway. According to news reports, Orascom Development Egypt (ODE), a subsidiary of Orascom Development Holding AG from Switzerland, and Italian construction company Salini are among the firms interested in infrastructure tenders.

In 2018 four packages were awarded to Saudi Arabian companies for the construction of royal palaces in Neom. According to newspaper reports, El-Seif Engineering & Contracting Company received the largest package – the contract for four out of five palaces – and Saudi Binladin Group received the fifth palace. The infrastructure contract went to Nesma, and Al Bawani was awarded the contract for an assembly hall, the golf course and other landscaping work.

 

2. Building materials

2.1 Cement

The cement industry expanded its capacity from 26 million tons to 62 million tons between 2005 and 2015, fueled by brisk construction activity. Production covers almost the entire domestic demand. There was formerly an export ban, which was lifted in April 2016. Cement exports remain low, however. Qatar was an important customer due to the construction boom in the run-up to the 2022 FIFA World Cup, but has significantly reduced its project investments as a result of lower oil and gas prices. Since June 2017, trade with Qatar has been completely suspended due to a diplomatic crisis.

The decline in new building orders in 2016 also reduced demand for cement. Domestic sales fell from 61 million to 56 million tons in 2016 and further to 47 million tons in 2017. In the first quarter of 2018, the decline in demand continued with -13% compared to the first quarter of 2017. Considering the weak project market, there were no signs of a turnaround in the rest of 2018. Full-year numbers are not yet available.

 

Saudi Arabia: Cement production and domestic sales by manufacturer (in 1,000 tons)

Production Domestic sales
2015 2016 2017 2015 2016 2017
Total 61,494 55,943 47,134 60,744 55,653 47,231
Southern Province Cement 8,487 7,498 5,564 8,490 7,444 5,581
Yanbu Cement 7,019 6,412 5,365 7,008 6,439 5,329
Saudi Cement 7,662 7,380 4,976 7,223 7,322 5,061
Yamama Saudi Cement 5,831 5,376 4,229 5,825 5358 4,243
Qassim Cement 4,415 4,063 3,861 4,405 4,040 3,873
Arabian Cement 5,398 4,446 3,536 5,380 4,454 3,530
City Cement 2,649 3,162 3,401 2,655 3,136 3,409
Riad Cement 3,390 3,610 2,785 3,266 3,587 2,785
Eastern Province Cement 3,124 2,640 2,215 3,008 2,638 2,209
Najran Cement 4,460 2,922 1,748 4,460 2,899 1,768
Al Safwa Cement 1,876 1,863 1,758 1,861 1,856 1,754
Al Jouf Cement 1,749 1,964 1,442 1,726 1,884 1,421
North Cement 2,357 1,861 1,145 2,370 1,865 1,152
Tabuk Cement 1,317 1,345 1,081 1,301 1,339 1,091
Hail Cement 1,758 1,401 1,047 1,766 1,392 1,050

Source: Company information published by Yamama Saudi Cement

 

The cement sector is not likely to expand in the coming years. Since 2005, 32 new cement plants or expansion projects have gone into production. The largest ongoing project is Yamama Saudi Cement’s US$ 1 billion cement plant, which is expected to be completed in Q2 of 2019. Yamama plans to shut down five old clinker lines when production starts. An order for two cement clinker production lines with a total capacity of 20,000 tons/day went to ThyssenKrupp in 2015. Metallurgical Corporation of China is acting as subcontractor. Al Sharq Factory Steel Industries Company (ASF) is responsible for the design of fan housings, chimneys and steel structures.

Al Baha Holding Cement Company intends to build a cement plant with a capacity of 6,000 tons/day as EPC. The feasibility study was completed in April 2018, and a financier for the US$ 100 million project is still being sought.

2.2 Other building materials and supply products

Saudi Arabia’s diversification strategy seeks to expand the building materials and supply products industries. However, investors are holding back. Although there is already a large local supply of building materials in many sectors other than cement, foreign imports will remain significant in the medium and long term. However, imports have fallen significantly, due to a sharp drop in demand since 2016. If the project market recovers in 2019 as hoped, imports can be expected to pick up.

The slump in orders in the construction industry, especially for infrastructure and residential projects, has led to a sharp drop in demand for metal products. Moreover, bottlenecks in the supply of gas and energy are hindering the expansion of the energy-intensive production of metals.

Saudi Arabia is the largest producer and consumer of steel in the GCC region. Crude steel production was around 5.5 million metric tons in 2016. About the same amount of steel is imported. A large proportion of the imports is scrap used by the steel industry. Important companies in the iron and steel sector include Saudi Iron & Steel Company (Hadded), Solb Steel Jizan, Saudi Basic Industries Corporation, Saudi Steel Pipe Company, Al Yamamah Steel Industries and the Al-Rajhi Group.

New projects are currently making little progress. In February 2018, Saudi Aramco signed an MOU providing for a feasibility study for a steel plate plant in Ras Al-Khair with Nippon Steel and Sumitomo Metal Corporation (NSSMC).

No news emerged on the construction of an integrated steel complex of the Kuwaiti Al-Kharafi family in the Hail region. It was said in 2016 that the project, estimated at US$ 1.5 billion, was still at an early stage.

At the end of May 2018, Sabic’s plans to build a 1.5-million-ton capacity steel mill in Jubail Industrial City were cancelled. Sulb National’s plans to build a steel ingot plant in Rabigh have also been put on hold.

The Saudi Mining Company (Ma’aden) and US company Alcoa are planning to build an aluminum smelter in the industrial city of Ras Al-Khair. The feasibility study was initiated in 2017, with costs estimated at US$ 500 million. The aluminum complex, which was implemented by both companies as a joint venture, went into operation in 2015. The production capacity is 1.8 million tons of alumina per year and 0.74 million tons of aluminum. The rolling mill has a capacity of 0.38 million tons.

Saudi Arabia seeks to expand its downstream industry. The expansion is expected to fuel the production of plastic products for the construction industry. In the medium term, building components made of plastics (profiles, pipes, etc.) will be supplied by domestic producers. The Saudi Arabian Amiantit Company in Dammam produces GRP pipes (glass fiber reinforced plastic pipes).

Building materials made of natural stone (paving stones and slabs, wall coverings, etc.) are sourced locally and abroad. Among other materials, construction glass is produced by the National Company for Glass Manufacturing.

Domestic demand for ceramic products fell sharply in 2017. The industry complains about dumping prices, which are depressing margins. The Royal Commission for Jubail & Yanbu (RCJY) is planning a ceramics plant in Yanbu Industrial City. In October 2018 RCJY signed an agreement with an unnamed Chinese company to build the factory. In February 2018 it was announced that Future Ceramics had cancelled a long-delayed plan to expand its ceramic production in Dammam due to financing difficulties.

A leading local ceramic manufacturer is Saudi Ceramics Company, founded in 1977. The company can produce 65 million m² of ceramic and porcelain tiles and 3.5 million pieces of sanitary ceramics annually in four tile factories and two other facilities. The production of tiles and porcelain decreased in 2017 by 8% compared to 2016, and the production of sanitary ceramics decreased by 3%. 2016 was already a difficult year for the company, with sales dropping by 21% to US$ 347 million. Approximately 90% of sales are generated domestically.

Polystyrene and mineral wool are mainly used to insulate walls and roofs. Both materials are available locally. In private residential construction, contractors/customers are reluctant to pay for insulation that exceeds minimum standards, though this could change due to reductions of subsidies on electricity.

Saudi Arabia is also becoming an increasingly important exporter of polystyrene. Saudi Arabia’s polystyrene output has increased further with the commissioning of Saudi Polymers (annual capacity: 200,000 metric tons). The company is a joint venture of National Petrochemicals Company (Petrochem) and Chevron Phillips Chemical Company.

Cables and wires are manufactured by Saudi Cable, Middle East Specialized Cables Company, Bahra Cables Company, Rescab, Energya Cables, Riyadh Cables and Alfanar. Saudi Rockwool Factory, located in an industrial area south of Riyadh, produces mineral wool for thermal and acoustic insulation and fire protection. The factory has production lines for dark grey (annual capacity: 5,000 tons) and yellow mineral wool (22,500 tons). Most of the raw materials required are available in Saudi Arabia.

 

3. Industry overview and business practice

3.1 Industry overview and competitive situation

The number of contracts awarded declined sharply in 2016 and was still below pre-crisis level during 2018. According to database MEED Projects, the total value of major projects awarded between January and August 2018 rose by around 25% to US$ 20.3 billion. This amount of increase is due to a comparatively low basis in previous years. By 2016, the value of projects awarded had halved to US$ 26 billion and remained virtually unchanged in 2017.

 

Saudi Arabia: Incoming orders in the construction industry (US$ millions*)

2015 2016 2017
Total incoming orders 52,025 26,255 26,170
Chemical/petrochemical industry 412 1,245 1,710
Office buildings, trade fair projects, etc. 1,015 1,313 1,283
Culture (libraries, mosques, theatres, etc.) 40 62 37
Education 1,411 395 293
Healthcare 1,279 778 1,572
Hotels and restaurants 3,346 2,059 886
Leisure industry 411 22 13
Coastal construction projects etc. (Earthwork) 103 87 554
Residential/commercial projects (mixed-use) 1,737 600 362
Government building 2,401 0 322
Residential 8,487 3,369 2,626
Retail trade 2,247 153 477
Telecommunications 0 0 24
Gas industry 6,226 5,692 4,260
Mining, metal, cement and glass industry etc. 3,493 426 1,808
Oil sector 2,198 4,900 3,002
Energy sector 8,122 2,729 2,335
Transport 6,871 1,720 3,524
Water supply and sanitation 2,226 705 2,365

*Values refer to the total cost of projects, including costs for facilities, equipment, etc.

Source: MEED Projects (Contract Awards)

 

The situation for most construction companies is difficult. Competition is increasing, and margins are falling. Many projects have been cancelled, temporarily stopped or delayed. Fewer new orders are being fulfilled. Staffing has been cut on a large scale. Also, significant delays of payments by government clients have led to liquidity problems. At the same time, interest rates are rising, which aggravates these liquidity problems. The situation is easing only slightly. Additionally, the market has collapsed not only in Saudi Arabia but in almost all Gulf countries. The possibilities for alternative markets in the region are therefore limited.

Local companies, most of which are family-owned, dominate the construction industry. The Saudi Binladin Group and the Saudi Oger Group have been prevalent for a long time. Saudi Oger ceased operations in 2017 for liquidity reasons. The Binladin Group was excluded from participation in tenders by the Royal House in September 2015 after an accident involving numerous dead and injured workers occurred during construction work on the Great Mosque in Mecca. Since May 2016, the Binladin Group has again been allowed to apply for projects. The company is currently being restructured.

 

Saudi Arabia: Leading construction companies (selection)

Company Projects (examples)
Saudi Binladin Group Palace for Neom, JEC – Jeddah Economic City: Jeddah Tower, completed: Al-Faisaliah Tower, King Abdullah Economic City, Holy Mosque of Makkah
El Seif International Energy Company Ministry of Interior – Residential Compound: Najran and Jizan B
Al Bawani PIF – Sharma Complex: Royal Residential Buildings (Package 3), Raidah – RKAFD: Science Museum, KAUST- Housing Expansion Project in Jeddah
Nesma and Partners Saudi Aramco – Fadhili Gas Plant: Gas Central Processing Facility: Package 1, Umm Al Qura – King Abdulaziz Road Project in Mecca: Infrastructure
Al Khodari Ministry of Interior – Security Compound: KAP 4: Package 1, King Abdullah bin Abdulaziz Airport in Jizan, Tabuk University Hospital

Sources: Trade magazine “Construction Week”, GMI research

 

Foreign construction companies usually receive subcontracts or participate in projects with high technical requirements. The consortia are organized by a local industry leader. Leading international construction companies in Saudi Arabia include Saipem (Italy), Hyundai Engineering & Construction (South Korea), JGS Corporation (Japan), GS Engineering & Construction (South Korea), Larsen & Toubro (India), Tecnicas Reunidas (Spain), Samsung Engineering (South Korea), Daelim Industrial (South Korea), Bechtel (USA), ABV Rock Group (Sweden), Consolidated Contractors Group (Greece), Fluor Corporation (USA), SK Engineering & Construction (South Korea) and Habtoor Leighton Group (UAE).

International engineering companies include Dar Al Handash (Egypt), Amec Foster Wheeler, Aecom Technology (USA), Worley Parsons (Australia), KBR (USA), Khatib & Alami (Lebanon), Jacobs Fluor Corporation (USA), Jacobs (USA) and KEO (Kuwait). Local sector companies are Zuhair Fayez Partnership and Abdulelah Almohanna.

According to Construction Week, the five largest project developers in the real estate market, measured in terms of projects during the 12 months before September 2018, are: Online Dar Al Arkan Real Estate Development Co, Jabaö Omar Development Company, Al Akaria Saudi Real Estate Company, Emaar the Economic City and Alandalus Property Company.

The largest project developers across all sectors in terms of 2018 and 2019 expenditure include: Saudi Real Estate, Zamil Group, Al Fahd Company, Al Hugayet Group, Power & Water Utility Company for Jubail and Yanbu, M-AL Bargash Company, Iman Trading Agencies & Contracting, Saudi District Cooling Company, Faisal Al Ansary Construction and F.AL Harbi & Sons Co.

3.2 Business practice

The liquidity problems of Saudi companies, especially smaller ones, have worsened. Contractors are advised to accept modified payment terms, as it is unlikely in many cases that enforcement of the original contract terms will be feasible.

Construction projects are essentially carried out according to standard international procedures. In many cases, project management and supervision is entrusted to renowned international architectural and engineering firms. Construction companies are initially given the opportunity to submit expressions of interest. Some or all of the interested companies are then invited to submit their bids. The award process can be very tedious, and in fact some projects are halted completely.

A highly competitive market, relatively low level of transparency and the enormous dimensions of construction projects are the greatest barriers to market entry for foreign companies. In contrast, the legal hurdles to establish a presence in Saudi Arabia are comparatively low. However, regulations introduced in 2011, as well as the much stricter regulations recently introduced (pertaining to the employment of a minimum number of locals) could cause headaches.

Foreign architects, engineers and other construction service providers are able to establish professional partnerships with Saudi Arabian partners. The Ministry of Commerce and Investment (MCI) handles registration for this, and the Saudi Arabian General Investment Authority (SAGIA) is not involved. Important prerequisites include a good general reputation and at least ten years of experience by the foreign partner. A partnership agreement also must be concluded.

Foreign companies can set up a dependent branch. This requires minimum capital of 500,000 Saudi Riyals, a license from SAGIA and an entry into the commercial register. As the branch does not have its own legal personality, it is possible to enforce liability against the parent company. Commercial activities are prohibited. The establishment of a branch for a limited period of time may be authorized if government orders are fulfilled. The foreign company must be the main contractor.

Foreign and local companies usually enter into joint ventures formed as Limited Liability Companies (LLC) to carry out construction projects. The LLC consists of a minimum of two and a maximum of 50 shareholders. A local partner is not required but may be useful. The rather time-consuming application to establish an LLC must be addressed to SAGIA, which among other things decides on the minimum capital requirement.

There are trade fairs available for exploring the construction market, but their importance is limited. The next edition of “Saudi Build” will take place in Riyadh from 7-10 October 2019. Data for 2018 are not yet available. According to the organizer, around 18,800 visitors came in 2017 to see the offerings of 512 companies from 32 countries on 18,700 m².

The “Big 5 Saudi” in Jeddah has been competing with the “Saudi Build” since 2011. The organizer of both is dmg events (USA). In March 2018, 279 companies (2017: 472) took part in the Big 5 Saudi fair on a net area of almost 7,000 m², which was attended by 12,949 trade visitors (2017: 11,162).

The most important construction fair in the region takes place annually in November in Dubai, United Arab Emirates, called the Big 5 (http://www.thebig5.ae). In 2017, 2,601 exhibitors presented to approximately 64,000 industry visitors.

 

4. Table Appendix: Construction projects in Saudi Arabia

Comment: Projects in the early stages (design/study) are often realized in a heavily modified form, temporarily suspended or partially cancelled. Completely new tenders are also frequent.

Source: MEED Projects

 

Residential building: Selected projects (investments in US$ millions)

Project Investment Project status* Operator
Dahiyat Alfursan 20,000 ST Ministry of Housing
Kaaki Development in Mecca 2,000 DE Yousef Abdul Latif Jameel Group (YALJ)
Residential City in Al-Asfar (100,000 Housing Units) 1,000 ST Ministry of Housing
100,000 Housing Units at Dammam & Al-Kharj 1,000 DE Ministry of Housing
Yanbu Industrial City: Housing Building at Al Aziziah 700 ST Royal Commission for Jubail & Yanbu (RCJ&Y)
Jabal Al Sharashif Development in Mecca: Nakassa Development 300 DE Albalad Alameen
Housing Project in Al Worood Area 260 ST Luberef
Sea View Residential Project in Al-Khobar 248 ST Anan Real Estate Company
Farsi Eight Residential Towers in Obhur 180 DE Zaki Farsi
Shams Al Riyadh: Mirabilia Residential Villa 160 ST Dar Al Arkan

*ST = Study, DE = Design

 

Office buildings: Selected projects (investments in US$ millions)

Project Investment Project status* Operator
Rabigh II Non Process Building 750 EX Saudi Aramco / Sumitomo JV
Sabic New Headquarters at New City Center 507 EX Saudi Basic Industries Corporation (Sabic)
SEC Headquarters Building in Riyadh 370 EX Saudi Electricity Company (SEC)
Headquarter Building in Jeddah 350 EX Ministry of Interior
Majdoul Tower in Riyadh 293 EX Awtad Al Akaria Company
Chamber of Commerce Tower 150 PQ Eastern Province Chamber of Commerce and Industry (EPCCI)
Avenue Mall in Obhur Al Janoubiyah 150 DE Umm Al Qura for Development & Construction
The Khumra Logistics Park (TKLP) 147 DE Saudi Trade & Export Development Company (Tusdeer)
Administrative Building in Madinah 140 DE Ministry of Interior
Women’s Business Park (WBP) 100 ST Aramco/Wipro/Princess

*EX = Execution, PQ = Prequalification, DE = Design, ST = Study

 

Retail: Selected projects (investments in US$ millions)

Project Investment Project status* Operator
The Avenues Riyadh: Mall 1,000 EP Shomoul Holding
Mall of Saudi: Phase 1 1,000 CB Majid Al Futtaim
Ishbiliyah City Centre 800 EP Majid Al Futtaim
Salboukh Mall in Riyadh 600 EX Arabian Centres
Mall of Arabia in Riyadh 325 EX Arabian Centres
Al Faisaliah Redevelopment Project: Phase 1 & 2 300 EX Al Khozama
Al Jawhara Mall 150 DE Mohammad Al Habib Real Estate
Tahliyah Gate: Mega Mall 100 DE Sondos Real Estate
Riyadh Outlet Village 69 ST RED House
King’s Walk Mall 60 DE Assaudia

*EP = Evaluation of Proposals, CB = Call for Bids, EX = Execution, PQ = Prequalification, DE = Design, ST = Study

 

Hotel construction: Selected projects (investments in US$ millions)

Project Investment Project status* Operator
Jabal Omar: Phase 3 720 EX Jabal Omar Development Company
Jabal Omar: Phase 4 613 EX Jabal Omar Development Company
Jabal Omar: Phase 5 426 DE Jabal Omar Development Company
Park Regis Makkah 360 EX Asas Capital
Fairmont Jeddah Hotel & Resort 350 DE Sisban Holding
Sharma Complex: Hotels and Accomodation 346 EX Public Investment Fund (PIF)
Aqua Raffles Hotel Jeddah 320 EX Gemstone Real Estate Development
Westin Riyadh And Element Riyadh 200 DE Al Akaria
Batterjee Hotel in Northern Corniche 185 DE Private Developer
Four Seasons 7 Star Hotel 150 DE Jabal Omar Development Company

*EX = Execution, DE = Design

 

Health sector: Selected projects (investments in US$ millions)

Project Investment Project status* Operator
Sulaiman Al Habib Hospital in Riyadh (Al Sahafa) 533 ST Sulaiman Habib
KnowledgeEconomicCityinMedina: Medical Center for Sciences & Biotechnology 450 DE Madinah Knowledge Economic City (MKEC)
Sulaiman Al Habib Medical Center 306 DE Alandalus Property/Sulaiman Al Habib Medical
Dallah Hospital in Jeddah 250 ST Dallah Albaraka / Shibh Al-Jazira Real Estate JV
Mixed Use Development in Jeddah: Healthcare Park 190 DE Prince Sultan Cultural Centre (PSCC)
Medical Care Tower in Shuhada Area 184 ST Saudi General Organisation for Social Insurance (GOSI)
Prince Mohammed Bin Abdul Aziz Medical City in Jouf: Phase 2 156 EP Ministry of Health
Prince Sattam Bin Abdulaziz University Hospital 140 EP Ministry of Higher Education
Haif Hospital in Olaya 110 DE Haif Company
Military Medical City in Khamis Mushayt 50 EP Ministry of Defense & Aviation

* EP = Evaluation of Proposals, DE = Design, ST = Study

 

Educational construction: Selected projects (investments in US$ millions)

Project Investment Project status* Operator
University City in Taif 533 ST Ministry of Education
Al Maarefa University Campus & Hospital in Diriyah 400 DE Al Maarefa Colleges
King Khalid University: Abha Campus in Faraa: Faculty Accommodation 360 EX Ministry of Higher Education
Jubail 2 University City: Support Buildings 134 EX Royal Commission for Jubail & Yanbu (RCJ&Y)
Ajyal Residential Development: South Dhahran Elementary Schools 120 EX Aramco
Jizan Schools Project 97 EX Ministry of Education
Ajyal Residential Development: Daharan Intermediary & Secondary Schools 94 EX Aramco
King Faisal University: College of Art for Men 74 EX Ministry of Higher Education
Ahsa New University 67 ST Ministry of Higher Education
Zahid Business Park: Learning & Community Center 60 EP Zahid Group

*EX = Execution, EP = Evaluation of Proposals, DE = Design, ST = Study

 

Oil, gas and petrochemicals: Selected projects (investments in US$ millions)

Project Investment Project status* Operator
Mixed Feed Cracker & Derivatives complex 5,000 ST Satorp
Polyester Manufacturing Complex at Jazan 3,800 ST Pan Asia PET Resin
Shale Gas Development: System C 2,000 ST Saudi Aramco
Marjan Field Development: Tanajib Onshore Oil Facilities – Pkg 6 1,450 CB Saudi Aramco
Zuluf Field Expansion 800 FEED Saudi Aramco
Safaniya: Debottleneck Onshore Plant 800 PQ Saudi Aramco
Hydrocarbon Resin Complex 580 ST Rufayah Chemicals Company
Waad Al Shamal Phosphate City: Sulphuric Acid Plant (DAP 3) 550 FEED Maaden/Mosaic/Sabic
Unconventional Gas Project at Jafurah (IPP) 500 FEED Saudi Aramco
Butadiene Plant in Yanbu 500 EP Yanbu National Petrochemical Company (Yansab)

*EX = Execution, CB = Call for Bids, PQ = Prequalification, FEED = Front End Engineering and Design, EP = Evaluation of Proposals. ST = Study

 

Manufacturing industry (excluding chemicals): Selected projects (investments in US$ millions)

Project Investment Project status* Operator
Hail Integrated Steel Complex 1,500 ST Private Developer
Seamless Piping Plant (Ras Al Khair) 1,200 DE Gulf Tubing Company
Expansion of Steel Plant in Jizan 600 DE Solb Steel Company
Smelter Facility Expansion 500 ST Maaden/Alcoa JV
Calcined Petroleum Coke Plant 453 FEED Modern Mining Company
Forging & Casting Manufacturing Facility 400 ST Saudi Aramco /GE Energy /Cividale Spa
Ras al-Khair Integrated Steel Mill 400 ST Saudi Aramco
Mansourah-Massarah Gold Mine Project 375 EP Maaden
King Abdullah Economic City: Vaccine Production Plant 250 ST Almas International
Turbine Structure Manufacturing Plant 160 DE Al Babtain Power & Telecommunication

*FEED = Front End Engineering and Design, EP = Evaluation of Proposals, ST = Study, DE = Design

 

5. Contacts
Name Website Comment
Ministry of Commerce and Investment http://www.mci.gov.sa Responsible also for company registrations
Ministry of Transport http://www.mot.gov.sa Infrastructure projects
Ministry of Health http://www.moh.gov.sa Hospital construction
Ministry of Municipal and Rural Affairs http://www.momra.gov.sa Urban development
Ministry of Housing http://www.housing.gov.sa Housing construction
Ministry of Energy, Industry and Mineral Resources http://www.meim.gov.sa Oil, gas and mining projects; power plants
Ministry of Environment, Water and Agriculture http://www.mewa.gov.sa Water projects
Construction Week http://www.constructionweekonline.com Professional journal
Gulf Construction http://www.gulfconstructionworldwide.com Professional journal
Big 5 Saudi Arabia https://www.thebig5saudi.com Trade fair in Jeddah (annually; next date: 10. to 13.03.2019)
Saudi Build http://www.saudibuild-expo.com Trade fair in Riyadh (annually)
Saudi Transport http://www.recexpo.com Trade fair in Riyadh
BUILDEX http://www.diec.com.sa Building construction, interior design and maintenance (annually; spring 2019 in Dammam)
Glass & Aluminium Saudi Arabia http://www.glassalusaudi.com Trade fair in Riyadh (annually; next date: spring 2019)
Saudi Mining & Minerals http://www.saudi-mining.com Trade fair in Riyadh (next date: 28. to 30.1.2020)