22 Nov 2024
RIYADH: Saudi Arabia’s construction sector continues to thrive, with contract awards totaling SR185 billion ($49.3 billion) in the first half of the year, revealed a senior executive.
Speaking during a webinar hosted by the US-Saudi Business Council, Albara’a Al-Wazir, the council’s director of economic research, said the figure represents a 47 percent increase compared to the previous year.
He added that 2024 was well above where 2023 stood at the same point last year. “On a quarterly basis, in Q2, the value of contract awards reached about $17.6 billion — that’s about SR66 billion — and grew year over year by about 11 percent,” said Al-Wazir.
He further highlighted that the year-to-date performance was even more impressive.
Al-Wazir emphasized that the construction sector benefits from strong collaboration between the government and the private sector in helping meet Vision 2030 targets.
“The private sector’s contribution was 4.9 percent, demonstrating exponential growth in construction contracts,” the executive added.
The overall construction index, which tracks construction activity expected to move into the execution phase within six to 18 months, surged significantly to reach 271 points.
“Sustained growth is evident, with the index showing year-over-year increases of 33 percent,” Al-Wazir said.
Regarding sector-specific growth, he said: “Oil and gas, real estate, and water sectors are keeping the momentum from the first quarter into the second quarter, and the growing influential role of the private sector is expanding not just the economy in general but specifically the construction sector.”
Oil and gas represented 41 percent of total contract awards, with the second quarter seeing a 505 percent year-over-year growth, largely due to Saudi Aramco’s projects.
“The oil and gas sector reached unprecedented levels, with $7.3 billion in Q2 alone,” Al-Wazir said.
The real estate sector also showed strong growth, with an 8 percent year-over-year increase in contract values. Residential real estate remains a key focus, especially as the Kingdom moves closer to its 2030 goal of 70 percent homeownership.
Water infrastructure saw a 26 percent year-over-year growth, with projects such as sewage plants in the Eastern Province contributing to the overall momentum.
“There is no sign of a slowdown in these sectors,” he said, adding that the pace of contract awards is expected to remain strong.
Regional overview
Regional breakdowns showed that the Eastern Province remains the dominant hub for construction, accounting for 59 percent of total contract awards, driven primarily by oil and gas projects based there.
Riyadh has also experienced growth, especially in the real estate sector, which accounted for 56 percent of contracts in the capital. Key projects include educational and healthcare infrastructure, such as the SR2.3 billion King Salman University project and the Diriyah Gate.
Saudi Arabia’s investment surge in infrastructure is part of a broader strategy to build a sustainable and diversified economy.
“The Kingdom is positioning itself as a diversified economic powerhouse with a thriving private sector that can sustain its economy and drive innovation,” Al-Wazir added.
Urban transformation
Saudi Arabia’s urban landscape is undergoing a significant transformation, shifting from a centralized model dominated by Riyadh and Jeddah to a polycentric approach, according to Elias Abou Samra, CEO of RAFAL Real Estate Development Co.
“Economic activity is no longer clustered solely around traditional hubs. We’re seeing new nodes emerging in the south, such as the Red Sea as a tourist destination, NEOM in the northwest, and economic centers like Dammam and even the north,” Abou Samra said.
These new urban nodes are being connected through advanced infrastructure, including high-speed railways and newly opened airports.
This shift, Abou Samra noted, is creating new opportunities for investment and employment while boosting the competitiveness of industries like mining and electric vehicle production.
“King Abdullah Economic City, for example, is leading in EV car production, and this is just one of many examples,” he added.
Abou Samra also highlighted the Kingdom’s progress in human capital development. “Saudi Arabia created 1 million jobs in 2023, and we’re on track to break this record in 2024,” he noted, stressing that much of this growth is being driven by the private and quasi-governmental sectors.
He further pointed out that Saudi Arabia has become an increasingly attractive destination for expatriates, particularly with initiatives like the premium residency program.
“This program allows expats to invest in real estate and economic sectors through equity stakes, opening opportunities that were previously inaccessible,” he explained.
While acknowledging the progress, Abou Samra pointed out areas where further improvements are needed, particularly in economic efficiency.
“I’m not here just to paint a rosy picture, and we need to keep a close eye on economic growth and the efficiency of the economy. The short-run multiplier stands at 0.2 as we speak, and medium to long term, it peaks at 0.6. If we compare this to the G20 countries, we are lagging behind,” he said.
Abou Samra added, “But the good news is that the government is very keen on improving the multiplier effect, and the efficiency of the public sector is increasing by the quarter, not to say, by the day. This is driven by new involvement by the youth in the public sector.”
This comes as Saudi Arabia continues to prioritize both social and physical infrastructure development in alignment with Vision 2030.
“These are really focal points that the Kingdom is addressing currently,” Al-Wazir said.
Meanwhile, physical infrastructure projects serve as the backbone for developments across the country, requiring significant investment and resources.
One example is Riyadh’s redevelopment under the Royal Commission for Riyadh City, which is heavily dependent on physical infrastructure support.
Gross fixed capital formation, a measure of investment in infrastructure and assets, rose by 3.2 percent overall, with private sector contributions growing 5.3 percent.
“We’re starting to see an inflection point where the private sector is growing its role, while government contributions have declined by 8 percent year-over-year,” Al-Wazir said.
The Kingdom’s emphasis on fostering public-private partnerships and attracting foreign direct investment is expected to reshape its business landscape.
“Bolstered public-private partnerships and FDI are likely to foster a more dynamic private sector, driving innovation in technology, urban planning, and renewable energy,” Al-Wazir added.
The executive reaffirmed the trajectory of Saudi Arabia’s construction sector, noting that the Kingdom is on track to meet many of its Vision 2030 targets, driven by record-breaking investments and an expanding private sector role.