September 13, 2018
Saudi Arabia’s construction sector is likely to expand quickly by global standards in the coming years, but not as fast as its GCC peers like Qatar and Oman, mainly due to the fall in oil prices which has forced a restructuring of the project pipeline, said a report by top ratings agency Fitch.
Also the ongoing difficulties in effectively implementing the government’s Saudisation policy poses a growing risk to the kingdom’s ability to deliver on its ambitious infrastructure development agenda, stated Fitch in its Saudi Arabia Infrastructure Report – Q4 2018.
The policy mandates private sector companies to hire a certain percentage of Saudi citizens in an effort to curb domestic unemployment and reduce reliance on public sector employment, it added.
Following the imposition of a tax on companies that hire overseas workers in January as an incentive to hire locals, it is estimated that roughly 234,000 expatriate workers have left the country in the first quarter of the year, a trend which builds upon a broader exodus of 700,000 since the start of 2017.
According to Fitch, the rising oil prices will serve to shore up Saudi Arabia’s fiscal position and allow the government to allocate additional funds into its expansive infrastructure agenda.
“Our oil and gas team expects the price of brent crude to average $75/bbl in 2018 and rise to average $81.2/bbl over the next five years,” said the top ratings agency in its report.
Within the kingdom’s infrastructure mix, Fitch said the economic diversification imperatives would support outperformance within the transport sector, while strong structural demand driven by a young population would incentivise investment into the energy and utilities segment.
A growing government emphasis on boosting Saudi Arabia’s natural gas capacity is translating into heightened project activity, it stated.
Most recently, Turkish firm Tekfen Construction and Saudi Aramco have signed a $590 million agreement for the construction of satellite gas compression plant pipelines for Saudi Arabia’s Haradh Gas Increment Programme.
Once the expansion project is complete, the gas plant’s capacity is expected to increase by more than 1billion cm. The project will be completed over a period of 33 months, said the report.
According to Fitch, the scale of Saudi construction sector is the market’s strongest attribute and also a key factor in its strong ranking in the Infrastructure Risk/Reward Index both regionally and globally.
The market will endure slow growth in the coming years, however, as the fall in oil prices has forced a restructuring of the project pipeline, although this will improve Saudi Arabia’s risk profile over the long term by addressing transparency issues and opening up the competitive landscape, it added.