Saudi contract awards rise 95% in 2019 to 197bn riyals

The oil and gas sector was busiest, with 43% of total awards by value

Foreign labourers work on the construction of a house in the Saudi capital Riyadh on April 13, 2019. - Housing is a potential lightning rod for public discontent in a country where affordable dwellings are beyond the reach of many, posing a key challenge for Crown Prince Mohammed bin Salman as he seeks to overhaul the oil-reliant economy. (Photo by FAYEZ NURELDINE / AFP)

Contract awards in Saudi Arabia hit their highest level in four years in 2019 as the sector’s contribution to overall gross domestic product rebounded into positive territory for the first time in three years, according to a report by the US-Saudi Business Council.

In total, contracts worth 197.1 billion Saudi riyals (Dh193bn) were awarded last year, a 95 per cent year-on-year increase and the highest amount since 2015, when 253bn riyals of contracts were awarded.

“The kingdom’s drive to enhance both physical and social infrastructure capabilities through numerous Vision Realisation Programmes was evident this past year,” the report said.

Contract awards in the oil and gas sector increased almost six-fold to 84.2bn riyals, up from 14.2bn riyals in 2018 – 43 per cent of the total and the most of any sector. Real estate contract awards increased by 39 per cent to 32.5bn riyals and water sector awards were up 55 per cent to 21.9bn riyals.

The construction industry’s contribution to GDP also increased to 4.6 per cent, supported by more private sector work.

Looking ahead, the construction sector is set to benefit from more contracts emerging from mega-projects. The Red Sea Development Company recently said it would more than double the amount of contracts it awards this year to 6.2bn riyals, while the Qiddiya Investment Company said it will increase the pace of activity to make sure it meets its 2023 opening date. The kingdom’s new “entertainment capital” featuring theme parks, sports and cultural attractions, is expected to spend 8.5bn riyals on infrastructure alone.

However, the pace of contracts this year will probably be slow due to the lower oil price and the Covid-19 outbreak, according to the US-Saudi Business Council’s economist and the report's author, Albara’a Alwazir.

"While the construction sector rebounded strongly in 2019, we expect to see a drop in economic growth for 2020," Mr Alwazir told The National.

“Given the impact Covid-19 and the drop in oil prices are having on global markets we expect a downturn in Saudi Arabia’s  economic activities at least for the first half of 2020.”

Lower oil revenues usually precede cuts to government spending on construction projects, but he said that some of the slack could be taken up by the growing role of the kingdom’s private sector.

“In 2019, we witnessed the highest private sector participation on record. This development is expected to continue as the government provides the private sector with numerous opportunities to positively contribute to the growth of the economy,” Mr Alwazir said.

The two biggest awards of the year were both by Saudi Aramco, each with a value of $11.25bn. The biggest non-energy sector contract was a 6.2bn riyal contract awarded to Nesma & Partners by Shomoul Holding to build The Avenues, Riyadh shopping mall.

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