Saudi government payments to construction firms may not mean a speedy market recovery, builders warn

Contractors warn an extended lull in the Saudi construction industry is still likely.

A construction site of the Riyadh Metro. While the authority overseeing the project has maintained regular payments to contractors, several builders on other schemes have been left short of cash. FaisShow more

Builders have cautioned that the Saudi government’s instigation of repayments to its suffering construction industry may not avert a prolonged lull next year before a recovery takes hold of the market.

Joseph Daher, the chief executive of the Jeddah-based Almabani General Contractors, said payments started to filter through from some government-related clients at the end of September.

“We’ve received some, and more is on the way,” he said. “We have reasons to be optimistic.”

On Saturday, Arab News reported that the government had begun distributing 40 billion Saudi riyals (Dh39.17bn) worth of delayed payments to contractors, citing Fahad Al Hammadi, the head of the council of Saudi chambers’ national contracting committee. He said another 100bn riyals will be distributed by the end of next month.

Mr Daher said a number of clients had kept up regular payments to it – such as the Arriyadh Development Authority in charge of the Riyadh Metro project and the General Authority of Civil Aviation (Gaca).

He said there had been some delays on the King Abdulaziz International Airport expansion project in Jeddah, where Almabani is carrying out a major civil works package under Saudi Binladin, but it is being paid directly by the Gaca for its work.

Mr Daher said Almabani had been able to redeploy most of its workforce rather than laying them off, but it has not recruited new staff and has been unable to replenish its backlog owing to the lack of new project awards.

“From my perspective, we are past the dip,” said Mr Daher. “We should be coming up again from now [but] I think it’s going to be a slow recovery. Don’t expect a big boom again.”

Fawwaz Al Khodari, the chief executive of the Al Khobar-based Al Khodari & Sons, said that about 12 per cent of its outstanding invoices to government clients had been paid and that more payments were expected by the end of this year.

Mr Al Khodari said it was difficult to assess how much his company would receive by the year end as there are “a number of challenges and bottlenecks” that would make it difficult for more than 40 per cent to be paid.

“I do not think anyone is realistic in expecting all or near all outstanding debt be paid by year-end,” he said. “It would be very good if over 60 per cent is achieved.”

He said that although there were good long-term prospects for construction in the kingdom, especially because of the ambitious targets for property in the National Transformation Plan, 2017 is expected to be “an extremely slow year for government infrastructure projects”.

A study published last week by BMI Research said the Saudi construction sector shrank by 1.9 per cent in the first quarter of this year and by 3.1 per cent in the second. It said the lack of cash in the supply chain had affected staffing levels, the supply chain and project backlogs, and it downgraded the growth forecast for the market to 1.9 per cent next year.

Fakher Al Shawaf, the gen­eral manager of Riyadh-based Al Bawani, said the shakeout in the sector had created opportunities for companies with the resources to deliver, adding that it has been recruiting up to 300 workers per month as it has secured 3.5bn riyals worth of contracts in recent months, including a 527 million riyals contract for park and ride sites for Riyadh Metro.

“We are still one of the strongest companies in the region,” he said.

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