5 Reasons why Saudi Arabian Construction Sector will grow by 2020

construction industryThe Saudi Arabian construction industry is estimated to reach USD 148.5bn in 2020 from USD 105.6bn in 2015, indicating a CAGR of 7.05% during the forecast period. For construction projects commencing in 2016, the kingdom’s government is likely to invest USD 29.9bn. Same amount of money is expected to be spent in 2017 as well.

1. Future plans and Vision 2030:
The government’s decisions and projections with regard to construction sector follows Deputy Crown Prince Mohammed Bin Salman’s announcement of the Transformation Plan (NTP) 2020 and Saudi Vision 2030.

2. Increase in population:
The rise in population is increasing the demands for construction of educational institutions, hospitals, commercial buildings and other infrastructural developments. The kingdom’s population is likely to surge by 30.7% by 2030, as predicted by United Nations Department of Economic and Social Affairs (UNDESA).

3. Shortage of housing facilities:
The White Land Tax is an initiative by the Saudi Arabian government to tackle the problem of housing shortage. This scheme will further the construction industry and the economy. It is estimated that in 2020, 29.3% of the total value of the construction sector will be accounted by the residential construction market.

4. Rising number of utilities and energies construction projects:
Growth is projected in the utilities and energies construction market in the following five years, thanks to the rising demands for renewable energy sources and power. This segment is likely to occupy 27.5% of the construction industry’s pie.

5. Government’s active participation:
Other factors driving the expansion of the Saudi Arabian construction market include urbanisation and the government’s efforts in shifting the country’s dependence on oil exports to other sectors.

“In spite of being hit by ‘falling-oil-price-crisis’, Saudi Arabia continues to work on expanding its construction industry.”

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What are the problems faced by the Saudi Arabian government?
* As nearly 80% of the revenue is brought in by oil sales, the ‘falling-oil-price-crisis’ is adversely affecting the economy. This year, the country’s budget deficit is estimated to sum up to USD 87bn. Also, foreign reserves, which amounted to USD 737bn in 2014, reduced to USD 640bn in 2015.
* In a bid to cut expenditure and preserve money, the Saudi Arabian government is reducing the cost of construction contracts. As a result, events of payment postponement in the industry have increased.
* This financial problem has slowed down the progress of on-going projects, as construction companies rely on the government for monetary support.

How is Saudi Arabia dealing with the financial crisis?
* Reducing expenditure
* Utilising foreign reserves
* Selling bonds

For the first time, the country’s capital Riyadh is considering the sale of international bonds, while shares of government-held Saudi Aramco might be offered to public.

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