It's boom time for the construction industry in Saudi Arabia as the government is coming up with enormous development projects to broaden the country’s infrastructural base, said a report.

The government has allocated $44 billion for boosting the infrastructure in key sectors including transport, telecommunications, water and agriculture with the main focus being on the transport development and housing programmes, according to Ken Research, a leading market research and data analytics company.

Saudi Arabia’s economy is majorly an oil-based economy. With oil reserves almost one-quarter of the global oil share, the kingdom ranks second in the world. It is the second largest producer of oil and leading exporter of oil.

The petroleum sector accounts for the more than 90 per cent of both budget revenue and export earnings as well as contribute around 50 per cent of the GDP (gross domestic product).

To diversify the economy, the government is now encouraging the private sector growth, stated Ken Research in its latest publication on “Saudi Arabia 2016 Construction Outlook: Compare Rising Infrastructure Megaprojects Opportunities with Increasing Project Risk”.

After experiencing surging affluence on account of the rising oil prices, Saudi Arabia’s economy is at an inflection point today, exploring opportunities for a more dynamic economy through productivity and investment-led transformation, stated the report.

Looking at key economic snapshot of Saudi Arabia, in 2016, the country is home to 30.8 million people. With $1.6 trillion, Saudi Arabia’s global ranking is 78th as per nominal GDP, thanks to the two main contributing factors - oil and service sector.

The growth and development of a country and its economy is unpinned largely by the development of its construction industry which provides for relevant infrastructure required in different sectors of the economy as well as society, stated Ken Research.

Fortunately Saudi Arabia is blessed to have a strong and huge construction industry in the Middle East,  stated the report, which offers insights on the changing trends and key issues within the infrastructure and construction industry in Saudi Arabia.

The increasing importance being given by the government to the construction sector is also due to their commitment to reduce the economy’s dependence on oil and shift it to non-oil sectors, it added.

Looking at the current scenario of the construction industry, the Saudi government is coming up with key initiatives to boost the sector.

These include white land tax move and transport infrastructure development plan in Riyadh which involves construction of 178 km of six lanes and 85 stations, expected to be completed by 2018, said the report.

A large number of megaprojects are also in pipeline absorbing more than 80 per cent of the $44 billion allocated.

The PPP (public-private partnership) model, increasing efficiency of the industry, holds significant importance as a financing method, according to Ken Research.

Regulations related to foreign investment have also been eased leading to influx of international companies in the industry.

Despite vast growth opportunities facing the industry, it has some weaknesses of its own such as high initial investment cost as well as cost and time overruns especially during the construction period, which slows down the pace of industry growth, stated the expert.

Saudi Arabia’s economy is largely a closed one, with foreign investments restricted in many sectors of the country. However, aiming to expand the country’s infrastructure, government has eased these restrictions, it added.

Hence the announcement of huge number of construction plans in Saudi Arabia is now offering vast opportunities to international companies who wish to enter the Middle East region.

Especially the increasing prevalence of PPP model has boosted the role of private players in the construction market and has reduced the burden on the government.

Over the review period (2010-15), construction industry in Saudi Arabia has shown record-breaking performance with consistent increase in its value as well as their contribution to the nation’s GDP.

In the next five years, the future of the construction industry seems even brighter largely owing to government’s commitment for the growth of the industry and diversification of the overall economy away from oil and petroleum, according to the report.

Looking at sectors within the industry, residential, energy and utilities construction is expected to receive more attention in coming years to meet the demands of increasing population. Also the development of renewable energy sources will receive special focus, it added.-TradeArabia News Service