Value of Saudi Arabia construction awards up by 45 per cent in second quarter

The value of construction contracts awarded in Saudi Arabia in the second quarter rose about 45 per cent from the previous three months, according to new data from NCB Capital.

Between April and June, the value of deals awarded was 82.8 billion Saudi riyals (Dh81.09bn), up from 57.3bn riyals in the first quarter.

Despite falling oil prices and government revenues, the value of contracts awarded in the first half of this year was 140bn riyals, up 13 per cent year-on-year.

NCB, however, said the value of contract awards was likely to weaken next year as the kingdom’s budget deficit affects spending.

Nevertheless, the Saudi Arabian Monetary Agency’s large foreign reserves “should provide enough cushion to sustain an elevated level of spending during 2015 and beyond”, said NCB.

There were fewer industrial mega-projects awarded this year, with the bulk of spending made on infrastructure such as roads, power generation and large-scale housing schemes.

Road contracts made up 43 per cent of total spending in the second quarter. The biggest single contract worth 23.3bn riyals for the King Abdul Aziz Road project in Mecca was awarded to Dallah Albaraka.

Under the 10-year project, the contractor will widen the main road into Mecca and redevelop a square kilometre of land on both sides of the extended motorway.

Nesma and Partners Contracting Company was awarded a 6.7bn riyal contract to carry out infrastructure work on the same project.

Other major construction awards made in the second quarter include a 7.1bn riyal deal for the air separation unit at Jazan Refinery that was awarded to a joint venture between Air Products and Acwa Holding, and a 5.6bn riyal agreement between Saudi Aramco and the US firm McDermott Holdings to redevelop oil rigs at offshore fields.

Meanwhile, a new Standard & Poor’s report argues that governments across the Arabian Gulf will maintain investment in capital projects to protect economic growth despite weaker revenues from oil sales.

“We expect governments will keep capital investment relatively high as a share of total government spending in an attempt to buoy economic growth,” said Trevor Cullinan, an S&P credit analyst.

This approach may change if oil prices fall much further, but S&P said that GCC governments might look to domestic and international capital markets to diversify funding sources for projects.

According to NCB, Saudi Arabia’s government withdrew 225bn riyals from its own currency reserves during the first half of the year and issued bonds worth some 35bn riyals in capital markets.

The kingdom plans to issue a further 80bn riyals worth of bonds before the end of the year to support its spending programme.

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Michael Fahy

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