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Overview of KSA’s Economic Outlook According to the International Monetary Fund (IMF), Saudi Arabia (KSA) has announced a bold reform program under its Vision 2030. Growth is expected to be robust over the medium-term as structural reforms are implemented (refer Figure 1). Risks are anticipated to arise from uncertainties regarding future oil prices and the impact on ongoing economic reforms. Moreover, KSA is expected to bring in additional revenues through new taxes and fees, including Value Added Tax (VAT), extra fees on expats working in the kingdom and potential additional costs imposed on foreign businesses.
KSA Budget OutlookKSA’s 2018 budget is deemed the largest ever and the government is expected to spend US$ 261 Bn.. The budget provides a roadmap for the ongoing economic transformation directing at the direction of oil prices and energy equities. Analysts predict that the prime feature of the budget were the key focus on structural reforms accompanying rising spending patterns. In 2018, the government forecasts a deficit of US$ 52 Bn., which is equivalent to 7.3%.
KSA’s public budget at a glance from 2015 to 2018
With KSA’s 2018 budget, the government is recommitting to investments in the future. The kingdom’s construction market is expected to show significant growth and offer lucrative potential due to its Vision 2030, NTP 2020, and ongoing reforms to diversify away from oil.
Figure 1 represents KSA’s *macroeconomic indicators
Population, 2015 – 2022
(all figures in %)
2015 2016 2017 2018 2019 2020 2021 2022
40
30
20
10
0
31.01633.025 34.359
31.74333.685
32.37735.046 35.747
Inflation Rate, 2015 – 2022
(all figures in %)
2015 2016 2017 2018 2019 2020 2021 2022
6
5
4
3
2
1
0
-1
2.2
5
2.2
3.5
2
-0.2
2.1 2
Real GDP Growth Rate, 2015 – 2022
(all figures in %)
2015 2016 2017 2018 2019 2020 2021 2022
4.5
4
3.5
3
2.5
2
1.5
1
.5
0
4.1
1.1
1.81.7
1.6
0.1
2 2
Current Account Balance % of GDP, 2015 – 2022
(all figures in %)
2015 2016 2017 2018 2019 2020 2021 2022
4
2
0
-2
-4
-6
-8
-10
-8.67
0.3971.219
-4.26
1.1550.6371.302 1.616
*Note: All figures are in annual percentage change; F: Forecasts. In January 2018, the IMF has recently raised its economic growth forecasts for KSA as oil prices rise. The government expects GDP to grow 1.6% in 2018 and 2.2 % in 2019. 1 SAR= USD 0.26652 Exchange rate taken. Source: IMF, October 2017.
Figure 2 represents KSA’s public budget at a glance from 2015 to 2018
Real GDP Growth Rate, 2015 –2020
Value in US$ Billion
240
220
200
180
160
140
120
100
80
60
40
10
2015 2016 2017 2018
162.04416
138.32388
185.49792208.68516
Budge Deficit, 2015 –2018
- 20
-40
-60
-80
-100
-120
-140
2015 2016 2017 2018
-97.81284-82.88772
-61.2996-51.9714
Public Expenditure, 2015 – 2018
Value in US$ Billion
280
270
260
250
240
230
220
210
200
2015 2016 2017 2018
259.857
221.2116
246.79752
260.65656
Budget Allocations, 2018
A 21% Military B 20% EducationC 15% Health Social DevelopmentD 11% Economic Resources and Public ProgramsE 10% Security and Regional AdministrationF 9% General ItemsG 6% Infrastructure and TransportH 5% Municipality ServicesI 3% Public Administration
Source: Albilad Capital’s report on Saudi Arabia Economy, December 2017.
Classification of KSA Construction Market The construction market in this report comprises of the building, infrastructure and energy markets.
Overview of KSA Construction Contractor Awards KSA’s contractor awards across the building, infrastructure and energy sectors are forecast to increase from US$ 34,151 Mn. in 2017 to US$ 40,068 Mn. in 2018. All companies that are working on contracts with government departments in KSA will need to modify their bills to include the 5% VAT.
The building construction sector is expected to register the highest contractor awards followed by the energy and infrastructure sectors in 2018 (refer Figure 4). Increase in population growth, urbanisation, and tourism are expected to drive growth in the building sector especially in the residential and leisure markets. According to Oxford Business Group, the government is stepping up investment in KSA’s transport infrastructure, fast-tracking key projects and creating new opportunities for service providers. Transport infrastructure gains prominence in the Vision 2030 and National Transformation Programme (NTP) as vital to economic growth. In 2018, the government has allocated 6% of its budget towards transport and infrastructure.
Figure 4 represents KSA’s building, infrastructure and energy construction contractor awards from 2015 to 2018 in US$ Mn.
Infrastructure sector: Roads, bridges, railways, ports, wastewater and sewarage
Energy sector: Oil & gas and power & water
Building sector: Residential, commercial, mixed use, airports, sports facilities, hotels & recreational facilities, healthcare, education facilities and industrial projects
Figure 3 represents the classification of KSA construction market
Source: Ventures ONSITE Projects Intelligence Database: www.venturesonsite.com
KSA Contractor Awards by Sector, 2015 – 2018
Value in US$ Billion
35,000
30,000
25,000
20,000
15,000
10,000
5,00
2015 2016 2017 2018
18,02214,70129,82723,582Buildings
5,7864,5953,2495,515Infrastructure
16,26014,85517,86920,902Energy
Landmark Project Announcements in 2017
KSA Boost for the Private Sector
• The US$ 500 Bn. NEOM city is 26,500 square kilometers (km) (10,230 square mile) zone and will focus on industries including energy and water, biotechnology, food, advanced manufacturing and entertainment. KSA government, the PIF and local and international investors are expected to invest over half a trillion dollars into it in the coming years. Phase 1 of the project is expected to be completed by 2025.
• KSA has officially declared that public movie theaters will return to the kingdom for the first time in more than 30 years in March 2018. Opening cinemas is anticipated to act as a catalyst for economic growth and diversification. By developing the broader cultural sector, it will create new employment and training opportunities, as well as enrich KSA’s entertainment options. By 2030, there are projected to be over 300 cinemas with more than 2,000 screens.
• KSA will allow women to drive effective from June 2018, ending a longstanding policy of the oppression of women in the highly conservative kingdom.
KSA is to inject US$ 19.2 Bn. into the private sector of the economy in a bid to stimulate activity in the non-oil sector, which has been hit by the slowdown in government spending as a result of oil revenue weakness. Housing and small business are major beneficiaries of the stimulus package. Among the measures announced in a decree by King Salman are a US$ 6 Bn. initiative on subsidised loans to provide housing, a US$ 4 Bn. injection into new building technologies, and a proposal valued at US$ 3 Bn. to support the funding of big infrastructure initiatives. Other big items include a US$ 0.4 Bn. initiative to support companies in financial distress, and a US$ 1.86 Bn. plan to refund government fees to small and medium enterprises.
KSA’s Major Construction Projects
Top projects expected to be awarded to contractors in 2018
Project Name Client
KA-Care - Alternative Energy Projects - Nuclear Plants King Abdullah City of Atomic and Renewable Energy (KA-care)
Jeddah Light Rail Transit Jeddah Metro Company; Ministry of Transport, Saudi Arabia
King Abdullah City of Atomic and Renewable Energy (KA-Care) - Alternative Energy Projects - Phase 1
King Abdullah City of Atomic and Renewable Energy (KA-care)
The Avenues Riyadh Shomoul Holding Company
Offshore Berri Field Saudi Aramco
400 MW Wind Power in Dumat Al Janda Renewable Energy Project Development Office (REPDO)
Ammonia Plant in Ras Al Khair Saudi Arabian Mining Company (Maaden)
South Obhur Project - Housing Complex Project - BP-04 & PB-06 Al Raidah (Rayadah) Investment Company
300MW Solar Facility at Sakaka Ministry of Electricity & Water, Saudi Arabia
King Fahd Causeway Passports Island (Saudi Sector) - Phase 2 King Fahd Causeway Authority
KSA’s major projects awarded to contractors in 2017
Project Name Industry Client Project Value (US$ Mn.)
Expansion of King Khalid International Airport - Terminal 1 & 2 Buildings General Authority for Civil Aviation (GACA), Saudi Arabia 1,493
Expansion of King Khalid International Airport - Terminal 3 & 4 Buildings General Authority for Civil Aviation (GACA), Saudi Arabia 1,390
AMC Long-Term Medical Care Hospital Buildings Anfas Medical Care (AMC) 1,300
Batterjee Medical City in Dammam Buildings Middle East Healthcare Company (MEAHCO) 1,070
Satellite Haradh Gas Compression Plants (Sa-GCP) - Package 2 Oil & Gas Saudi Aramco 1,000
South Haradh Gas Compression Plants (S-GCP) - Package 3 Oil & Gas Saudi Aramco 1,000
North Haradh Gas Compression Plants (N-GCP) - Package 1 Oil & Gas Saudi Aramco 1,000
Hawiyah Gas Plant Expansion Oil & Gas Saudi Aramco 1,000
Safaniyah - Phase 6 Oil & Gas Saudi Aramco 1,000
Maritime Yard in Ras Al Khair - Dredging & Reclamation Infrastructure Lamprell LLC, Dubai, The National Shipping
Company of Saudi Arabia (Bahri), Saudi Aramco 780
New International Airport in Hail Buildings General Authority for Civil Aviation (GACA), Saudi Arabia 500
Freeflow Pipelines of Haradh Oil & Gas Saudi Aramco 500
KSA’s Major Construction Projects
Project Name Industry Client Project Value (US$ Mn.)
Neom Business City Buildings Public Investment Fund (PIF) 500,000
The Red Sea Project Buildings Public Investment Fund (PIF) 8,000
Public Transportation Network in Taif Infrastructure Ministry of Transport, Saudi Arabia 7,199
New Jeddah Downtown Buildings Public Investment Fund (PIF) 4,800
New Energy Industrial City in Abqaiq Industrial Saudi Aramco 4,400
Al Faisaliah Housing and Administrative in Makkah Buildings Makkah Region Development Authority (MRDA) 4,000
Jizan Economic City (JEC) - Pure Terephthalic Acid (PTA) and Poly Ethylene Terephthalate (PET) Production Plant Industrial Pan-Asia PET Resin (Guangzhou) Co, Saudi Aramco 3,800
Waad Al Shimal Mining City - New Phosphate Mine and Industrial Complex Industrial
Saudi Arabian Mining Company (Maaden), Eastern Province, Mosaic Company, Saudi Basic Industries Corporation (Sabic)
3,200
Offshore Marjan Oil and Gas Field Oil & Gas Saudi Aramco 3,000
Berri Increment Programme Oil & Gas Saudi Aramco 1,500
Redevelopment of East Wing of the Prophet’s Mosque Buildings Public Investment Fund (PIF) 1,200
Batterjee Medical City in Dammam Buildings Middle East Healthcare Company (MEAHCO) 1,070
Source: Ventures ONSITE Projects Intelligence Database: www.venturesonsite.com
KSA’s major projects announced in 2017
KSA’s Major Construction Projects
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Conclusion
The large budget indicates that KSA is expecting significant revenue growth in the years to come. The Vision 2030, NTP 2020 and private sector investment boost, and ongoing reforms are likely to be the growth drivers for KSA’s construction market in 2018 and beyond. According to Riyadh officials, KSA’s economy is entering a post-oil era in which the kingdom’s mega-cities, which are under construction, will provide the country’s future growth.