JEDDAH – The Saudi construction sector continues to benefit from extraordinary spending on a massive scale as the government continues its push toward meeting rapidly growing demand for services by its citizens while diversifying the economy away from the oil sector, the National Commercial Bank said Sunday in its “Construction Contracts Index Fourth Quarter 2013”. This long-term challenge has necessitated heavy expenditures across all sectors of the economy, it added. The total value of awarded contracts of SR293.4 billion clearly indicates that the government has and will continue the trend of placing significant injections into its capital expenditures. As mentioned by the Ministry of Finance in its 2014 budget release, significant expenditures are planned for the education & manpower sectors (SR210b), health & social affairs (SR108b), municipality services SR39b), transportation & infrastructure (SR66b) and water, agriculture & manufacturing (SR61b). While we project the government's capital expenditures to decrease from SR278 billion in 2013 to SR238 billion in 2014, the value of awarded contracts will continue in line with the activity that has been witnessed over the last few years. The value of awarded contracts moderated during the fourth quarter to SR41.7 billion following an exceptional third quarter. The year 2013 concluded at SR293.4 billion, mark-ing an all-time high in terms of awarded contracts by value. Furthermore, 2013 surpassed 2012's performance by 25 percent and also eclipsed the previous high of SR270.3 billion during 2011 by 9 percent. Anchor sectors were responsible for a majority of the awards as the transportation (SR92b), power (SR48b), industrial (SR19b) and petrochemicals (SR18b) garnered significant contributions. Alternatively, the real estate sector (SR40b) played a prominent role as numerous contracts focusing on residential and mixed-use development were heavily targeted. As for Q4'13, the industrial and power sectors captured 71 percent of the value of awarded contracts. The SR293.4 billion in awarded contracts during 2013 was largely attributed to the government's continued expansion of capital expenditures. Consequently, the value of awarded contracts in 2013 recorded a remarkable 25 percent hike compared to 2012. The majority of the value of awarded contracts occurred during H2'13, accounting for 65 percent of awards. The water, education, healthcare and roads sectors witnessed sizeable spending by the government in the amount of SR45.7 billion as part of the targeted expenditures it has outlined in recent years. The private sector played a larger role in the development of projects. According to the Ministry of Finance's budget release statement, approximately 2,330 contracts worth SR157 billion were awarded by the government to the private sector. The Construction Contracts Index (CCI) ended the year at 465.03 points in December after a volatile year, which saw the index dip down to 225.68 points in May all the way up to 494.09 in September. The CCI was relatively stable during Q4'13 as it reached 465.34 points in October followed by 470.25 points in November. The magnitude of spending in the construction sector has allowed the CCI to float above the 200 point mark for 32 consecutive months, dating back to May 2011. The Northern Borders attracted 37 percent of awarded contracts by region, garnering the largest share. This was mainly due to numerous mega-projects being awarded for the development of the Waad Al Shamal Mining City by the Maaden/ mosaic/Sabic joint venture. The Makkah region captured 25 percent of the awarded projects as the power sector played a leading role. The Eastern Province secured 9 percent of the awarded projects as a majority of the contracts were in the industrial, petrochemical and oil & gas sectors. The Riyadh region was relatively quiet with only 6 percent in awarded con-tracts, The value of awarded contracts in the transportation sector reached SR91.9 billion in 2013. Arriyadh Development Author-ity awarded the majority of the value of these contracts, while the General Authority for Civil Aviation (GACA) also contributed. The transportation sector's value of awarded contracts dramatically grew in 2013. Arriyadh Development Authority's awarding of the Riyadh Metro Project contributed to the spike for this year. Railways controlled the majority of the type of projects that were awarded followed by aviation. The majority of contract awards were given to consortiums and JV's given the sheer size of those projects. The value of awarded contracts in the power sector reached SR48.5 billion in 2013. As expected, Saudi Electricity Company (SEC) awarded the majority of the value of these contracts, while Saudi Aramco made a sizeable contribution of SR6.1 billion. SEC has steadily increased the aggregate value of its contracts over the last few years, with 2013 being the largest. Al-though a number of contracts were awarded by other entities, SEC has traditionally been the sole owner of contract awards, as the majority owned government company is responsible for increasing the capacity, distribution and transmission of electricity throughout the Kingdom. Aramco awarded four contracts in the power sector aimed at providing the necessary infrastructure for its own projects in Jizan and the Eastern Province. The value of awarded contracts in the industrial sector rebounded to reach SR22.3 billion in 2013. The Maaden/Mosaic/Sabic JV awarded the highest aggregate value of contracts as part of the Waad Al Shamal Mining City. Numerous other project owners were involved in areas such as cement, gold and construction of new industrial cities. The majority of the contracts in the industrial sector were awarded to Asian and European contractors. Chinese and South Korean had the most awards as new comers were able to enter the market as a result of numerous mega-projects being awarded. Hanwha was the largest recipient of contract awards by value. The value of awarded contracts in the residential real estate sector reached SR20.8 billion in 2013. As part of the government's national housing strategy, the Ministry of Housing (MOH) awarded the majority of housing contracts. Within the private sector, Emaar dominated the value of awarded contracts as part of its expansion plans in the Makkah region. The numerous contracts that were awarded by the MOH has largely benefitted local contractors. Local contractors will continue to benefit from the housing expansion strategy throughout the medium to long-term. However, international contractors have been the main recipients of residential projects that were awarded by the private sector as evidenced by large con-tracts being awarded to Azmeel Contracting & Construction Company and Drake & Scull. The value of awarded contracts in the mixed-use real estate sector reached SR19.2 billion in 2013. The Ministry of Finance's mega-project award for the Abraj Kudai development in Makkah captured the largest share by value. A majority of the projects took place in the Makkah region. The multi-use real estate sector had a low amount of contracts but were valued fairly high. Saudi Binladen was the largest award recipient as part of the Abraj Kudai project. Azmeel also won a significant contract as part of the Riyadh Information Technology & Communication Complex mixed-use project. – SG
