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Saudi Development Plan Approval Sets $385 billion In Motion

Saudi Arabia : 26 August 2010

The government of Saudi Arabia approved a $385 billion development plan earlier this month that is expected to keep the construction industry growing.  Hundreds of new hospitals and schools will be built along with nearly one million new homes as Saudi Arabia works towards infrastructure improvement throughout the next five years.

The Kingdom’s construction sector remained strong in the worldwide economic crisis, recording 4.71 per cent growth in 2009 as data from the central bank Saudi Arabian Monetary Agency stated.  Business Monitor International is also positive about the construction industry in Saudi Arabia, predicting that it will grow by an average of 4.13 per cent annually from 2010 to 2014 and that this segment’s value will rise over that same period to SR122.48 billion ($32.7 billion) from SR92.2 billion ($25.6 billion).

Construction firms are managing well and even better over the last two years thanks to mortgage lending increases and despite the absence of an official law.  This is according to Mu’taz Sawwaf, chief executive of Construction Products Holding Company (CPC), a firm at the top of the nation’s construction industry.

There are numerous building projects planned by the nation’s government.  Saudi Arabia is the largest Arab economy and the country’s Council of Ministers approved the Five-Year Development Plan (FDP) on August 9.  This is the ninth plan of its kind and some contractors have already been supplied with guarantees from the Council to help them gain support at the banks.

Sawwaf states that approximately $200 billion in projects are already under construction or have been issued.  Although these construction projects are awarded to major contractors, they in turn subcontract to the smaller companies in the area, so this work will reach all levels in the industry.

Local media has been told by officials involved that there are four key priorities in the ninth FDP.  Spreading over the period from 2010 to 2014, the plan aims to improve living standards, increase employment, enhance the economic competitiveness and distribute development projects around local regions.  The total value of the FDP is SR1.4 trillion ($385 billion) which is 67 per cent increase over the last plan.

Data from the Ministry of Economy and Planning breaks the plan down further: $195 billion (or 50.6 per cent) is going to human resource development; $73 billion (or 19 per cent) to health care and social programs; $60.7 billion (or 15.7 per cent) to the development of economic resources; $29.6 billion (or 7.7 per cent) to communication and transportation; and $26.8 billion (or 7 per cent) to municipal services and housing.

In the education sector it was announced that around 25 technology colleges, 50 industrial training centers and 28 technical institutes were in the planning stage.  In the development of health care there are plans to build 117 hospitals, 400 centers for emergency care and 750 primary centers of health care.  There were also plans to build new facilities to boost the production of electricity and double desalination capacity.

Because these programs are sizable and all backed by the government, some business leaders are doubtful as to whether they will have the capacity to follow through on the plans.

The Saudi Arabian government has already played a prominent role in the financial backing of major projects through channels like the Public Investment Fund.  Capital markets will need to step into a bigger role as well, issuing debt to businesses involved and continuing in IPO (initial public offering) activity, according to Abdulkareem Abu Alnasr, chief executive of the National Commercial Bank.

Abu Alnasr also notes that banks in the Kingdom are planning to or have already approached international markets in a bid to raise money for the mid- and long-term.

Using government vehicles, capital markets and funds from the banking sector, these projects will keep moving forward, Abu Alnasr added.  He noted that the vast number and magnitude of projects calls for prioritization, both in terms of funding and financial support as well as execution.

The approved plan also addresses the housing shortage in Saudi Arabia.  It has been estimated that there will be a need for 1.5 million new homes in the Kingdom by 2015 and that will climb towards 4.5 million by 2025.  Even with simple estimates, the housing shortfall is substantial and obvious.  This ninth FDP lists the shortfall as a priority and looks to build 1 million new residential homes by 2014.

Sawwaf, of the CPC, is confident that his sector can meet the targets laid out for housing.  He notes contractors in the area have enough capacity and capabilities to complete the goals and requirements of the next 15 years.  Also, with the entrance of international firms into the industry, hitting the targets and meeting demands is possible.

Even though the follow through on these projects may be challenging, most construction firms will welcome the excess of work.  It looks as if the construction industry will enjoy a boom which will lead to creation of more jobs in Saudi, thanks to Saudi Arabia’s continued commitment to development.

Andrew Reid, Staff Writer, Gulf Jobs Market News
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