As of Q3 2023, the International Monetary Fund (IMF) forecasted the Middle East and North Africa (MENA) regions’ GDP to grow by 2.04 per cent for full year 2023. This represents a drop from the 5.56 per cent figure reported in 2022.
This slump in growth is attributed to many of the MENA economies being impacted by tighter fiscal policies and domestic challenges. The overall outlook for the MENA region continues to be uneven across its markets and countries, strengthened by the elements affecting global economies and the disparity of available fiscal stimulus between oil importing and exporting countries.
The Middle East encompasses several oil exporting countries, including Saudi Arabia, the United Arab Emirates (UAE), Qatar, Oman, Bahrain, Iran, Iraq, Syria, Kuwait and Yemen. These countries account for approximately 48 per cent of the world’s proven oil reserves and circa 38 per cent of natural gas reserves. During periods of high oil prices, such as 2021-2022, these countries’ economic outlook became bolstered as fiscal surpluses were created, and they became somewhat sheltered from the economic risks attributed to the rest of the world. This fiscal surplus provides considerable easing in terms of economic recovery and with the current and continued high oil prices at the centre of the Middle East’s growth, it is allowing for greater fiscal flexibility and confidence in investment and the funding of diversification efforts across the GCC member states.
The Middle Eastern oil importing countries such as Egypt, Jordan and Lebanon are under substantial economic burden in comparison to their oil exporting counterparts. Despite this, Egypt’s economic outlook had remained positive, largely due to structural and economic reforms made pre-coronavirus, as well as continued investments in its infrastructure and mega-projects. However, Egypt is facing mounting challenges with a shortage of hard currency, growing external debt and high inflation, affecting the living standards of over 100 million citizens in the most populous Arab country. Furthermore, after a borrowing binge quadrupled their foreign debt, Egypt needs more than USD 28 billion to meet repayments in 2024 alone. Exacerbating the challenges, the mounting geopolitical conflicts and a foreign currency shortage, has also led to a five billion USD backlog of imports stuck at ports.
The MENA’s economic recovery has been subdued throughout 2023, with slowing global economies, increased commodity prices and the tightening of global financial conditions, causing outlooks to remain subdued for 2024 also.
The graph above shows the MENA GDP growth rate in comparison to emerging markets and developing economies. This is also tracked against the overall world economy from 2015 and forecasted to 2025. According to the IMF, the MENA region’s GDP is expected to grow in 2024, and maintain its growth levels between 2025 and 2028.
Source: IMF, World Economic Outlook Database, October 2023
Source: IMF, World Economic Outlook Database, October 2023
Source: Haver Analytics, National Sources, Emirates NBD Research October 2023
MENA economic challenges and risks
The MENA region continues to face the same economic challenges and risks as previous years, however, notably in 2023 the events of the Morocco earthquake in September 2023 and the escalation of geopolitical conflicts has contributed to higher uncertainty in the economic outlook for the region. The impact of the conflict remains unclear and will depend on the duration, intensity and spread of geopolitical tensions. Continued political instability, extreme unemployment, economic uncertainty, economic relief disparity and the ongoing geopolitical conflicts, all remain challenges to the stability and economic growth of the region.
The key risks associated with the MENA region include:
Violence, protests and social unrest
Exporting and importing reliance
Institutional/ social fragility and corruption
And under-employment, especially for youths and females
Disruption of operations or theft of data/ money
Education/skills/gaps
Extreme weather/rising sea levels/floods/droughts
New viruses/ variants
MENA Construction Market Review
The overall outlook for the MENA region’s construction sector remains confident, strengthened by growing pipelines and continued investment in Saudi Arabia and the UAE.
The backdrop to the market optimism is centred around buoyant and increasing project pipelines across the UAE and Saudi Arabia, which are set to be the focus for the region’s construction sector in 2024 and beyond.
The resilience and driving force of the MENA region’s construction sector is focused on the need to develop and diversify their economies to meet the demands of its rapidly growing population and reduce economic reliance on finite and economically volatile fossil fuels.
According to MEED, the pipeline of projects across MENA has grown to an estimated USD 3.7 trillion, with the GCC equating to over 84 per cent (USD 3.1 trillion) of this market value. The largest segment of construction remains in transportation infrastructure and building real estate, including the development of social infrastructure, schools and hospitals, to advance existing and growing populations.
Project awards in the Middle East for 2023 was set to increase by over 50 per cent compared to awards in 2022 (based on Q3 2023 data). Figures for 2023 have posted new five-year records for construction activity in the region and showcase the very strong and positive market compared to pre-pandemic levels and over the last 10 years.
Considerable projects in non-energy construction have been awarded in 2023, especially in the UAE and KSA, with the UAE posting a huge 232 per cent increase compared to 2022 figures and KSA recording a 94 per cent increase with awards in Q4 still yet to be published.
Awards in Qatar rose 41 per cent and all other MENA regions awarded positive growing markets compared to 2022. The only exception was Egypt, which has seen a 63 per cent decline in project award values compared to the previous year. Egypt’s softening construction market can be attributed to sharp inflationary pressures and reluctance of foreign investment due the considered volatility in the market.
In KSA, development parties in the region continue to be focused on the expansion of its infrastructure projects to support the development and expansion of its PIF led giga-project programs. The UAE’s increase in project awards with its marked focus on the building sector and residential real estate, marks a considerable return to a buoyant construction market.
MENA project awards are expected to grow further in 2024, mainly due to Saudi Arabia striving to meet the demands of its Vision 2030.
Source: MEED 2023 Q3
Source: MEED 2023 Q3
MENA Awarded Contracts
The country with the highest value of awarded projects in 2023 was Saudi Arabia, with an approximate total of USD 55 billion (tracked to end Q3 2023). This equates to a 57 per cent increase from the same time the previous year and an overall 41 per cent market share (recorded by MEED). This was followed by a very strong posting for the UAE market with USD 34.0 billion of project awards, equivalent to over 200 per cent from the previous year and holding a 26 per cent market share. In third place was Qatar with USD 16.2 billion, equating to a 12 per cent market share.
The busiest sector for project awards was building construction which saw a 19 per cent share, followed by gas construction, also at circa 19 per cent. Water projects came in third with 16 per cent, followed by transportation and infrastructure projects at 14 per cent and chemical and power projects at 11 and 10 per cent respectively.
Of Saudi Arabia’s USD 55 billion investments this year, USD 9.2 billion was committed to the commencement of infrastructure packages for the Government/PIF led NEOM giga-project, Diriyah Gate Development Authority (DGDA), Rus al-Madinah Holding (RMH), Royal Commission of Riyadh City (RCRC) and The Red Sea Development Company (TRSDC). This signals a continued commitment to their ambitious diversification plans and enabling works for major construction builds that lead into 2024 and beyond.
According to MEED, a further USD 30.8 billion was awarded for buildings (USD 7.4bn), power (USD 7.7bn), industrial (USD 1bn), water (USD 8.2bn) and chemical (USD 6.6bn) projects. With key projects awarded for Saudi Power Procurement Company (SPPC) Solar PV Power Plants, Red Sea Global awarding Amaala utilities package, NEOM’s continued awards of projects such as Oxagon’s NEOM Industrial City Connector (NICC) depot line and dredging/quay wall package, Shusha Island Development Infrastructure Works, Modular Staff Accommodation Apartments and Water Transmission Lines, further highlighting the scale and commitment to the Kingdom’s diversification efforts.
The UAE saw USD 15.8 billion of its USD 33.9 billion awarded to building and infrastructure works in Q3 2023. This mainly consisted of residential housing projects with key developers awarding the following values; RAK Hospitality USD 2.0 billion, Abu Dhabi Housing Authority USD 1.53 billion, Emaar USD 0.76 billion, Damac USD 0.74, Al Habtoor USD 0.70 billion, Sobha USD 0.56 billion, Binghatti USD 0.47 billion. Other key projects were awarded for:
- ADNOC - Maximizing Ethane Recovery And Monetization (MERAM) and Mirfa Seawater Treatment Plant,
- Marjan/RAK Hospitality/Wynn Resorts joint venture to build Al-Marjan’s Multipurpose Integrated Resort,
- Abu Dhabi Housing Authority - West Baniyas Residential Development,
- Tiger Group’s Tiger Tower in Business Bay and
- Al Habtoor Group’s - Al-Habtoor Tower.
The outlook for the UAE remains buoyant due to the boosted tourism and property purchases since early 2022 following the Ukraine-Russia conflict, increased activity in upstream gas production, reworked metro and rail expansions and the reignition of shelved development projects. In addition, its commitment to the development of technology companies has also helped to set the nation up for positive growth in acute juxtaposition to the many struggling economies across the globe.
As recorded by MEED, Qatar saw an increased value of project awards this year reaching USD 16.8 billion with USD 11.5 billion being made up of projects related to gas production. Qatar’s key focus continues to be on gas as they look to increase production as part of their long-term expansion strategy to boost LNG capacity by 64 per cent for 2027. Further investments were seen in chemical projects, such as the joint venture between Chevron Phillips Chemical and Qatar Energy to build a Ethane Cracker at the Ras Laffan Petrochemical Project (RLPP) and power projects such as Kahramaa - 132Kv to 66Kv New Extra High Voltage Underground Cables (EHV/HV), alongside several investments by ASHGHAL in education and infrastructure projects.
In Egypt, USD 2.1 billion of its USD 5.7 billion recorded in 2023, compromised projects relating to the expansion of its high-speed rail network. A consortium made up of Siemens Mobility, Orascom Construction and The Arab Contractors signed contracts with the Egyptian National Authority for Tunnels (NAT) to design, install, commission and maintain a 1,800 kilometre high-speed rail network. Other key awards were in the chemical sector with Egyptian Chemical Industries - Aswan Nitric Acid & Ammonium Nitrate Plant, alongside Cairo Airport Expansion and Logistic Park and multiple residential projects across the region. Although Egypt is facing challenges in terms of its economic growth, the country’s construction pipeline remains strong with multiple strategically important projects in development to meet the Government’s vision for 2030.
Amidst political restrictions in Kuwait, USD 5.0 billion has been awarded in 2023, notably by the Public Authority for Housing Welfare (PAHW) South Saad Al-Abdullah Residential City - Infrastructure Works (USD 1.1bn) and the Ministry of Public Works (MPW), Kuwait International Airport Terminal 2 - Package 3 (Aircraft Parking, Runways & Service Buildings) (USD 0.76bn). Positive steps in Kuwait’s construction sector have been witnessed this year with major project-focused memoranda of understandings (MoUs) signed with China, during a visit by the HH Crown Prince Sheikh Mishal al-Ahmed al-Sabah to support growth in the development of housing projects, renewable energy, water treatment, recycling and ports.
Oman awarded USD 2.5 billion of projects in 2023, with 0.8 billion awarded by Nama Power and Water Procurement Company for the construction of Manah I Solar IPP and Manah II Solar IPP. The two significant Independent Power Projects (IPPs) are planned to produce electricity via solar power in the Wilayat of Manah, the Governorate of A’Dakhiliyah.
Minimal awards were recorded for Bahrain with only USD 0.39 billion awarded for 2023. Looking across Bahrain’s pipeline of projects, the launch of Bahrain’s USD 30 billion Strategic Projects Plan, which is set to increase the total land area by more than 60 per cent, and the tendering of USD 3.5 billion King Hamad Causeway project as a public-private partnership, show considerable prospects in the country in the journey to realise its Economic Vision 2030.
Furthermore, in conjunction with Bahrain being known as a gateway country for business in Saudi Arabia, the considerable uplift in business activity in Saudi Arabia means that the outlook for the country is expected to remain strong.
Source: MEED 2023 Q1 - Q3
Source: MEED 2022 Q1-Q3
Source: MEED 2023 Q1-Q3
Source: MEED 2023 Q1-Q3
MENA Construction Considerations
The growth of the construction market will continue to depend on MENA governments implementing stimulus packages for 2024 and beyond.
There are revised mindsets across construction markets as clients and construction organizations battle with market price volatility and delays to project execution and delivery, specifically over the last three years. This is encouraging certain developers and contractors to renegotiate existing prices (as contracts allow) and focus on commercial considerations during contract renegotiation. Overall, there is a focus to improve transparency, encourage healthier agreements between client and contractors and enhance the procurement stance of projects in the region.
However, the RICS emphasizes that during negotiations certain considerations should be made, such as reviewing project value drivers, assessing capacity within the construction market and allocating risk. The allocation of risk and overall security should be key considerations during the review and decision-making process.
An important lesson learned from 2021 onward, cautions that contractual parties need to diligently review and understand the relief provisions within construction contracts. In MENA (particularly the Middle East), it is common to see standard contract terms and conditions adapted and amended; this will be an important consideration with certain provisions, like Force Majeure (which typically does not explicitly list pandemics and epidemics), to be amended to ensure a balance of risk between the parties.
The pandemic caused many setbacks in construction activity, but the bolstered construction activity across the region provided new focus and opportunities as businesses are now realigning to drive new efficiencies and help rebuild broken supply chains and seek more collaborative approaches.
MENA Construction - Strengths, Weaknesses, Opportunities and Threats
Looking at the key strengths, weaknesses, opportunities and threats for construction in the region, it is clear there are many strengths and opportunities set to support the buoyancy and growth of the MENA construction market moving into 2024. However, this is expected to be disproportionate across countries.
Leading into 2024 and post-pandemic conditions, a new normal is expected in the region with an opportunity for transparency, trust and a collaborative approach within supply chains and between stakeholders. The change is anticipated to see greater cashflow management and improvements to contractual terms and conditions.
Some of the key topics leading into 2024, in terms of recovery and mitigating risk in the MENA region, are:
- Capability of delivering complex and bespoke structures.
- International input/ supply/location/ability to import.
- Construction speed.
- Reduced bureaucracy.
- Cheaper cost of labour.
- Diversification and government incentive to invest.
- Creating and providing employment opportunities.
- Supporting local talent and industries.
- Economic value creation.
- Payment delays.
- Procurement timescales and awarding contracts before design completion.
- Resources, transient population/talent gap
- Lack of skilled labour.
- Quality issues.
- Safety issues.
- Carbon emission and environmental impact.
- Missed opportunities for lessons learnt from project to project.
- Cyber security.
- Collaboration among industry stakeholders.
- Modular Construction
- Sustainable construction processes.
- International investment.
- ESG funding.
- Public Private Partnerships.
- New business markets.
- Digital transformation.
- New materials/ construction techniques.
- Encouraging career opportunities for young graduates.
- Continued regional conflicts.
- Supply chain disruptions.
- Inflation/escalation.
- Precedence of contract awards to lowest price.
- Communication.
- New pandemic variants.
- Delay of adopting new technology and missed innovation opportunities.
- Mis-use of value engineering with a risk to quality.
- Market capacity limitations.
MENA Construction Risk Mitigation
In terms of weaknesses and threats, significant challenges remain to the construction market and its successful delivery and recovery.
One of the key challenges to be faced in 2024 will be the availability and capability of the construction markets resources to mobilise and enable project pipelines. Significant resources are required to meet the demands of construction projects in 2024 to facilitate construction and manufacturing capacity, the readiness of the industry’s supply chains and organisations’ ability to retain staff will play a pivotal role in ensuring successful delivery in 2024 and beyond.
According to a MEED report, ‘as the construction industry grapples with higher costs, clear communication and consensual project adjustments are key to addressing stakeholder interests’.
Some of the key topics leading into 2024, in terms of recovery and mitigating risk in the MENA region, are shown below:
MENA Construction Trends and Prospects
With the rapid advancements in AI in 2023, the construction sector is undergoing considerable focus into the capabilities and implementation of AI-supported construction methodologies. This includes, generative designs, design optimisation algorithms, safety and program monitoring and control, autonomous vehicles and equipment, robotic construction, predictive analytics for supply chain management, inspections/defects monitoring, drone surveying, smart buildings, predictive cost models and collaborative project management platforms. Integration of AI in construction is an ongoing process, but is set to improve efficiencies with reduced cost and improved turnaround times with enhanced safety and sustainability.
ESG considerations are becoming increasingly important in construction as stakeholders recognise the industry’s significant influence on the environment, society and corporate governance. Investors and financial institutions are increasingly incorporating ESG criteria into their decision-making processes, and this trend has implications for Foreign Direct Investment (FDI) in construction. Investors are showing preference for construction projects that align with ESG principles and FDI inflows may be influenced by the perceived environmental and social responsibility of the projects. This is also alongside the need for preferential green financing forms such as green bonds and sustainable loans.
Governments in the region are increasingly turning to PPPs to fund and manage large-scale infrastructure projects. This approach allows for governments to seek private sector expertise and investment to develop and manage critical infrastructure projects. PPP projects can further contribute to job creation and stimulate economic activity. The construction phase, in particular, generates employment opportunities, while ongoing operations can contribute to economic growth.
Several cities in the MENA region are embracing smart city concepts. This involves integrating technology into urban infrastructure to enhance efficiency, sustainability and the overall quality of life for residents. In the UAE, Dubai has its Smart Dubai Initiative and Abu Dhabi has smart city goals embedded in its 2030 Urban Structure Framework Plan. In KSA, Riyadh’s King Salman Energy Park (SPARK) aims to become a smart industrial city and Jeddah Economic City (JEC) incorporates smart technologies and services. Bahrain’s Vision for Manama has Smart City Components and Egypt has its New Administrative Capital (NAC) Smart Infrastructure.
The construction industry is gradually adopting digital technologies such as Building Information Modeling (BIM), drones and construction management software to enhance efficiency and reduce costs.
The construction industry is adapting to changing work environments, including remote working and digital collaboration tools. This adaptation is likely to continue influencing project management and communication in the sector.
Safety is a focal point on all projects for both construction workers and the public. Revised safety regulations will soon be applied to construction equipment and machinery on future construction projects by contractors and developers alike. With the focus on reducing the spread of coronavirus still present as we head into 2023, maintaining newly adopted safety protocols are essential in ensuring construction sites remain operational.
Non-energy sectors will remain the spotlight across the MENA regions construction market, with many countries already investing heavily in infrastructure and residential projects to fill the demands of population growth and urbanization. This includes transportation (roads, bridges, airports), energy (power plants), water, residential, commercial, and recreational spaces.
MENA region countries are facing economic challenges due to factors like conflicts and fluctuating oil prices. However, there are expectations of economic recovery and construction/investment in construction plays a crucial role in stimulating growth. Many countries in the region have long-term development plans and visions that include substantial investments in infrastructure. These initiatives aim to diversify economies and create sustainable growth.
As a lesson learned from the pandemic, contractors had little choice but to pay premium prices for materials and alternative suppliers due to the disruptions caused. 2023 will further see stakeholders in the construction industry re-evaluating and streamlining current procurement relationships. This may come with a risk in coordination, however, the industry envisages cost efficiencies through diversification.
KSA key developments overview
Key projects that are paving the way for the Kingdom’s Vision 2030 are:
NEOM: At the center of Saudi Arabia’s Vision 2030 program, NEOM is a new futuristic mega-city located in northwest Saudi Arabia, on the Red Sea coast. It has a total estimated value of USD 500 billion. NEOM is expected to host a population of more than one million and is set to be a hub for innovation and a sustainable ecosystem for working and living.
The Red Sea Project: Set across 28,000km2 and nine islands, this giga-project is underway. Consisting of 50 hotels (circa 8,000 keys), a new airport and leisure and lifestyle facilities served by 75km of new roads.
AMAALA: An ultra-luxury tourism project, spanning over 4,100km2 and will include 2,500 hotel rooms, estate homes and 800 villas. The target is for an operational zero-carbon footprint with the project tracking more than 15 sustainability criteria.
Diriyah Gate: A USD 50 billion mixed-use historic, cultural and lifestyle destination west of Riyadh. The project’s intent is to showcase Saudi Arabia’s 300+ year history through a set of heritage, hospitality, education, retail and dining experiences for residents, tourists and frequent visitors.
Qiddiya: An entertainment, sports and arts hub, located in southwest Riyadh. Qiddiya is set to include a Six Flags theme park, FIA grade-one racetrack, a Jack Nicolas golf course and several arts and cultural centers.
ROSHN: Around USD 90 billion has been assigned to create large-scale modern and integrated communities for Saudi nationals in nine cities across four regions in KSA. The project has a goal to increase the rate of home ownership to 70 per cent. The first contract to be signed is a 3,000-home community, including associated infrastructure, in North Riyadh close to King Khalid International Airport.
AlUla: As a cornerstone of the Kingdom’s cultural and touristic ambitions, the AlUla project looks to develop one of country’s most important archaeological and cultural destinations and prepare it to welcome visitors from around the world. This major investment aims to make the AlUla region the Kingdom’s cultural capital and another key tourist destination.
Green Riyadh: A large-scale urban forestation project across Riyadh city to plant circa 7.5 million trees in 3,330 neighbourhoods, 43 parks, 9,000 mosques, 6,000 schools, 64 universities, 390 healthcare facilities and 1,670 public facilities. Trees will also line 16,400 kilometres of streets, roads, utility lines (pylons, oil pipelines, etc.) and 272 kilometres of valleys.
United Arab Emirates (UAE) 2023 highlights
In November, the Dubai Metro Blue Line project was approved; a new 30 km metro route that will link key areas in the Emirate through 14 stations. In February, Etihad Rail announced ‘The National Rail Network is complete’ and commercial freight operations have begun. The 1,200km long Etihad Rail stitches the seven emirates together and will transport both cargo and passengers across 11 hubs in the UAE. Etihad Rail is expected to carry millions of passengers annually between major cities with travel times approximated to be 50 minutes from Dubai to Abu Dhabi, and 100 minutes from Abu Dhabi to Fujairah. In further rail news, during November 2023 in a meeting between the Committee of GCC Ministers of Transport and Communications in Muscat, it was agreed that the target date for operating the 2,117Km GCC railway project would be December 2030.
In February 2023, His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, announced he had approved designs for air taxi stations and that air taxis will begin flying in Dubai within three years. Vertiports, also known as a vertical airports, are places where drones and other Advanced Air Mobility (AAM) vehicles can land and take off. Dubai is aiming to be one of the first in the world to implement eVTOL (electric Vertical Take-Off and Landing). Meanwhile, the UAE General Civil Aviation Authority (GCAA) and the Mohammed bin Rashid Aerospace Hub (MBRAH) at Dubai South announced an agreement to establish the world’s first AAM integrator centre, with the world’s first ever vertiport certification process now underway.
In May 2023, HH Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, approved the master plan for The Palm Jebel Ali. This luxury lifestyle mega project occupies an area twice the size of Palm Jumeirah and signifies the start of new growth in the Jebel Ali region and the Emirate’s expansion in accordance with the Dubai Economic Agenda D33 and the Dubai 2040 Urban Master Plan. The first waterfront house project has already been announced by Nakheel, the developer of The Palm Jumeirah, in response to high demand for opulent real estate in the Emirate. When finished, Palm Jebel Ali will stretch roughly 110 km along Dubai’s coastline and will have seven islands and sixteen fronds, along with 80 hotels, resorts and amenities for 35,000 families.
Between 30 November 2023 and 13 December 2023, the COP28 climate conference was held at Expo City Dubai, UAE. COP28 brought together 84,000 attendees, over twenty times the number that attended the first COP (4,000). One of the major key outcomes of the conference was getting 195 nations to sign a twenty-one-page agreement, titled ‘Decision of the First Global Stocktake’. This agreement was made to transition away from fossil fuels: “Transitioning away from fossil fuels in energy systems in a just, orderly and equitable manner and accelerating action in this critical decade to achieve net zero by 2050 in keeping with the science”. After 28 COPs, this is the first international agreement that explicitly calls for moving away from fossil fuels.
During COP28, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, inaugurated the largest concentrated solar power (CSP) project in the world, within the fourth phase of the Mohammed bin Rashid Al Maktoum Solar Park in Dubai. The 950-megawatt (MW) fourth phase is the largest investment project that uses three hybrid technologies: 600MW from a parabolic basin complex, 100MW from the CSP tower, and 250MW from photovoltaic solar panels. The project features the tallest solar tower in the world, at 263.126 metres, and the largest thermal energy storage capacity with a capacity of 5,907 megawatt hours (MWh), according to the Guinness World Records.
During 2023, Dubai’s La Mer, The Pointe and Dubai Pearl have undergone redevelopment. La Mer’s name has been changed to “J1 Beach” by Merex Investment Group, with dining experiences set to open Q1 2024. Tenants of The Pointe were served notice by Nakheel to vacate and relocate as developments plans are underway and demolition works continues at the Dubai Pearl site, now owned by Dubai Holdings, with future plans yet to be announced. In Abu Dhabi, Modon Properties revealed the highly anticipated masterplan for Hudayriyat Island, spanning more than 51 million square metres, equivalent to 53.8 per cent of Abu Dhabi Island. The project is set to provide highly desirable living environments by following a model of sustainable living. On Saadiyat Island, the Zayed National, the Guggenheim and Natural History museums continue to take shape.
Kingdom of Saudi Arabia (KSA) Highlights 2023
In October 2023, KSA was confirmed as the host of the FIFA World Cup 2034, after the remaining potential bidder (Australia) withdrew from the race. The bid includes a minimum of 14 all-seater stadiums, of which at least four should be existing structures, and the capacity must be at least 80,000 seats for the opening and final matches, 60,000 for the semi-finals and at least 40,000 for all other matches. Stadiums are already being built in KSA for the 2027 Asian Cup, which is already helping KSA to upgrade and build stadiums. The most prominent development is the construction of a new stadium in the North of Riyadh and the upgrading of five existing stadiums.
On 28 November 2023, during the 173rd General Assembly of the Bureau International des Expositions (BIE), Member States elected Saudi Arabia as the host country of the World Expo 2030. Saudi Arabia’s proposed theme for the Riyadh Expo 2030 is ‘The Era of Change: Together for a Foresighted Tomorrow’, with three sub-themes. These include: ‘A Different Tomorrow’, focused on science, innovation and pervasive technologies, ‘Climate Action’, concentrated on the impacts of climate change and creative solutions to protect our ecosystems and ‘Prosperity for All’, centred around creating a better future by proactively understanding the voices, needs and contributions of everyone, ensuring a celebration of differences as sources of strength.
In early 2023, the New Murabba Development Company (NMDC) was established by Saudi Arabia’s Crown Prince Mohammed bin Salman bin Abdulaziz al-Saud with the goal of creating the world’s largest modern downtown area in Riyadh. 19-square kilometers of area will be covered by the development, which is situated northwest of the capital. It will have approximately 980,000 square meters of retail space, 9,000 hotel rooms and over 104,000 residential units. The focal point will be the 400-cubic meter Mukaab, which will be the first immersive tourist attraction in the world with virtual and digital technologies. The project is expected to be completed by 2030 at a cost of more than $50 billion.
In July 2022, His Royal Highness Mohammed bin Salman, Crown Prince and Chairman of the NEOM Board of Directors, announced the designs of The Line, its city of the future in NEOM. HRH Crown Prince Mohammed bin Salman said: “At The Line’s launch last year, we committed to a civilizational revolution that puts humans first based on a radical change in urban planning. The designs revealed today for the city’s vertically layered communities will challenge the traditional flat, horizontal cities and create a model for nature preservation and enhanced human liveability. The Line will tackle the challenges facing humanity in urban life today and will shine a light on alternative ways to live.”
July 2023 marked six years since the Red Sea was first announced by His Royal Highness the Saudi Crown Prince Mohammad Bin Salman as an international tourist destination as part of the Kingdom’s 2030 Vision. The Red Sea’s most recent construction report highlights the progress made throughout the destination, including a further 13 hotels and overall status of the supporting infrastructure. Phase one of the international airport and the first three hotels are scheduled to open this year. Over 100 construction contracts are in place, with a similar number out in the market for tender. Red Sea Global also announced that it will operate its own luxury hotel brand at The Red Sea destination, named Shebara.
In December, at Bashayer 2023, Diriyah Gates inaugural event to celebrate Diriyah’s growth, a series of luxury hotels were unveiled, including Oberoi, Six Senses, The Ritz-Carlton, Address, Capella, Four Seasons and Bab Samhan. Alongside this, a number of entertainment and cultural projects were discussed, including the Royal Diriyah Golf Club, the Royal Diriyah Equestrian and Polo Club, Diriyah Art Futures and the Royal Diriyah Opera House. The Diriyah Gate neighbourhoods of Wadi Safar, Wadi Hanifah Park, Bujairi District, Arts District, Samhan District and Diriyah Square, are under development across three phases as part of the masterplan. MEED Projects recorded USD 12.6 billion of projects are under construction at Diriyah Gate, while USD 9.5 billion of projects are in the design and tendering stages.
KSA: Key challenges in 2023
-Oil/energy prices -Metal prices -Timber prices -Cost of living -Salaries -Supply/transportation costs -Pricing of risk -Readiness of supply chains
-Mobilisation -Staff retention/attrition -Resource capacity -Availability in the market -Unknown contracting capacity -Accommodation
-Unviable award prices -Tendering rates at historic norms -Contractor liquidity -Focus of contractors on securing works over delivery -Risk adverse pricing
The major challenges for the KSA construction market are centred around inflation, readiness of supply chains to meet local cities and remote location demands, and the ability to attract private sector and foreign investment.
As Saudi Arabia’s ambitious plans begin to move from inception and design phases to construction, the market is expected to further experience some of the following challenges:
-Ability and willingness of contractors to fix prices and fluctuation clauses. This will need more collaborative procurement and sharing of risk.
-Impacts on lead times and therefore schedule, as the industry adapts to find alternative markets for materials e.g. aluminium, steel, rebar, timber.
-Works that are considered competitive bids are routinely being undercut, raising further concerns about financial stability. This means a higher risk of insolvencies.
-Global supply disruptions put further pressures on supply certainty and pricing. Sea freight capacity and costs are currently lower than the peak reached in September 2021, but costs remain considerably higher than industry norms due to inflationary pressures and ongoing pandemic restrictions in China.
-Securing of supply: Considerations should be given to potentially placing advanced orders/payments for specific materials up front where there is enough certainty on scope and specification to be able to do so with confidence, as ongoing price escalations continue to be an issue.
-Industry draw and focus on giga-project growth, leading to difficulties in staff retention and therefore project continuity as schemes become under-resourced and leading to potential negligent contracts.
KSA: Construction material price inflation
Highlighting the impacts of material price fluctuations during 2023, data from the General Authority for Statistics within Saudi Arabia allows us to demonstrate the extent to which the global economic volatility has had on local and regional markets.
Source: General Authority for Statistics Kingdom of Saudi Arabia
Indexing construction material prices from January 2020 can be seen that the average increase in material prices between January 2020 and October 2023 is estimated to be around 25 per cent. The initial rise seen in July 2020 can be attributed to the impact of supply chain disruptions caused by the initial phase of coronavirus and adjustments made to prices as Saudi Arabia implemented its VAT increase from five to 15 per cent. As we get to 2021, notable spikes and drops were experienced as global cases of coronavirus surged and lockdowns continued to further disrupt supply chains and exacerbated price volatility.
As we reached February 2022, the Russia-Ukraine conflict began and China begun to implement further strict lockdowns that resulted in further supply and demand disruptions. This is seen with how metal prices escalated to nearly 70 per cent in April 2022. As we move towards the end of 2023, it is evident that material prices have softened further from prices experienced at the end of 2022. For example, rebar prices have eased from peaks of 70 per cent in April 2022 to 13 per cent in October 2023. Considering less volatile materials, like concrete, which has remained relatively subdued since adjustments experienced in June 2020, it still presents a notable 11 per cent increase since 2020.
Evaluating material prices against overall construction costs in 2020-2023, the current material price escalation has the potential to impact CAPEX costs in the region of plus eight per cent and minus 12 per cent over the last three years. Many existing construction contracts do not address material escalation or purposely exclude change orders for material escalation, resulting in the risk being firmly left with contractors, subcontractors and suppliers to mitigate.
Note: The average index is unweighted, therefore wood plays a considerable role in the calculation of the average (an increase from 100 to 150 (+50 per cent)). The amount typically used in Middle Eastern construction is limited. This factor would reduce the overall average increase.