KSA Quarterly Review April 2021

During Q1 Saudi Arabia’s PMI growth softened to 53.3, the lowest reading of the last five months.

IHS Markit Economics states the decline is due to the coronavirus outbreak and a decline of new orders; albeit the Kingdom’s output continued to grow and employment levels remained stable reflecting a positive job market performance.

2021 GDP growth projections were announced for KSA from the IMF and Emirates NBD at contradictory levels of 2.9 per cent and 0.7per cent respectively. During the month of March the OPEC basket price reached $68/b, rising to a pre- pandemic high. OPEC also revised the oil demand for 2021 showing recovery Y-o-Y compared to their initial forecast for 2021.

Although MEED reported a below average value of contract awards for the GCC, KSA were one of the second highest awarding countries during Q1. Including awards within the Healthcare sector by Middle East Healthcare Company, Power Infrastructure sector award for two transmission line packages totalling more than 650km and the 300MW Jeddah solar IPP under Saudi Arabia’s National Renewable Energy Programme (NREP).

Tender price inflation within the Kingdom of Saudi Arabia is currently tracking in the range of 2-3 per cent Y-o-Y and we expect this level to be maintained for 2021. The TPI can be applied across projects within KSA, however, gigaprojects should be segregated from main stream developments and assessed on their own merits.

Moving into 2021, as the projects and construction market picks up pace, it is forecasted tender price inflation will continue to increase to levels that are within the range of 2-3 per cent Y-o-Y, driven by a number of factors around labour demand, supply chain, ease of doing business but also the project award of gigaparojects such as NEOM, The Red Sea Project, AMAALA and Qiddiya, which are an integral part of the Vison 2030. AECOM tracked construction material prices between Q1 - Q3 2020 which showed movement in an upward trend and then steadying at the later part of 2020, we will continue to monitor throughout 2021 and assess the impact to the TPI.

KSA awarded the highest value of construction projects during 2020, this status is expected to be maintained across 2021. The Saudi Contractor Authority (SCA) announced in Q4 2020 a strategy for 2020-2024 with focused attention in the residential and commercial sectors as the Kingdom sets a target for Saudi national home ownership to 70 per cent by 2030. Enhancements to civil construction for power, water, public transport, road infrastructure and plans to achieve the renewable energy target by 2030 will impact demand of labour and materials and drive TPI in an upward trend. Gigaprojects, public sector investments and public / private sector partnerships will lay the foundations for construction market revenue up to 2024, of which the SCA envisages an annual growth rate of 4 per cent.

As the construction sector continues to grow, the industry which is already expatriate reliant may see increased labour costs due to demand, higher transportation costs due to construction activity in locations outside of main centralised logistic hubs and increased demand for raw materials which may see prices continue to rise. The industry is supported with progression with procedural reforms such as Public Private Partnership’s legislation which encourages international investment within the Country and the SCA focus on best practices and benchmarks.