Outlook positive for Saudi construction sector in 2018: survey

Business sentiment is set to improve across Saudi Arabia’s construction sector over the next 12 months despite challenging economic conditions, according to law firm Pinsent Masons’ Annual GCC Construction Survey.

For the GCC region overall, sentiment in the construction sector rose from 32 percent to 39 percent over the course of the last two years. The UAE continued to retain the top slot among regional peers in terms of overall optimism and ease of doing business, followed by Oman.

According to the report, 29 percent of respondents expect Saudi Arabia to provide more opportunities in 2018, compared to only 11 percent in 2016.

Despite concerns relating to delayed payment, rising cost of capital, and a higher number of disputes, 39 percent of the survey takers – involved in projects valued at over AED 500 million – were optimistic. This compares to 32 percent two years ago, the firm said.

Sachin Kerur, Head of Middle East Region at Pinsent Masons, said Saudi Arabia would remain a highly attractive market, partly as the government plans record spending this year to boost growth and reduce its dependence on oil.

In December, Saudi Arabia unveiled its 2018 budget and allocated SAR 54 billion in infrastructure spending for the current year compared to SAR 52 billion in 2017.  

Despite the optimism, 20 percent of those surveyed expected their order books to decline by more than 10 percent in the coming months, compared to just 16 percent two years earlier. Nearly 86 percent of companies expected payment periods to be longer compared to 2016.

Asked about contract conditions, 86 percent of businesses said they had become less favourable during 2017.

Moreover, a significant number of companies (86 percent) also said payment periods were longer in 2017 compared to the same time last year.

In terms of sector types, about 60 percent of respondents said power, including renewables, will offer the biggest opportunities this year.

Meanwhile, 32 percent believed real estate sector will improve over the next 12 months.

As the Kingdom increasingly turns to public private partnerships (PPPs) in order to attract more inward investment, the study found over 40 percent of respondents were either currently involved or expect to be involved in PPP projects in the Kingdom.