Saudi wealth fund keeps it simple: Build and get paid
FINANCIAL CONFIDENCE AND GOVERNMENT AMBITIONS MAKE THE NEXT DECADE EXCITING FOR THE GCC
Having “money in the bank” to tap into will be the biggest boost for construction companies and project managers in Saudi Arabia, as the Gulf’s biggest economy continues its massive build-up of futuristic destinations and all the elements within it.
“Saudi PIF [Public Investment Fund]-backed projects needing to have the funds readily available really has helped give confidence to the market,” said Raouf S. Ghali, CEO at Hill International, one of the world’s biggest project management consultancies.
A flurry of projects
“What the money in the bank proves is that these are not just announcements, but people can work on them and they will be getting paid for that. The construction sector is being judged by the Saudi higher authorities to deliver the projects — and there’s no excuse not to deliver, because the money required for the project capex is very much available.”
The UAE, Saudi Arabia, and Qatar have been driving construction and project activity in the recent past. While offplan projects and infrastructure works dominate in the UAE, Saudi Arabia is witnessing once-in-a-generation developments, such as the Neom region, the AlUla, and Red Sea Global projects. Much progress has been made on the ground at each of these projects, and there’s more coming.
Momentum set for a decade
This continuous momentum can easily drive construction activity for a decade or more, according to Ghali
“Some of the Saudi projects are going to tender, some have already been built such as the airport in Red Sea,” he added. “But it’s still very early stages on lots of them.
“The one thing no one has to worry about is getting paid on work that’s been done.”
It helps that PIF, which is the Saudi wealth fund, is also at the helm of most of these ambitious ventures.
Worry over construction costs
But concerns persist about cost inflation biting into the construction sector, though nowhere near the levels seen in the immediate post-Covid years of 2021-22.
The latest skirmishes of the US and UK against the Houthis in Yemen over Red Sea shipping movements are adding another layer of uncertainty.
In Saudi Arabia, senior government figures have spoken about some of the projects taking longer to deliver.
“Construction costs are still competitive — and there is a final price that people are willing to pay [for] what’s being built, whether in the UAE or Saudi Arabia,” said Ghali. “We are still seeing normal levels of building supplies right now.
Good times for GCC
“Projects in the UAE — the infrastructure ones with the [Etihad] rail and transit — are enough to sustain the construction industry for the next 35 years.
“We are also seeing Qatar come to market, with new appetite for construction. Some of the potential causeways are mega-projects that can take 10-15 years to build. Some of the extensions on the rail network is another they want to do.
“The GCC in general should have a good run for the next few years.”
The construction sector is being judged by the Saudi higher authorities to deliver the projects — and there’s no excuse not to deliver. Because the money required for the project capex is very much available.”
Raouf S. Ghali | CEO at Hill International
Dh3 billion worth of contracts awarded by UAE’s Majid Al Futtaim for mansions in Tilal Al Ghaf
Real estate activity helps
UAE real estate developers will bring their own action to the construction sector. In January, more offplan projects have been added to the fray, and Majid Al Futtaim development has just awarded a Dh3 billion worth of contracts to build mansions at its Tilal Al Ghaf community in Dubai.
“The first-half 2024 will see no drop off in real estate related tendering activity in the UAE,” said an official at a contracting firm.
“Developers who want to be taken seriously cannot afford any delays to creep in to get projects started. If they do, they will find that getting the right contractors and suppliers will become even more difficult.”
Not to mention, any further inflation in construction costs…