Saudi Arabia’s commitment to delivering a world-class infrastructure is moving ahead at breakneck speed with road, rail, air and seaport projects jostling for space alongside groundbreaking power and energy initiatives.
As the cornerstone for future economic development across all industry sectors, Saudi Government commitment to infrastructure development is ambitious to say the least. Under its new five-year infrastructure development budget, which was revealed in August 2011, the country plans to spend US$385 billion in building a world-class infrastructure, which includes transportation, energy, utilities, education, healthcare, and commercial, residential and tourism development.
According to Business Monitor International’s (BMI) Saudi Arabia Infrastructure Report Q3 2011, the Kingdom has the most dynamic infrastructure market in the GCC, with an infrastructure project pipeline in excess of US$100 billion.
The main drivers behind increased infrastructure spend in the country are forecasted population growth and the recent rise in oil revenues which has presented a timely opportunity to plough funds into key need sectors. The Saudi Government is also looking to attract continued inward investment for future economic diversification and, in 2010 alone, awarded US$150 billion of related contracts, almost two-thirds of which were non-oil and gas related.
Affordable housing, industrial zones and road and rail developments are leading the way in terms of Government spend. With the largest real estate market in the GCC, a swathe of new industrial cities are also springing up and transportation links are undergoing significant expansion in order to boost logistics and industrial activity. The Saudi Arabian General Investment Authority (SAGIA) is also supporting Government investment by streamlining regulations to encourage new business development and the Kingdom’s attractiveness as a regional hub.
The BMI report states that, from an investor perspective, this has generated considerable interest from companies looking to gain a foothold in the market, which in turn is leading to increased competition for contracts. The country's significant project pipeline has led to an optimistic outlook for growth over the medium term with an average annual growth of 3.97 per cent forecast for the period 2012-2015. The International Monetary Fund predicts that the Saudi economy will expand by four per cent in 2011 as increased public spend creates a roadmap for sustained economic success with investment across the different infrastructure sectors expected to register strong growth.
SAGIA sees investment into energy, transportation and knowledge-based industries as critical ‘engines of growth’. Amr Al Dabbagh, Governor and Chairman of the Board of SAGIA, also cites the Kingdom’s location as offering a strategic advantage, and thus precipitating the need for significant infrastructure development. With around 250 million consumers located less than three hours flight time away, this offers additional opportunities, and is heightening the desire for world-class transportation connectivity through the construction of new airports, seaports, road and rail networks.
And it’s good news for Riyadh’s development community too. A recent study conducted by the Arriyadh Development Authority (ADA) reports that infrastructure development in the city is impacting land prices of housing projects. According to a company spokesman, the availability of ancillary services is having a direct effect on the price per square metre of residential plots with those already supplied with electricity, water, drainage, roads, pavements, landscaping and road lighting commanding higher prices.
Brien McDaniel, spokesperson for US-headquartered architectural firm FXFowle, which has more than six active projects underway in the Kingdom, sums up industry sentiment. “It's encouraging to see [regional] commitment to public transportation with the construction of monorail and light-rail systems, and the development or upgrading of infrastructure. Whereas in countries such as the UAE, opportunities have slowed down or no longer exist, there is a stability present in Saudi Arabia that is certainly a driver for developers and architects.”
Transportation
The Saudi Government allocated some US$400 billon to roads, airports and other projects for 2009-2014 period and its ambitious rail network plans are fuelling infrastructure activity with US$30 billion of contracts underway or at the bidding stage as well as the recent signing of 16 deals valued at US$597 million for the construction of almost 1,000 kilometres of new roads across the Kingdom. A further US$266 million has been earmarked for Makkah in 2012, including the development of two further 14-kilometre ring roads and a dedicated road for heavy vehicle traffic to reduce existing highway congestion. The Council of Ministers recently approved plans to build the US$7 billion Landbridge megaproject – a railway network designed to link the Kingdom’s east and west coasts within the next four years. The project will see construction of 950 kilometres of track between between Riyadh and Jeddah, and a further 115 kilometres between Dammam and Jubail. More than 20 airports are scheduled for upgrades and expansion in the next few years.
Power & Energy
New energy and utility projects are being lined up with the aim of doubling the capacity of the country’s desalination plants to two billion cubic metres annually, and US$146 million has already been allocated to support water and sewage services. Saudi Arabia is also looking into building its first nuclear power plant and the Saudi Electricity Company is set to invest US$28 billion over the next three years to add approximately 13GW of power. The company also plans to spend US$70 billion by 2018 to add a further 25GW to meet growing demand. The country has also opened its first solar power plant, a 500kW station in the Jazan governorate.
From the Cityscape magazine.