Saudi Arabia has seen an unprecedented boom in its construction sector during the first quarter of 2024, according to a new report issued by the US-Saudi Business Council (USSBC).
The report shows that the Saudi construction sector has recorded its second-highest value of contracts awarded during Q1 2024 due to a thrive in investments in the oil and gas sector, as well as the real estate sector.
Massive Growth
The USSBC report reveals that the value of construction contracts awarded during Q1 2024 reached SAR118.8bn ($31.65bn). This figure accounts for a 35% increase compared to the fourth quarter of 2023. It is also the second-highest on record after the SAR147.1bn awarded in the third quarter of 2015.
The giga-projects launched under the transformative Saudi Vision 2030 are the main driver behind this boom, as they have mobilized foreign investments and strategic partnerships, and increased activity in the oil and gas and real estate sectors.
Construction Sector
The Saudi construction sector has experienced a rapid and massive growth despite the global economic challenges. This underscores Saudi Arabia’s efforts to achieve economic progress and development, in line with the objectives of Vision 2030.
“Saudi Arabia’s construction sector is experiencing exponential growth, marked by significant developments in social and physical infrastructure, enhanced quality of life, and substantial foreign direct investments,” Albara’a Al-Wazir, director of economic research at USSBC, said, as cited by Arab News.
Furthermore, the construction sector’s GDP has witnessed a 2.4% growth during the first quarter of 2024. This emphasizes the sector’s pivotal role in the economic development of the Kingdom and its rise as a major construction hub for large-scale projects.
Promising Future
The construction market in Saudi Arabia is on its way to become the largest in the world by 2028, according to a report published in June by the global real estate consultancy Knight Frank.
The report projected that Saudi Arabia’s total construction output value will reach $181.5bn by the end of 2028, accounting for around 30% increase from 2023 levels.
Moreover, the Knight Frank report pointed out that the output value for the sector reached $141.5bn in 2023, with the residential sector having the largest share of the output value. It expected that the residential sector will lead the construction market growth with an output value hitting $56.9bn by 2028.
Non-oil Economy
The USSBC report points to an expansion in the non-oil economy in Q1 2024, by 3.1%. This strong growth and resilience highlight the ongoing transformation that aims to reduce the Kingdom’s reliance on oil revenues and strengthen the overall economic stability by promoting non-oil sectors.
With regards to this, Al-Wazir said: “The Kingdom’s oil and gas sector, led by Saudi Aramco, spearheaded the increase, while Vision 2030 giga-projects such as Neom and the Red Sea development contributed substantially.”
Contracts Award Index
The USSBC report shows 415.89 points increase in the Contracts Award Index (CAI) in the first quarter of 2024. This marks a 54% rise from the previous month and a 33% increase from Q4 2023. Moreover, this represents 18 consecutive months above the 200-point mark, pointing to an anticipated growth in the construction sector.
The report says: “The CAI grew to 390.24 points in January, 438.85 points in February, before settling at 415.89 points in March. This CAI eclipsed the 400-point mark for the first time since September 2013 when it reached 419.42 points.”
Dominant Sectors
The oil and gas sector tops the sectors that have seen a surge in contract awarding. It has witnessed a 1,059% year-on-year increase in the awarded projects, reaching SAR51.2bn in Q1 2024.
Meanwhile, the real estate sector has awarded 105 contracts in Q1 2024, valued at SAR24.4bn. This accounts for a 58% increase compared to the previous year. According to the report, the commercial real estate projects came at the forefront with SAR15bn in awarded contracts, followed by residential projects with SAR2.8bn, and mixed-use developments with SAR1.4bn.
Furthermore, the water sector has experienced a surge in contracts awarded in the first quarter of 2024, with SAR24bn across 14 deals. This accounts for 143% increase compared to the same period in 2023.
Leading Regions
The Eastern Province spearheaded Saudi Regions in the awarded construction contracts in Q1 2024. According to the USSBC, the total contracts awarded were worth SAR53.1bn. In the second place came Tabuk Region, with SAR24.9bn. Meanwhile, Makkah Region recorded SAR16.7bn.
This overall thrive in contract awards across various sectors is driven by several factors, such as a surge in foreign direct investment, an increasing role for the private sector, and partnerships between foreign and local contractors, the USSBC notes.
