Saudi deals stir interest in UAE

Saudi Arabia is expected to surpass the UAE as the biggest construction market, new data shows.

Saudi Arabia is likely to generate US$400 million of construction contracts in the next five years. Waseem Obaidi for The National

UAE contractors are racing to expand into Saudi Arabia, which is set to surpass the Emirates as the biggest construction market in the region.

Saudi Arabia will generate US$400 billion (Dh1.46 trillion) of construction contracts in the next five years compared with $250bn of contracts expected in the UAE, according to data released yesterday at the Arabian World Construction Summit in Abu Dhabi.

Last year, the UAE was the biggest construction market in the GCC, with $28bn of projects in the pipeline, compared with $24.5bn in Saudi Arabia, according to the business researcher Meed Projects. Over the past five years, the UAE accounted for $320bn of projects, while Saudi Arabia generated $250bn.

Al Jaber Group, an Abu Dhabi conglomerate whose activities include construction, will soon open an office in Riyadh, its first in the kingdom, Fatima Obaid al Jaber, the company's chief operating officer, said during the conference.

The Riyadh office would focus on infrastructure projects, she said.

"We are just trying to test the market," Ms al Jaber said. "There's a lot of interest in Saudi Arabia."

Drake & Scull International (DSI), a mechanical, electrical and plumbing specialist, expects to increase its revenue by 25 to 30 per cent this year, primarily from business in Saudi Arabia, said Khaldoun Tabari, its chief executive.

More than 50 per cent of DSI's backlog of projects is in the kingdom, Mr Tabari said.

After its acquisition last month of the International Center for Contracting for 128 million Saudi riyals (Dh125.3m), DSI has more than 10,000 employees in the kingdom.

The developer Emaar and the construction company Arabtec, both based in the UAE, have established projects in Saudi Arabia.

In March, the Saudi government committed to spending $133bn on social programmes, including the construction of 500,000 affordable homes.

Several executives surveyed at the conference said their companies were looking to expand into Saudi Arabia to take advantage of the expected building boom.

But developing a presence would not be easy, experts emphasised.

"You have got to be able to get labour into the country or develop a labour force from the native population, and right now both those options are a challenge," said Thomas Wilson, the managing partner for Middle East practice at Kilpatrick Townsend, an international law firm hoping to expand its presence in Saudi Arabia.

Competition for projects in the region is also growing. More than 42 companies recently bid on a road project in Qatar, said Ed James, the head of Meed Insight.

The projects up for grabs in Saudi Arabia include six airport deals worth 25bn riyals, two port developments worth 12bn riyals and 23 railway projects worth 96bn riyals, according to Meed data.

But Saudi Arabia is not the only growth market in the region. The volume of construction in Kuwait is expected to more than double in the next five years to $120bn, compared with $50bn from 2006 to this year. Kuwait generated $6bn of construction deals last year, after only $2.8bn of activity in 2009, according to Meed.

Kuwait has more than 30 public-private partnership projects in development, covering the construction of airports, roads and a metro system.

"We expect Kuwait to become a significant market next year," Mr James said.

Overall, the value of contracts awarded in the GCC is expected to remain relatively flat this year, but to grow by about 10 per cent next year to $150bn, Meed forecast.

The market hit a peak of $160bn in 2009, according to Meed's data.