By Angela Giuffrida www.thenational.ae
A 60,000-seater stadium near Jeddah, a new airport in Medina and a tower that could eclipse Dubai’s Burj Khalifa as the tallest in the world are just some of the projects in Saudi Arabia that have caught the eye of international construction companies.
With an estimated US$50 billion (Dh183.63bn) being spent on construction this year alone, according to Saudi Arabia’s National Commercial Bank (NCB), it would be easy to assume there are enough jobs in the hugely populated kingdom to support companies whose earnings have taken a hit elsewhere in the Gulf.
Ian Tarry, the regional director at Mace, a construction consultancy based in the UK, has lived in Saudi Arabia for the past few months as part of the company’s plan to develop its business across the region to compensate for a loss of work in the UAE.
Mace is among many contractors that have been nurturing relationships with Saudi clients in the hope of building up regular work. But while the opportunities may seem endless, making money in Saudi Arabia is not as straightforward as some might think, says Mr Tarry.
Decisions on projects take time and contracts are slow to be awarded, while companies have difficulty getting staff to move there.
“It’s not an easy place to function in,” says Mr Tarry. “There is a fair amount of talk about projects, but they are slow.”
Contractors waiting for investments of time and money to pay off are hoping deals will start being awarded after the Eid holiday.
The wait might be worthwhile for Six Construct, a Belgian company that helped to build Burj Khalifa.
It recently made a fresh offer for the contract to build Kingdom Tower, which is planned to be more than a kilometre tall.
It is the third bid the company has placed in a year after contenders were asked to revise their prices to account for a fall in construction costs and changes to the building’s podium.
Six Construct, which opened an office in the kingdom earlier this year, has partnered with Saudi’s El Seif Engineering Contracting to bid for the project, which was estimated to cost $13.6bn at the peak of the economic boom in 2008. Progress on Kingdom Tower, planned as part of Kingdom City on the outskirts of Jeddah, has been hampered by the financial crisis.
Despite murmurs that building another tall tower might not be feasible in the current economic climate, contractors are hopeful it will go ahead.
If Six Construct wins the bid, it would be the most high-profile contract to be awarded in the region in the past two years, keeping the company’s workforce busy for at least five years.
Either way, Six Construct sees Saudi Arabia as a good long-term prospect. “We’ve bid for a few tenders. Some projects didn’t move ahead but at the same time, some projects have been awarded … Contracts are slower to be awarded than in the UAE,” says Phillippe Dessoy, the general manager of Six Construct.
“There seems to be more happening on the oil and gas side, whereas on the residential side it’s different.”
But this could be about to change, with Saudi Arabia planning 92 hospitals and 1,200 schools in the next five years as it develops infrastructure for a population that is forecast to reach 33 million by 2020.
Meanwhile, about 150,000 homes a year are needed in the affordable housing sector, according to Matthieu de Clercq, a consultant in the Dubai office of AT Kearney.
Saudi Arabia is also building six “economic cities”, including the $26.6bn King Abdullah Economic City, as part of a plan to promote private investment and generate jobs for a population in which one in five are under 25.
“There is a strong will from Saudi Arabia to focus on such projects,” says Ali Kolaghassi, the vice president of corporate business development at Saudi Oger, one of the country’s biggest contractors.
“The projects will be to accommodate Saudis in desperate need of schools, housing, retail, etc.”
It is these fundamentals that keep hope alive among foreign companies for the country’s long-term prospects. “It has been a bit slow over the last few months but we’re expecting that things will pick up after Eid,” says Tom Barry, the chief executive of the UAE-based Arabtec Construction, which opened an office in the country in March last year.
“We are ever so optimistic about Saudi and we’re expecting them to be spending somewhere in the order of $10bn during the next few years on developing various aspects of their infrastructure … there’s a big shortage in Saudi of apartments and villas.”
This optimism comes despite Arabtec earlier this year pulling out of a $544.7 million deal to build Lamar Towers in Jeddah, due to a lack of progress on the project.
The company has shifted about 6,000 staff to Saudi Arabia since March last year and plans to increase this to 10,000.
Most of the employees have been transferred from the company’s Dubai base as work dried up in the Emirate.
“Sometimes they have to have their visas cancelled from Dubai and return to their home country to then be recruited back into Saudi Arabia, which is often a quicker process than trying to transfer directly,” says Mr Barry.
But restrictions on working in Saudi Arabia can also make recruitment difficult, he says. The Saudi labour ministry has banned Bangladeshis from working in the housing and agricultural sectors.
Although local construction companies recognise the need for foreign partners, the arrival of newcomers has intensified competition, says Mr Kolaghassi.
“We’re seeing lots of foreign companies coming in, whether it’s from the UAE or Asia,” he says.
“The fact that there are lots of opportunities doesn’t mean it will be an easy challenge.”