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Saudi construction contract value plunges 51pc in Q1

JEDDAH, May 23, 2016

The total value of construction contracts awarded in Saudi Arabia hit SR27.9 billion ($7.4 billion) during the first quarter, down 51 per cent over SR57.3 billion ($15.2 billion) for the same period last year, said a report by the country's leading bank NCB.

The slow pace of activities witnessed toward the end of 2015 has continued further into the first quarter of 2016, with the contract value down 39 per cent over the previous quarter, stated NCB in its construction contracts index.

This represents a substantial drop and is indicative of increasingly tough economic conditions as the construction industry comes to terms with the severe impact of ongoing low oil prices. It is the sharpest quarterly decline in the value of awarded contracts since 2009, said the Saudi lender in its report.

The decline in oil revenues has already led the government to cut infrastructure spending brought about by fiscal restructuring. While many of the projects already awarded are likely to proceed, they may be scaled down or their execution  rescheduled over an extended period, it added.

However, the government will continue to spend on social and physical infrastructure projects, but the level of spending will inevitably be rationalised over the medium term as spending needs are affected negatively by lower oil revenues, stated the NCB report.

According to the report, the main contributing sectors in Q1 were oil and gas, which has accounted for 47 per cent of the total value of awarded contracts worth SR13 billion ($3.46 billion), followed by hospitality at SR5.9 billion (21 per cent), and residential real estate SR4.6 billion (16 percent).

The other sectors accounted for smaller shares of the remaining value of awarded contracts.

The Construction Contracts Index (CCI) dropped significantly to end the quarter at 179 points, and exhibited unstable movements since the start of the year. It is said to be first time since Q1, 2014 that the index has dropped below 200 points.

According to NCB, the geographical analysis of awarded contracts shows that the Eastern Province received the largest share with 51 per cent of the total value of awards.

They covered mega projects associated with oil and gas, power, and residential real estate sectors. The Madinah region came second with a 13 per cent share, which was mainly attributed to projects awarded by private companies in the hospitality sector, besides the continued focus on improving the infrastructure of the power sector.

The Northern region had an 11 per cent share of the awarded contracts, mainly due to a significant contract by Saudi Aramco, as part of the shale gas development, it added.-TradeArabia News Service




Tags: Saudi Arabia | Construction | NCB | contracts |

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