Saudi Arabia Infrastructure Report Q3 2008

Saudi Arabia is utilising its natural resources revenue to invest in expanding and modernising its infrastructure. The petrochemicals and manufacturing sectors are destined by the government to become key thrusts behind the Saudi economy and hence the construction of new economic cities and surrounding infrastructure is booming. In BMI's Q308 Saudi Arabia Infrastructure Report we forecast that construction industry's real growth will decline slightly to 2.5% year on year in 2008. This decline will come as a result of mainly rising costs for contractors and developers, as well as soaring inflation eroding returns on investments and most likely deterring a small segment of investors.

We have revised our construction sector forecasts for 2008 onwards. Primarily, this comes as a result of new methodology being introduced in our forecasting method, a change that has been introduced across the spectrum of BMI's Infrastructure Reports, in an effort to increase the relevance and reliability of our data. New developments in Saudi Arabia's transport infrastructure include continued expansion within the states port sector, with a US$426mn dockyard for the Islamic Port at Jeddah and DP World commissioned to develop the main cargo port at the KAC. Work is continuing on the two major rail projects in the kingdom. Recently, Russian Railways announced that their contract for the Landbridge project has been cancelled, threatening the company's continued participation in the project. They may have lost out but another company is celebrating. The Tarabot consortium, which includes Australian infrastructure company Ascino, was chosen to be the Saudi Landbridge operator on a 50 year concession.

The other major project in the Kingdom is the Mecca-Medina Railway, which will link two sites of Islamic pilgrimage and will greatly boost the country's tourism infrastructure. Tenders on the project are due to be awarded in 2009 and a number of international companies have so far displayed an interest.

Saudi Arabia continues to expand its power sector. The major story this quarter has been the Kingdom's MoU with the US over developing a nuclear power sector in the long term. This shows that Saudi Arabia is considering diversifying its power sector. By calling on the expertise of the US, the Kingdom is also ensuring their approval of the program, and will avoid the hostility which Iran's nuclear program has experienced. Major progress has been made this quarter to shore up Saudi Arabia's water sector, floating desalination plants are to be stationed at Jeddah, whilst French company Velia won a huge six year contract to improve water infrastructure in Riyadh.

Saudi Arabia represents the largest construction market in the Middle East. In recent years, large oil revenues have made it possible for the construction industry to employ the extra liquidity for its development. The growth of the country's construction industry is also sustained by the government's efforts to liberalise the economy. Provision for total ownership of property and projects by foreign nationals, together with relaxation of taxation norms for foreign companies who are allowed to participate in the public procurement system, has ensured attractive capital flows into the nation. The Bin Laden Group, Mecca Construction & Development, and Saudi Oger are Saudi Arabia's largest contracting groups, with extensive operations within the country and throughout the Middle East.