Saudi Arabia Infrastructure Report Q4 2009

In BMI's Q409 Saudi Arabia Infrastructure Report we have new historical data for the period up to 2008, and have extended our forecast from 2009 to 2014. We have upwardly revised our forecast for 2009 and are now expecting real growth of 2.86% y-o-y in the construction industry, to reach a value of SAR78.71bn (US$21.02bn).

Last quarter we had maintained risks to the upside for our forecasts, and this quarter, based on continued positive news from the country, we have incorporated these upside risks into a revised forecast. Activity has been ongoing in the majority of the major infrastructure projects currently under way, with government support providing the lynchpin for much of this.

In the transport sector work is continuing on the country's attempts to establish three new railway lines, the North-South, the Haramain High-Speed Project and the Saudi Landbridge. Upgrading airports is also a major priority; a number of airports will be expanded, including the Medina (Prince Mohammed Bin Abdel-Aziz Airport), for which a US$2.4bn expansion project is in the pipeline, and the King Abdel-Aziz Airport, which is undergoing a US$11.3bn expansion.

The utilities sector has seen perhaps the most new activity over the last quarter. The government approved the Medina power and water plant, and the tender for a 2,000MW independent power project (IPP) in Riyadh was launched. A contract was awarded to KEPCO for the Rabigh IWPP. Regionally, the first phase of the GCC power grid was completed, signifying the linking of the power grids of Saudi Arabia, Kuwait, Bahrain and Qatar.

The industrial construction sector received a major boost from the awarding of engineering, procurement and construction (EPC) contracts for the Jubail Oil refinery. Saudi Aramco and Total awarded US$9.6bn worth of contracts to develop the refinery in 13 packages. The refinery is due to be completed in 2013.

Ongoing activity in the country substantiates our previous upside risks, and thus prompted an upward revision in our forecasts. However, the forecasts in real terms are dampened to an extent due to high levels of inflation in the country over the short term. Despite this, activity is still down on previous years, with financing remaining hard to come by, and demand in residential and commercial construction far reduced..

Demand for cement and steel has been rising, illustrating construction activity, which has been fuelled by private companies looking for growth markets in the region, where demand fundamentals are strong.

Saudi Arabia stands apart from many of its regional peers as demand for infrastructure and construction projects is fuelled by domestic demand, as opposed to tourism or international demand, and thus is still evident during the global downturn.

A further, more comprehensive, driver of growth is the government's efforts to sustain much needed infrastructure projects. Reports in Gulf News suggest that the government has so far extended US$3bn in financing to offset the impact of the global downturn on raising financing from the banking sector, and this is expected to grow to US$5.3bn by the end of 2009. The government's commitment to infrastructure projects continues to present upside risks to our forecasts.