Source: U.S.-Saudi Business Council (USSBC)
The construction sector continued its ascension during 2022 as the value of awarded contracts returned to pre-pandemic levels. The value of awarded contracts during Q4’22 surged to SAR71.5 billion ($19.1 billion), accounting for 37 percent of this year’s awards, according to a report by the U.S.-Saudi Business Council. This marks the highest value of awarded contracts in a quarter in nearly seven years when the value reached SAR88.1 billion ($23.6 billion) in the first quarter of 2015. The remarkable growth during Q4’22 brings the total value of awarded contracts in 2022 to SAR192.4 billion ($51.3 billion), reflecting a 35 percent increase over 2021.
USSBC’s Contract Awards Index Performance Through Q4 2022
The USSBC Contract Awards Index (CAI) climbed to 241.71 points at the end of the fourth quarter. The CAI ended the year above the 200-point mark in 11 out of the 12 months in 2022 following its recovery during the second half of 2021. The CAI grew by 52.92 points or 28 percent QoQ while also growing by 32.66 points or 16 percent YoY. The resurgence in awarded contracts on the back of numerous giga-projects fueled the surge following the pandemic induced slow down that hampered the construction sector. The CAI grew to 257.07 points in October, remained steady in November at 256.80 points, before finishing December at 241.71 points.
Overview of Awarded Contracts By Sector During Q4 2022
Real Estate
The real estate sector’s surge of SAR38.9 billion ($10.4 billion) in awards from 33 contracts during Q4’22 was the highest grossing sector by quarter in 2022. The growth was fueled by the residential real estate market, which grew by SAR25.3 billion ($6.7 billion) or 637 percent QoQ and by a significant SAR27.6 billion ($7.4 billion) or 1,721 percent YoY. This was the largest tally by quarter for the residential real estate market since Q1’15 when it reached SAR33.2 billion ($8.9 billion). Overall, the real estate sector grew by SAR26.4 billion ($7 billion) or 210 percent QoQ during Q4’22 and increased by SAR31.4 billion ($8.4 billion) or 415 percent YoY. For the year, the real estate sector achieved the highest tally in awarded contracts with SAR63.1 billion ($16.8 billion), which was SAR42.2 billion ($11.3 billion) or 202 percent greater than 2021. It also marked the second highest annual tally on record following 2015, which attracted SAR96 billion ($25.6 billion). The real estate sector accounted for 33 percent of the total value of awarded contracts during 2022.
Power
The power sector rebounded during Q4’22 after witnessing 20 contracts worth SAR16.4 billion ($4.4 billion) being awarded. The resurgence was mainly attributed to a sizeable contract by ACWA Power related to the Shuaibah 2 solar PV power plant and marked the largest contract award in the power sector during 2022. This was the largest tally by quarter for the power sector since Q2’14, which reached SAR16.6 billion ($4.4 billion). The power sector grew by SAR13.8 billion ($3.7 billion) or 527 QoQ and by SAR4.3 billion ($1.1 billion) or 36 percent YoY. For the year, the power sector garnered the third highest value of awarded contracts by sector with SAR30 billion ($8 billion), which was SAR383 million or 1 percent higher than 2021. It marked the highest annual tally since 2015, which reached SAR31.7 billion ($8.5 billion). The power sector accounted for 16 percent of the total value of awarded contracts during 2022.
Transportation
The transportation sector maintained its position as a top contributor during Q4’22 as it awarded SAR6 billion ($1.6 billion) on 16 contracts. NEOM was the most active awarder of contracts as it continues to develop its transportation network including tunneling, dredging, and earthworks. Red Sea Global and QIC also contributed with several sizeable contracts during the quarter. The transportation sector declined by SAR18.9 billion ($5 billion) or 85 percent QoQ but grew by SAR780 million ($208 million) or 30 percent YoY. For the year, the transportation sector received the second highest value of awarded contracts with SAR38.6 billion ($10.3 billion), which was SAR29.1 billion ($7.8 billion) higher than 2021. It marked the third highest tally on record after 2013 and 2011, which had accumulated SAR105.8 billion ($28.2 billion) and SAR65 billion ($17.3 billion), respectively. The transportation sector accounted for 20 percent of the total value of awarded contracts during 2022.
Overview of Awarded Contracts by Region During Q4 2022
The Tabuk region registered the highest tally of awarded contracts at it attracted SAR27.4 billion ($7.3 billion) or 38 percent of the total. NEOM accounted for a majority of the contracts as it awarded SAR25.7 billion ($6.9 billion) or 94 percent of all contracts during the quarter. NEOM’s contract awards were in the real estate and transportation sectors. The remaining SAR1.8 billion ($468 million) or 6 percent in contracts were awarded by Red Sea Global, SEVEN, and Tabuk Municipality also across the real estate and transportation sectors.
The Riyadh region captured the second highest value of awarded contracts with SAR13.8 billion ($3.7 billion) or 19 percent of the total. The real estate sector accounted for the highest share of Riyadh’s contracts with SAR8.7 billion ($2.3 billion) or 63 percent of the total. The transportation sector attracted the second largest share of Riyadh’s awarded contracts with SAR1.6 billion ($438 million) or 12 percent. The remaining 25 percent of the awarded contracts came from the healthcare, industrial, power, water, and oil & gas sectors.
The Makkah region rounded the top three regions by awarded contracts with SAR12.7 billion ($3.4 billion) or 18 percent of the total. The power sector’s two contract awards accounted for SAR9.8 billion ($2.6 billion) or 77 percent of the total. Meanwhile, the real estate sector captured the second highest value of awarded contracts in Makkah with SAR1.8 billion ($493 million) or 15 percent. The remaining 8 percent of awarded contracts were distributed between the transportation, military, industrial, and water sectors.
Contract Awards Outlook
“The surge in contract awards continues unabated on the back of a growing economy that was fueled by significant oil revenues and the acceleration of giga-projects following the COVID-19 slowdown”, said Albara’a Alwazir, Director of Economic Research at the U.S.-Saudi Business Council. “Furthermore, the private sector’s increasing contribution to the Kingdom’s diversification strategy is aiding in the rebound of the construction sector to pre-pandemic periods.”
Oil GDP’s YoY growth of 15.3 percent in 2022 was the highest since 2003 when it reached 17.4 percent. The windfall in oil revenues strengthened the Kingdom’s position to support the funding of national diversification strategies while accelerating the development of its non-oil sector. The private sector’s contribution to GDP reached an all-time high in 2022 as it accumulated SAR1.2 trillion ($325 billion), growing by 5.3 percent YoY. These developments supported construction sector GDP as it grew by 4.5 percent, the highest rate since 2014 when it reached 6.6 percent.
The growth in the Kingdom’s construction spending was evident in part by the government’s increase in state capital expenditures (capex). Capex surpassed the budgeted SAR92 billion ($24.5 billion) for 2022 by 56 percent to reach SAR143 billion ($38.3 billion). Furthermore, capex grew by SAR26 billion ($7 billion) or 22 percent compared to 2021.
The Kingdom’s Gross Fixed Capital Formation (GFCF) rebounded strongly in 2022 as construction activities picked up causing demand for demand for machinery, land improvements, investments in unfinished dwellings, and non-residential building to surge. GFCF grew to SAR800 billion ($213 billion) in 2022, marking a 24.1 percent increase YoY, the highest in decades. Impressively, the private sector accounted for 87 percent of total GFCF, reinforcing its role as growing contributor to the economy.
Click here to access the full report of Fourth Quarter 2023 Project awarding details.
