International Contractors Diversify The Competitive Landscape

BMI View:  BMI 's Infrastructure Key Projects Database shows domestic firms hold the largest market share in Saudi Arabia's construction industry. Their market share however has reduced in recent years as more international players successfully enter the market. In particular, South Korean and US firms are targeting industrial projects, while European firms look more towards transport and energy projects.  We believe the business environment for international players is the greatest challenge they face and needs to be a key consideration for those targeting the market. 

Saudi Arabia is one of our favoured long-term markets for construction in the Middle East in terms of scale, growth potential and sustainability of the industry. With its vast oil wealth, large population and wide-ranging economic diversification plans - as opposed to more industry specific plans elsewhere in the GCC - Saudi Arabia will be able to sustain the market's current high construction industry growth rate, according to our forecasts.

Saudi Arabia has become a major destination for international construction, engineering and service companies looking outside their domestic and regional markets for opportunities and we expect this to continue as the Saudi economy becomes more diversified, benefitting a wider range of construction players.

Saudi A Long-Term Favourite
Construction Industry Real Growth, % Change year-on-year

BMI View:  BMI 's Infrastructure Key Projects Database shows domestic firms hold the largest market share in Saudi Arabia's construction industry. Their market share however has reduced in recent years as more international players successfully enter the market. In particular, South Korean and US firms are targeting industrial projects, while European firms look more towards transport and energy projects.  We believe the business environment for international players is the greatest challenge they face and needs to be a key consideration for those targeting the market. 

Saudi Arabia is one of our favoured long-term markets for construction in the Middle East in terms of scale, growth potential and sustainability of the industry. With its vast oil wealth, large population and wide-ranging economic diversification plans - as opposed to more industry specific plans elsewhere in the GCC - Saudi Arabia will be able to sustain the market's current high construction industry growth rate, according to our forecasts.

Saudi A Long-Term Favourite
Construction Industry Real Growth, % Change year-on-year

Saudi Arabia has become a major destination for international construction, engineering and service companies looking outside their domestic and regional markets for opportunities and we expect this to continue as the Saudi economy becomes more diversified, benefitting a wider range of construction players.

Originally attracted by the oil industry and its demand for infrastructure, now a whole spectrum of foreign firms are transforming Saudi Arabia's competitive landscape. That said, across all sectors, due to years of government investment in new infrastructure and housing projects, domestic firms are still the dominant presence within the market - on many projects partnering with a domestic firm is mandatory and in some regions of the country, non-Muslims are not permitted which limits international competition for projects in cities such as Mecca. We also note that Saudi Arabia's business environment is such that the market remains much more closed than its GCC partners in terms of accessibility to international firms.

Industrial Projects Present Greatest International Opportunities

Using BMI's Infrastructure Key Projects Database, we can assess which sectors are the most competitive and where international construction firms are targeting. We note the central role domestic companies play in the industry, with majors such as the Saudi Binladin Group (SBG) active across all segments. However, we also see bright spots for international contractors - with the most success seen in the rail, airport and industrial projects segment.

Within the residential and non-residential construction sector, 46% of the projects within our projects database have domestic construction firms working on them. In particular,  SBG  features heavily, although as the largest and most diversified domestic player, SBG is the key player across the whole construction market. Another big player in this segment is the Al Rajhi Construction Group. Residential construction projects often go to domestic firms such as Azmeel Contracting & Construction Corporation after being tendered by provincial government-run bodies like Jeddah Development and Urban Regeneration Company (JDURC).

Residential and Non-Residential Building - Local Players Dominate
Share Of Projects Under Development in Saudi Arabia, By Nationality of Construction Firm

US and South Korean firms make up the majority of the other companies working on non-residential building projects within our database. Fluor and Bechtel feature heavily due to their involvement in industrial construction projects and downstream oil and gas projects. Similarly, South Korean firms like GS Engineering & Construction Corporation, SK  Group, Samsung Engineering & Construction and Daelim Industrial Company are all major players in construction projects surrounding petrochemicals and industrial sectors.

European Contractors Building Transport Sector

Transport infrastructure has been a key area of investment in recent years, to help deal with the huge surge in visitors during religious pilgrimages, connect the country's new economic cities and improve logistics for Saudi's growing industrial base. Turkish firm TAV Construction has established itself in the market, becoming a major player in developing Saudi Arabian airport capacity, along with its compatriot Yapi Merkezi Group who is working on Saudi Arabia's rail network.

Transport - International Rail Expertise Needed
Share Of Projects Under Development in Saudi Arabia, By Nationality of Construction Firm

European and Chinese firms have also been key in developing Saudi Arabian rail infrastructure. Bombardier  Transportation, Systra, Alstom, Fomento de Construcciones y Contratas SA (FCC) and Salini Impregilo are all active in the  sector. Chinese firms include majors such as China Railway Engineering Corporation (CREC) and China Railway Construction Corporation (CRCC). Indian firm Larsen  &  Toubro also recently entered the Saudi rail market with a contract to build a metro line.

South Korean Firms Engineering A Significant Energy Market Share

In the energy and utilities sectors, again, South Korean engineering firms are particularly dominant, along with European companies. Swiss based ABB Group has a particularly strong presence in Saudi Arabia in both the water and power sectors. France's Veolia has won numerous water infrastructure projects and Germany's Siemens is active in the power sector. Hyundai Heavy Industries is particularly prevalent in the power sector.

Energy and Utilities - Technically Proficient International Firms Key 
Share Of Projects Under Development in Saudi Arabia, By Nationality of Construction Firm

Business Environment Risks Present Barrier To Entry 

While the scalable operations in Saudi Arabia are attractive to international firms, the business environment is not as desirable and in comparison to other regional markets is much less conducive to international participation. There are restrictive labour laws which have increased costs in the market and limited the available workforce. This has not only eaten into profits for companies, but also made them liable for project delivery overruns and subsequent violations of contractual agreements. We also continue to highlight the often observed delays in payment to contractors due to bureaucratic inefficiencies, causing significant repercussions across the project value-chain. Additionally, planning procedures are often changeable and projects often altered at late stages. A pertinent example of this was CRCC, who recorded their largest ever loss after building the Mecca metro, after the project's designs were altered mid-construction.

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This article is tagged to:
Related sectors of this article: Infrastructure, Transport Infrastructure, Utilities - Infrastructure, Construction, Residential Construction, Water Infrastructure, Companies - Infrastructure, Commercial Construction, Industrial Construction, Airports, Oil and Gas Pipelines, Housing
Geography: Saudi Arabia
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