Value of awarded contracts in Kingdom reaches SR20bn

The construction sector constitutes a major share of the Kingdom’s domestic economy. The sector recorded high annual real growth rates over the last five years, recording 5.6 percent in 2015, on the back of larger public and private spending.

However, the low level of oil prices and lower government expenditure in 2016 brought about numerous project delays and cancellations. As a result, the construction sector contracted by 1.9 percent during the first quarter of 2016 in real terms, settling at SR31.4 billion. However, the substantial investments over the past 5-years, amounting to over SR1 trillion which are currently under execution, underpinned the construction sector and limited the contraction in the sector, according to a report by the National Commercial Bank (NCB).
Significant investments made by the government, semi government and other private institutions between 2010- 2015, alongside moderate levels of inflation, led to a compounded annual growth rate (CAGR) of 6.9 percent in the construction sector during the period. 
In the midst of this robust growth, the sector’s share of the Kingdom’s GDP rose to 5.04 percent in 2015. Meanwhile, following the collapse of oil prices since 2014, along with decreased government expenditure, the sector’s share of real GDP is estimated to have declined to 4.89 percent in the first quarter of 2016, the NCB report said.
According to General Authority for Statistics (GAS), the Kingdom’s real GDP growth rate decelerated to 1.5 percent in the first quarter of 2016, as adversely affected by the contraction of 0.7 percent of the nonoil sector. However, due to higher oil production and improved oil prices compared to the first quarter, the Kingdom’s real GDP is expected to grow by 1.7 percent for the whole year of 2016, and is set to rise to 2.4 percent in 2017. 
Moreover, the NCB report said inflation is expected to average higher at 4.5 percent in 2016, as the government implemented the reduction of energy subsidies since begging of the year. 
The NCB Construction Contracts Index (CCI) reached 117.5 points by the end of the second quarter of 2016, while the total value of awarded contracts amounted to SR20.3 billion, falling by 27 percent from the same period a year ago. Accordingly, total expenditure in the Saudi construction sector, as measured by the level of Gross Fixed Capital Formation (GFCF), where residential and non-residential construction accounted for the largest share, is estimated to have fallen by 20.1 percent to SR145.6 billion in the first quarter of 2016 compared to SR182.1 billion in in the same period of 2015. 
Therefore, a strong decline is expected for the construction sector which is forecasted to contract by 3 percent to settle at SR156 billion by the end of 2016. As non-oil GDP is expected to stagnate in 2016, the construction sector’s share of non-oil GDP is expected to decline to 8.7 percent in 2016 from 9.0 percent in 2015. 
According to the KSA Business Optimism Index (BOI), conducted by Dun & Bradstreet in cooperation with NCB, the construction sector composite BOI edged up to 12 in the third quarter of 2016, gaining a single point from last quarter’s series low of 11. 
The outlook for the construction sector remains weak as crude oil prices continue to remain low, which has suppressed the pace of awarding new projects, the NCB report said.

Source: Arab News