Industry Analysis of Construction Sector in Saudi Arabia

Question: Industry analysis of construction sector in Saudi Arabia. Answer: One of the largest market for construction work in the middle east is in Saudi Arabia and has been ranked second in the economy after oil production. The construction sector in Saudi Arabia deals in optimally utilizing the available resources for developing its infrastructure such as highways, roads, buildings, metros, railways, health centre , hospitals and related transport system. Growing population is exerting pressure on development of infrastructures. The analysis of industry throw light on the economic performance of the concerned industry and it helps in understanding the growth trends of the sector and whether it would be beneficial for the investors to invest in such sectors. The construction equipment of Saudi is highly import driven and has a few global player (WIRE, 2016). The performance of the task of analyzing the industry involves several things : The available historical data of the construction sector is to be reviewed so as to analyze the growth trend. The construction industry had a growth of $ 43.8 billion in the FY 2013 compared to $ 36.5 billion in the FY 2011 and it will continue to expand over the years following investments in manufacturing plants, housing projects, transport infrastructure. In order to support economic growth, the government is supporting its investment in infrastructures. The Saudi government 10th development plan include investment of $ 151.5 billion in petrochemicals , $ 258.2 billion in electricity and $ 126.7 billion in water, gas and electricity. There are many sub sectors which contributes to the performance of the construction industry such as cement sector. The critical factors which serves as the barometer of the construction industry is the building material sector that is the cement sector has entered the period of uncertainty and this has reduced the material costs of the constructing firms. The labor policy initiated by the government and a drop in oil price has lead to fall in the overall construction costs. The sales from construction had recorded a maximum growth of 5 % in the FY 2015. The government revenue form the construction sector has accounted for over 14 % for the year 2014. The largest allocation of the budget expenditure has been made toward the social infrastructure and it accounted for about 43.8 %. The budget of FY 2015 has made largest allocation of US $ 167.82 billion and the demand base of the kingdom is also very strong (Alhammadi et al., 2016). On the other hand, construction industry has also bee n faced with few challenges due to the shortage in supply of labor and construction material such as steel and cement which forced the kingdom to import the materials from other countries. During FY 2013- 2014, construction industry was faced with the shortage of skilled labor which delayed major projects (Albogamy et al., 2012). And also the sharp decline in the oil price has led to the deficit in the government budget of US $ 14 billion for the year 2015 which would be detriment the growth of construction industry in Saudi Arabia. The government has declared a total spending of US $ 224 billion for the FY 2016 and this has come from the force of reduced oil price (Al Kharashi Skitmore, 2012). Provisions for the nexttwo years : The construction sector of the kingdom through the development of residential segment and infrastructure has a expectation of performing strongly in the coming years. The outlook for construction sector seems quite bright with a forecasted CAGR of 7.05 % by the next two years. The value of construction industry is expected to rise to US $ 148.5 billion in 2020 as compared to US $ 105.6 billion in 2015. The growth is posed by a risk of falling oil prices and the country generates in maximum revenue from oil sectors and also there is a large budgetary deficit ("2016 Construction Market in Saudi Arabia - Key Trends and Opportunities to 2020 - Research and Markets"). The expansion of the construction sector is followed by investment in health, transport, manufacturing plants, education and housing projects. The construction sector is forecasted to have highest average salary increase at 10 %. There is an increase in contractor awards for the infrastructure sector by $ 5.58 billion in the FY 2016. There would be a modification in the construction industry . the construction equipment of Saudi Arabia is projected to grow at CAGR of 8.75 % during 2015- 2021 (Saudi Arabia Construction Equipment Market (2015-2021)Market Forecast Equipment Types (Crane, 2016). Reference : Albogamy, A., Scott, D. and Dawood, N., 2012. Addressing Construction Delays in the Kingdom of Saudi Arabia.International Proceedings of Economics Development Research,45, pp.148-153. Alhammadi, Y., Algahtany, M., Kashiwagi, D., Sullivan, K. and Kashiwagi, J., 2016. The Current State of Research and Development Approach (RD) in the Saudi Construction Industry.Procedia Engineering,145, pp.1462-1469. Al Kharashi, A. Skitmore, M. (2012). Causes of delays in Saudi Arabian public sector construction projects. Construction Management And Economics, 27(1), 3-23. Saudi Arabia Construction Equipment Market (2015-2021)Market Forecast Equipment Types (Crane, W. (2016). Saudi Arabia Construction Equipment Market (2015-2021). 6wresearch.com. Retrieved 8 June 2016, WIRE, B. (2016). Businesswire.com. Retrieved 8 June 2016.