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Saudi construction sector to suffer “historic losses” by year’s end—industry expert - ASHARQ AL-AWSAT English Archive
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File photo of the King Abdullah University of Science and Technology (KAUST), under construction near Jeddah on October 19, 2008. (Reuters/Asma Alsharif)

File photo of the King Abdullah University of Science and Technology (KAUST), under construction near Jeddah on October 19, 2008. (Reuters/Asma Alsharif)

Riyadh, Asharq Al-Awsat—The Saudi Arabian construction sector will suffer “historic losses” by the end of 2014, a senior official at the Riyadh Chamber of Commerce and Industry told Asharq Al-Awsat.

Fahad Al-Hamadi, who is also head of the Kingdom’s National Committee for Construction, said the Saudi construction sector was set to suffer losses amounting to 13 percent of the total value of construction projects in the country.

Hamadi put the losses down to the sector bearing the full brunt of costs on projects, the Ministry of Labor’s decision to raise construction workers’ wages by 150 percent, and the decision to raise the Saudization rate—the percentage of homegrown workers who make up a given sector’s employees—for the sector from 5 to 8 percent, as well as the annual fees imposed on construction companies who hire foreign workers—set at 2,400 Saudi rials (640 US dollars) per worker per year.

He said: “The Committee has previously made recommendations to adequately solve these problems. At the forefront [of these] is the establishment of a regulatory body for the construction sector.”

In a press release posted by the Riyadh Chamber of Commerce, Hamadi also said that up to 40 percent of projects in the country had been put on hold.

Hamadi called for companies in the Saudi construction sector to use International Federation of Consulting Engineers (FIDIC) contract templates, a global industry standard, blaming the current system of contracts in the Kingdom for the halted projects.

“Replacing the old contracts . . . with FIDIC contracts would end the problem relating to these old contracts, which has caused delays for a large number [of projects],” he said in the release, adding that the use of the FIDIC contracts would “reduce the size of the risk” to the contractor company.

The high number of projects put on hold was also deterring banks from funding construction projects, he said.

In his comments to Asharq Al-Awsat, he added that the Committee had previously also made recommendations to plug this gap in funding.

“The recommendations [by the committee] also included calls for the establishment of a national investment fund for the construction sector in order to counteract the dearth in funding from the banks, which will help the sector in general, and will help construction companies and contractors carry out their contractual obligations in their agreed timeframes.”

The Saudi construction sector, estimated at 1.13 trillion Saudi riyals (293 billion US dollars), is one of the most prominent in the Kingdom, second only to the country’s lucrative petroleum sector.

A housing shortage in the Kingdom has spurred an industry boom in recent years with a number of massive construction projects announced, including the Abraj Kudai mixed-use development complex in Mecca, the Jeddah Corniche, and the King Abdullah University of Science and Technology

Some of the biggest homegrown contractors include Saudi Oger, the Saudi Binladin Group, and El Seif, but in recent years a number of international firms, particularly from China, have also entered the market despite increasing restrictions by the Saudi government on foreign contractors operating in the country.