The magnitude of contracts within the construction sector continues to illustrate the Kingdom's appetite for heavy capital expenditures as about SR 49.1 billion worth of contracts were awarded during the first quarter of 2013.
The focus on improving the Kingdom's physical and social infrastructure as was planned by the government in its 2013 budget was evident as approximately SR 11.7 billion worth of contracts were awarded for physical infrastructure projects, according to the National Commercial Bank’s Construction Contracts Index First Quarter 2013.
The report said sectors within the social infrastructure category, such as healthcare, residential real estate and education, contributed about SR 28 billion of the overall value of awarded contracts. Anchor sectors, such as oil & gas, petrochemical and industrial had relatively modest contract values as they accounted for nearly SR7.5 billion.
The state of the construction sector appears to reflect its robustness that it has exhibited over the last couple of years even though there was a slight dip in the value of awarded contracts from SR 52.2 billion during Q1, 2012 to SR 49.1 billion during Q1, 2013.
All signs point toward the continued growth within the construction sector as the value of awarded contracts were sustained by non-anchor sectors during Q1. The mega-projects that will be awarded within the anchor sectors will further catapult the ongoing construction boom during 2013.
The Construction Contracts Index (CCI) pushed higher following a successful 2012 to reach 288.33 points by the end of March. The CCI ended at 279.99 points during January and reached its highest level of the quarter during February to climb to 298.16 points. The CCI retracted during Q1, 2013 compared to Q1, 2012, which reached 349.03 points.
However, the CCI should rebound as more mega-projects are expected to be awarded, which will gradually escalate the CCI to higher levels.
Given the nature of the awarded contracts, which were significantly skewed toward infrastructure related projects, the Riyadh and Makkah regions captured significant shares of the value of awarded contracts by region with 44 percent and 27 percent, respectively, the NCB report said.
Significant mega-projects in the residential real estate and healthcare sectors were a major reason for Riyadh's dominance. The residential real estate sector also played a significant role in the Makkah region along with the roads sector.
The Eastern Province, which accumulated approximately 17 percent of the share by region was mainly attributed to the petrochemical, industrial and education sectors. The education sector comprised a significant portion of awarded contracts for each of the three areas of Madinah, Asir and Hail.
January had the highest value of awarded contracts during Q1, 2013, reaching SR 21 billion. The healthcare and petrochemical sectors led the way as they captured nearly 58 percent and 10 percent, respectively. There was a single mega-project contract within the healthcare sector worth SR 12.6 billion.
The value of awarded contracts dipped slightly in February to reach SR 20.3 billion. The residential real estate and education sectors accounted for nearly 40 percent and 20 percent of the total value of awarded contracts, respectively.
The residential real estate sector had three awarded contracts worth SR 8.1 billion. There were two significant contracts that were both awarded to Azmeel Contracting & Construction Company.
The first contract was awarded by Emaar Properties for phase two of the Jeddah Gate "Abraj Al Hilal" project in Jeddah in the amount of SR 4.9 billion. The development will consist of 326 apartments in three towers.
There was a relatively noticeable dip in the value of contracts awards during March, as SR 7.2 billion worth of contract were awarded. The power and industrial sectors accounted for the largest portion of contracts awards by value during March with 24 percent and 21 percent shares, respectively.
The SEC and the Royal Commission for Jubail & Yanbu (RCJY) awarded SR 1.7 billion worth of contracts. Two contracts were awarded by SEC for the construction and installation of a conversion station and for the manufacturing, importing and installation of a 300 km double circuit in Riyadh. These two contracts amounted to SR 763 million and are expected to be completed within 30 months.
The rate and value at which contracts have been awarded during Q1 reaffirms the sustainability of the construction sector and ensures that the projects market will continue to stay increasingly active over the medium-term.