Saudi project pipeline worth $1.44 trillion: Mace

The total value of projects planned and under development in Saudi Arabia reached $1.44 trillion at the end of December 2017, up 27.3 percent year-on-year, construction firm Mace said in a recent report.

"With oil prices set to rise for the second year running, in 2018 project spending finally looks poised to increase following three years of cutbacks as the government sought to balance the books," the firm's "Tender Cost H1 2018" update for the MENA region, revealed.

The Kingdom saw a challenging year for project awards last year, achieving $24 billion of deals, compared to $56.7 billion recorded in 2015, when the market was stronger.

However, the sector will get a boost, after the government increased direct capital expenditure to SAR 205 billion in 2018 budget, supplemented by SAR 50 billion in capital spending by the National Development Fund, and SAR 83 billion by the Public Investment Fund (PIF).

PIF is set to become the most active client in the Saudi construction sector, following the launch of high profile project launches last year.

According to Mace, the Kingdom's top three projects in the pipeline by value are NEOM, the $500 billion mixed-use development; the $93 billion King Abdullah Economic City (KAEC); and a $70 billion nuclear power reactor within the KAEC.

Meanwhile, construction costs across the Middle East and North Africa (MENA) markets will increase after two tough years during which project spending fell 40 percent, the report said.

Tender prices are also set to rise in 2018, driven in part by an uptick in activity and in part by growing costs.

"Saudi Arabia will see the biggest increase in tender prices, which is set to grow by 2.79 percent this year, compared to 2.54 percent last year," the report said.

Oman will register the next-biggest growth in tender prices, due to increased investment in oil and gas projects allowing contractors to push for higher prices, it added.

Financing remains the biggest challenge for construction projects in the MENA region, with government spending slashed and private sector investors wary of market uncertainty.

"Increased project activity is anticipated to drive up tender prices across MENA markets, as contractors see their order books fill up again after the recent slowdown," said Fergus Rossiter, a director of cost consultancy at Mace.

“However, the new economic reality means bringing financing to the table is becoming increasingly important, as contractors compete for diminishing government funding,” he added.

Separately, Mace revealed that consumer price inflation is expected to touch 4.96 percent in Saudi Arabia, due to the impact of the introduction of value-added tax (VAT) and fuel subsidy cuts.