Experts confident of Saudi construction sector returning to normal soon

Figures in the USSBC report revealed that the majority of the awarded contracts during Q3 were in the transportation, power, and real estate sectors. (SPA)
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Updated 08 December 2020

Experts confident of Saudi construction sector returning to normal soon

  • Coronavirus causes slump in contracts but recovery predicted

JEDDAH: The total value of construction contracts awarded in Saudi Arabia during the third quarter (Q3) of this year collapsed by 84 percent on figures for the same period in 2019 as the economic impact of the coronavirus disease (COVID-19) pandemic continued to bite.

Despite the large drop, industry experts remained upbeat, pointing out that the Q3 figure was a statistical anomaly, as 2019 was a record year, and predicting that once the short-term impact of the global health crisis had passed the construction sector would bounce back.

According to the latest Contract Awards Index (CAI) produced by the US-Saudi Business Council (USSBC), the total value of construction contracts awarded in the Kingdom during July, August, and September declined by SR40.4 billion ($10.8 billion) to SR7.4 billion.

Within the quarter itself, the figure also gradually declined, going from SR2.958 billion in July to SR2.613 billion in August, and SR1,842 billion in September. One of the main reasons for the slump was budgetary constraints, as the Ministry of Finance looked to absorb the economic impact of the pandemic and reined in capital expenditure.

Looking back on the year as a whole, the data compiled by the USSBC found that during the first three quarters of 2019 construction contracts worth a total of SR161.8 billion were handed out. By comparison, during the same period this year the figure fell to SR63.6 billion, a drop of 60.69 percent.

Albara’a Alwazir, economist and author of the USSBC report, told Arab News that he was confident the sector would rebound, just as it had done after the downturn between 2016 and 2018.

“The Kingdom was pursuing a market share leadership strategy as an oil producer in 2016 whereby oil prices decreased as a result of high global oil inventories. 

The slowdown in global demand for oil led to the reduction in the Kingdom’s budgetary spending, with a particular slowdown in capital expenditures,” he said.

He pointed out that the current downturn was somewhat similar in that lower oil revenues necessitated a revaluation of the Kingdom’s expenditures in the face of reduced global oil demand, but the long-term impact would be minimal, as the sector returned to normal after the COVID-19 slowdown. 

“The Saudi economic outlook appears promising as the number of COVID-19 cases have sharply decreased coupled with the recent news that vaccines are showing promising results and are reported to be available by the middle of 2021.

“Furthermore, while numerous projects have been delayed because of the pandemic, the government has stated that there will be a continued focus on megaprojects especially those that relate to Vision 2030,” he added.

Alwazir was also optimistic that decisive government actions would also mean the long-term impact had been reduced. “The recent announcement that the Public Investment Fund (PIF) will inject SR150 billion annually into the economy in 2021 and 2022 is a positive development.

“The PIF’s role in keeping the economy buoyant in the face of a global downturn will be pivotal in progressing through Vision 2030’s mandates,” he said.

Taimur Khan, an associate partner at real estate consultancy Knight Frank, noted that the dramatic year-on-year drop in Q3 was mainly down to statistics and the fact that the figures were being compared to a record-breaking 2019.

The PIF’s role in keeping the economy buoyant in the face of a global downturn will be pivotal in progressing through Vision 2030’s mandates.

Albara’a Alwazir, Economist

“It is important to note that the total value of contracts awarded in 2019 was the highest level since 2015 and 95.4 percent higher than total awards in 2018, so we are comparing against a high base,” he said.

“Whilst the total value of new contracts has decreased, the level of activity underway in Saudi Arabia still remains high compared to previous years and considering new financing agreements signed during the course of 2020, particularly those relating to urban and real estate development, we expect new contracts activity levels to begin to return to pre-pandemic highs in 2021,” he added.

Figures in the USSBC report revealed that the majority of the awarded contracts during Q3 were in the transportation, power, and real estate sectors, which jointly accounted for 59 percent of the total. The transportation sector registered the highest value of contract awards with SR1.7 billion to three major road development projects linked to the Red Sea Development, Qiddiya, and Amaala megaprojects.

The largest Q3 contract was for SR938 million, awarded by the Red Sea Development Co. to Almabani, and Nesma and Partners for the construction of a 3.7-km runway and taxiways at the Red Sea International Airport. In terms of geography, the Eastern Province continued to be the focus for activity, accounting for SR2.3 billion worth of deals, or 32 percent of all contracts awarded, including a new chlorine derivatives plant and an industrial wastewater processing plant in Jubail.

Makkah Province accounted for 20 percent of contracts, primarily in the power and real estate sectors, followed by Tabuk province with 19 percent.

According to Alwazir, the Saudi Contractors Authority has maintained that the government’s megaprojects related to Vision 2030 would continue to be its focal point in the near-term, with investments continuing into these strategically important areas.


EU threatens Lebanese politicians with sanctions over crisis

Updated 19 June 2021

EU threatens Lebanese politicians with sanctions over crisis

  • Lebanon’s economic crisis began in late 2019 and has intensified in recent months
  • Borrell said the EU stands ready to assist Lebanon and its people

BEIRUT: The European Union’s foreign policy chief Saturday berated Lebanese politicians for delays in forming a new Cabinet, warning the union could impose sanctions on those behind the political stalemate in the crisis-hit country.
Josep Borrell made his comments at the presidential palace near the capital Beirut after meeting with President Michel Aoun. It was the first meeting in a two-day visit to Lebanon.
Borrell said Lebanese politicians should quickly form a new government, implement reforms and reach a deal with the International Monetary Fund to start getting the tiny country out of its paralyzing economic and financial crisis.
Lebanon’s economic crisis — triggered by decades of corruption and mismanagement — began in late 2019 and has intensified in recent months. The World Bank said earlier this month the crisis is likely to rank as one of the worst the world has seen in more than 150 years, adding that the economy contracted 20.3 percent in 2020 and is expected to shrink 9.5 percent this year.
A power struggle between premier-designate Saad Hariri on one side, and Aoun and his son-in-law Gebran Bassil on the other, has worsened the crisis despite warnings from world leaders and economic experts of the dire economic conditions tiny Lebanon is facing.
Hariri was named to form a new government in October and has not succeeded so far. The government of Prime Minister Hassan Diab resigned days after a massive blast in Beirut on Aug. 4, that killed 211 people and injured more than 6,000.
“We cannot understand that nine months after the resignation of a prime minister, there is still no government in Lebanon,” Borrell said. “Only an urgent agreement with the International Monetary Fund will rescue the country from a financial collapse.”
“There is no time to waste. You are at the edge of the financial collapse,” he said in English.
Borrell said the EU stands ready to assist Lebanon and its people but warned that if there is further obstruction to solutions “we will have to consider other courses of actions as some member states have proposed.”
“The council of the European Union has been including other options, including targeted sanctions,” Borrell said. He added: “Of course we prefer not to go down this road and we hope that we will not have to but it is in the hands of the Lebanese leadership.”
Borrel rejected claims by some Lebanese politicians that refugees are the cause of the crisis, saying it is “homemade.”
“It is not fair (to say) that the crisis in Lebanon comes from the presence of refugees,” he said referring to a nearly 1 million Syrian refugees who fled the war in their country to Lebanon.

 

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Sterling set for worst week since Sept. 2020

Updated 19 June 2021

Sterling set for worst week since Sept. 2020

LONDON: Sterling extended its fall against the US dollar on Friday, dropping below $1.39, hurt by the US Federal Reserve’s hawkish surprise and an unexpected fall in Britain’s retail sales.
The pound dropped against a strengthening dollar on Thursday after the Fed surprised markets by signaling it would raise interest rates and end emergency bond-buying sooner than expected.
On Friday, it fell further against both the dollar and the euro. It was down 0.3 percent on the day at $1.389, having touched as low as $1.38555 — its weakest since May 4. It was on track for its worst week since September 2020.
Versus the euro, it was down around 0.3 percent at 85.78 pence per euro, on track for a small weekly fall.
“GBPUSD remains bogged down below the 1.39 handle by a confluence of broad USD strength and a slight deterioration in near-term data,” said Simon Harvey, senior FX market analyst at Monex Europe.
“The limited impact of the data on sterling is largely because retail sales volumes remain above pre-pandemic levels and a shift in consumption patterns toward services after the May 17th reopening was always likely.”
For cable, market participants are weighing up the Bank of England and the Fed’s relative pace of possible monetary policy tightening. The BoE next meets on June 24.
BofA strategists said in a note to clients that it changed its view on the central bank’s tightening trajectory.
and now expects a 15 basis point rate hike in May 2022, compared to previously expecting no hikes in 2022.
“Brussels’ patience with London’s having its cake and eating it is wearing thin. Indeed, there is a risk of protocols being triggered and tariffs being threatened more seriously,” wrote ING strategists in a note to clients.
“The next few weeks could thus be a vulnerable period for Cable, where a break of 1.3890 opens up 1.3800/3810 — the last stop before an extension to the March/April lows of 1.3675.”


Bahrain’s Batelco could be first stock to be dual listed on Tadawul

Updated 18 June 2021

Bahrain’s Batelco could be first stock to be dual listed on Tadawul

  • Samba has been hired as an adviser on the deal

RIYADH: Bahrain Telecommunications Co. (Batelco) is planning to become the first company to have a dual listing of shares on Saudi Arabia’s stock exchange (Tadawul), Bloomberg reported citing people familiar with the matter.

The investment arm of Samba Financial Group has been hired as an adviser on the deal, the people said, asking not to be identified for information privacy.

No decision has been made and the company may decide against the dual listing, they said.

A spokesperson at Batelco declined to comment, while Samba Capital didn’t respond to messages seeking comment, Bloomberg said.

Tadawul has been trying to encourage Middle Eastern firms to dual list for years, without success. Aluminium Bahrain had considered a dual listing in 2014, but it never occurred.


Saudi Arabia’s National Debt Management Center wins global awards for second year

Updated 18 June 2021

Saudi Arabia’s National Debt Management Center wins global awards for second year

  • Saudi office won Middle East and emerging market awards

RIYADH: Saudi Arabia won the Best Sovereign Public Debt Office in the Middle East and the Most Impressive Emerging Market Issuer Award at the 2021 Global Capital Bond Awards, for the year 2021, for the second year in a row, SPA reported.

The Global Capital Bond Awards honors the achievements of governments and companies of all sizes in the field of sovereign and regional finance, banking services, hedge funds, and many other areas within the financial services sector.

It also highlights the most prominent innovations and achievements within the financial services sector, globally.

Saudi Arabia sold SR8.27 billion ($2.20 billion) of riyal-denominated sukuk in June, up from $941 million in May, bunt down from $3.1 billion April, National Debt Management Center data show.

“Driving growth of the Kingdom’s capital markets will be an increase in bond issuance to help fund the SR12 trillion Vision 2030," said Khalid Al-Bihlal, head of S&P Global Ratings KSA. "We project a gradual rise in the use of Saudi Arabian riyal-denominated bond issuance as the local capital markets develop. The US dollar is currently the currency of choice for such bonds."


Saudi MoF electronically linked to SAMA

Updated 18 June 2021

Saudi MoF electronically linked to SAMA

RIYADH: The Saudi Central Bank (SAMA) announced the completion of an electronic link with the Ministry of Finance to process requests relating to the bank accounts of government agencies held at Saudi commercial banks through the online portal Hesaab.

SAMA is seeking to improve and accelerate the procedures related to requests of government agencies’ bank accounts received from the Ministry of Finance, by implementing technical solutions with minimal human intervention, it said in a statement on Thursday.

The Hesaab portal is one of the National Transformation Program 2020 initiatives that improves the level of financial services, in line with Vision 2030.