INDUSTRY REPORTS SAUDI ARABIA CONSTRUCTION REPORT April 2018 JeddAh Centre for forums & events

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1 1-12 April 218 JeddAh Centre for forums & events INDUSTRY REPORTS SAUDI ARABIA CONSTRUCTION REPORT stoneandsurfacesaudi.com

2 Table of Contents Executive Summary 3 Market Overview 3 Market Analysis 4 Major Projects 6 Conclusion 7

3 Executive Summary The demand for stone and surface material in the GCC region is growing at a steady pace. The GCC stone market has an estimated value of over USD 5 billion with a significant portion attributed to the UAE, Saudi Arabia and Qatar due to the high volume of construction in these countries.¹ A large number of active construction projects in the region are fueling the demand for high-quality fit-out materials. As per the BNC Intelligence, Saudi Arabia makes up almost 2% of the 2,885 construction projects in the GCC. Several of the mega construction projects in the country include Lines 1 to 6 of the Riyadh Metro (USD 23.2 billion), the Dammam Metro (USD 8 billion) and Phases 2 and 3 of the King Abdulaziz International Airport Expansion (USD 2.5 billion). Many of the mega construction projects require millions of tons of stone provided by both domestic and international suppliers.² This report looks at the major growth drivers in the Saudi construction market and how they will positively impact the demand for stone and surface material. It also offers a sectorwise analysis to identify the main areas of construction and a stage-wise analysis to determine the construction market outlook. The final section of the report lists some of the major projects in the country, many of which are driving the demand for stone and surface material. Market Overview The Saudi construction market is expected to recover in late-217. Some of the main construction growth drivers include government-led initiatives under Vision 23, increasing population and urbanization trends. The Saudi construction market is expected to recover in late-217 following a relatively sluggish performance in 216. Low oil prices have forced the Saudi government to take austerity measures to curb a large budget deficit. Spending cuts and reducing energy subsidiaries are expected to create a deficit of 9.6% to economic output in 217 in comparison to a shortfall of 13% in 216.³ New reform policies to generate alternative revenue sources for the government will take effect in 217⁴. According to the 217 Saudi Arabia National Budget Report, the country s reform policies aim to increase the general finances and efficiency of government spending to reach a balanced budget in 22.⁵ The fiscal adjustments in response to low oil prices are expected to give the government additional revenue to sponsor new projects. Chart 1: Oil and Non-Oil Revenue Comparison between 216 and 217 (in USD Billions) Revenue in USD billion Non-oil revenues Oil revenues Total The Saudi government has set long-term social and economic goals under Vision 23.⁶ A component of Vision 23 involves diversifying economic activities to reduce the country s dependency on oil.⁷ The construction market is supporting many initiatives in the non-oil sector such as tourism and healthcare for stimulating growth. Currently, tourism accounts for 2.5% of the Saudi economy and is primarily due to millions of pilgrims visiting the holy cities of Mecca and Medina.⁸ The government aims to increase the tourism contribution to GDP to just under 3% in 225 by also investing in tourism spots to promote holiday and leisurely activities.⁹ The hospitality sector supports tourism by offering a luxury experience for travelers. As per the BNC Project Intelligence, Saudi Arabia has approximately 39 hospitality projects with a combined estimated value of USD 3.7 billion. There are approximately 88 hospitality projects in the initial stages of construction (i.e. concept and design), which constitutes nearly 4% of all hospitality project values in the country. The steady flow-through of project investments will create new demand for stone and surface material (high-end hotels have lavish fit-outs that include the application of different types of stones). The expected growth in tourism supports the construction of new hotels that create lasting impressions through their unique designs and quality fit-outs. Expected Revenue for 216 Revenue Projections for 217 Source: Ministry of Finance, Saudi Arabia 217 Budget Report 1-9 Comnet Exhibitions, Kingdom of Saudi Arabia, Ministry of Finance, Vision 23, Jeddah Economic Gateway and Press & Media References 3

4 Chart 2: Direct Contribution of Tourism to GDP of Saudi Arabia (in USD Billions) Total Dollar Contribution in USD Billion % % 2.4% 2.3% 2.4% Medical tourism is also a growing industry in Saudi Arabia. The government s long-term plan for improving the quality of life and promoting social well-being for its citizens involves % F Total Dollar Contribution Year Percentage of GDP Source: World Travel and Tourism Council 3% 3.5% 3.% 2.5% 2.% 1.5% 1.%.5%.% % of GDP building world-class healthcare facilitates to address critical illnesses and lifestyle related diseases. Modern healthcare facilities use high-end stone finishing to uphold a quality standard. As per the BNC Project Intelligence, Saudi Arabia has approximately 361 healthcare projects with a combined estimated value of USD 26.3 billion. Of the 361 projects, approximately 153 are in the initial stages of construction, which supports the growing demand for stone and surface material. There is a wide application for stones and surface material in residential and commercial properties. The expected increase in the Saudi population and urbanization trends will continue to drive many urban construction projects, which is fueling the demand for stones and surface material such as marble tile floors and natural stones. An increasing population will continue to drive construction activities, notably in areas of infrastructure, housing, commercial properties, education, leisure-recreation, hospitality and healthcare. Market Analysis There is a healthy flow-through of projects investments in Saudi Arabia that is supporting an active construction market, notably within the urban construction sector. Despite some market setbacks, approximately 75% of all construction activities are still advancing. It is also noteworthy to mention that 3% of all project investments are in the initial stages of construction which will create new demand for stone and surface material. The Saudi construction market is showing signs of recovery in 217 with a healthy pipeline of new projects expected to come on stream in the next few years. However, the government is cutting back on spending, which is affecting the advancements of some projects. Chart 3: Saudi Projects at Different Stages of the Lifecyle (in USD Billion) # of Projects 2, 1,8 1,6 1,4 1, 1, ,775 Concept Design On Hold Tender Number of Projects Est. Value of Projects Est. Value in USD Billion The following analysis is based on data from the BNC Project Intelligence: Saudi Arabia has 4,25 active projects, of which 75% are advancing across the four stages of construction (i.e. concept, design, tender and under construction), constituting approximately 67% of all project investments in the country. Currently, 25% of all active projects in Saudi Arabia are on hold which makes up approximately 37% of all project investments in the country. The government has cut back on public spending to curb a large deficit which will affect the advancement of some construction projects. Despite market slowdown, many active projects in Saudi Arabia are still advancing, of which approximately 44% are currently under construction. There are 885 projects in the initial stages of construction (i.e. concept and design) that make up almost 3% of all project values in the country, indicating a steady flow through of new investments. It is also noteworthy to mention that 44 projects under concept or design are worth USD 1 billion or more and 4

5 make up over 2% of all project values in the country. Many high-value projects will support the government s social and economic plans outlined in Vision 23. The Saudi stone market is growing due to the volume of construction in the country. Some of the common types of stone for interior fit-outs and landscaping structures include limestone, marble, sandstone and slate.¹⁰ The main construction activities appear to be coming from the urban construction sector primarily due to an increasing population and urbanization trends. Chart 4: Saudi Projects Per Sector (in USD Billion) # of Projects 3, 2,5 2, 1,5 1, ,84 Industrial Oil & Gas Transport Number of Projects Est. Value of Projects The following analysis is based on data from the BNC Project Intelligence: The Saudi construction market has approximately 4,25 active projects with a combined estimated value of USD billion. The chief investment contributions to the Saudi construction market appear to be coming from the urban construction and transport sectors. The urban construction sector has by far the highest number of projects constituting approximately 7% of all construction activities in Saudi Arabia. It is also noteworthy to mention that office and residential properties make up approximately 46% of all urban construction projects in the country. There is a strong pipeline of utilities projects, many of which are power distribution networks to support the growth of urban construction. The transport sector has the third largest number of projects that make up approximately 1% of all projects in Saudi Arabia. Many of the projects in the transport sector require high-quality fit outs for much of the buildings and supporting infrastructures such as airport terminal buildings and metro stations. The Saudi urban construction sector has an active portfolio of construction projects. The sector comprises of various project Utilities Est. Value in USD Billion types, of which buildings and mega development constitute the highest values. The high volume of construction activities in the urban construction sector is a major contributor to the growth in the stone market. Chart 5: Saudi Projects Per Sector (in USD Billion) # of Projects 1,4 1,32 1, 126 1, Number of Projects The following analysis is based on data from the BNC Project Intelligence: The Saudi urban construction sector has approximately 2,84 active projects with a combined estimated value of nearly USD billion. The buildings segment, which is made up of low-rise buildings (1 to 3 floors), mid-rise buildings (4 to 14 floors) and high-rise buildings (over 15 floors), constitutes 46% of all urban construction activities and 36% of all estimated project values. Favorable growth drivers, such as population and urbanization trends, continue to support the demand for building construction in the country. Mega urban development projects are made up of large urban communities that can include other project types such as residential & commercial community, leisure and recreation facilities and religious buildings. This segment has 54 projects but these projects make up 28% of all urban construction project values in the country. The Saudi government is investing in educational institutions as part of a long-term plan to improve employment opportunities among the youth. Some of the notable education projects in the early stages of development include Turbah University (Phase 1) in Hail (USD 1 billion) and Hudaibiya University in Makkah (USD 4 million). The hospitality and healthcare segments both have an active pipeline of projects, which are attributable to the increasing population and government initiatives to promote medical and luxury tourism. 98 Est. Value of Projects Est. Value in USD Billion 1 Building Stone Institute 5

6 Major Projects There is a wide application of stones and surface material in fit outs and landscaping structures across multiple sectors, especially among high-value project. The major construction projects in Saudi Arabia require millions of tons of stone and are driving much of the demand in the stone market. This section provides an overview of the major projects in the Saudi construction market based on the estimated values associated with the projects. The projects are each worth USD 6 billion or more and have a combined estimated value of USD 22.6 billion, which constitutes approximately 28% of all project investments in the country. Many of the high-value projects are in-line with the government s social and economic objectives outlined in Vision 23 of building a diverse and versatile economy, and improving the quality of life for its citizens. The size and scope of many of the mega construction projects will significantly add to the demand of stone and surface material. Table 1: Sample List of Major Projects in Saudi Arabia Project Name Status Sector Project Type Estimated Value (USD Billion) Oil-to-Chemicals Complex Concept Oil & Gas Oil & Gas Processing Facility 3 Billion Dahiyat Al Fursan 2 Billion Holy Haram Mosque Expansion Religious 12 Billion Al Asfar District Concept 1 Billion Two Nuclear Reactors - Riyadh Concept Utilities Plant 1 Billion Madina Metro Concept Transport Rail 8 Billion King Abdullah Security Compounds - Phase 5 8 Billion Riyadh - Jeddah - Saudi Landbridge Railway Design Transport Rail 6.8 Billion 5, Housing Units - Dammam Concept 6.6 Billion Line 1 - Blue Line - Riyadh Metro Transport Rail 6.5 Billion 6

7 Conclusion The outlook for the Saudi stone market remains positive as construction activities are expected to pick up in late-217. There is a wide application of stones and surface material in fit outs and landscaping structures across multiple sectors. As per the BNC Project Intelligence, there are approximately 4,25 active construction projects in Saudi Arabia, of which approximately 7% are coming from the urban construction sector. There is also a healthy flow-through of new project investments to maintain an active pipeline of construction activities, which will support the growth of the stone market. For more construction intelligence contact Tel: (+971) contactus@bncnetwork.net or visit 7

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