Boston, MA -- (ReleaseWire) -- 02/17/2014 -- Saudi Arabia remains one of the most lucrative construction markets in the Middle East, with the government pumping billions into infrastructure and construction projects. That said, over the shortterm our view on capacity constraints in the labour markets dragging on growth continue to play out reaffirming our decision to downgrade our short-term forecast for the industry in late 2013. We have priced in the anticipated delays in projects as a result of shortages in labour and materials, and therefore see growth at 7.2% in 2014. However, with project awards continuing at rapid pace, and a sizable backlog awarded since 2011, we believe the sheer size of the project pipeline in Saudi Arabia will ensure high growth rates over the medium term. Combined with a gradual easing over H214 of labour and materials shortages, we anticipate activity to return to its buoyant growth trend from 2015 onwards.
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In Q413 we downgraded our near-term outlook for growth in the Saudi construction industry as labour shortages, as a result of the government's crack-down on visas and drive for Saudisation, were set to delay projects. This has played out and has dragged on growth across the sector, from projects being delayed and cancelled to lower cement sales in Q413. Exacerbating the issue, a severe cement shortage led the government to initiate measures including emergency funds to import 10mn tonnes of cement - further delaying and increasing the cost of projects. We believe these issues will begin to dissipate over H214 and once resolved, the clearing of the construction backlog, combined with more recently awarded contracts, such as the US$22.5bn Riyadh Metro project, should see real growth return strongly from 2015, with 10.5% estimated.
- Metro Projects Galore: In August 2013 the contracts for construction of Lines 1-6 of the Riyadh Metro project were awarded to three consortia formed of international and local companies. In total, project is expected to cost US$22.5bn and be fully complete in 2019. Construction is hoped to start in 2014, although we anticipate some delays. In July, it was announced that the first phase of the US$16.8bn Mecca Public Transport Program was to enter construction in 2014, and be completed in 2017 - 15 international consortia have bid for the project as of January 2014. In November 2013 it was confirmed that Medina would also develop a mass transit metro system. Finally Jeddah is developing three metro lines over the next six years with an estimated cost of US$6bn.
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