Saudi Arabia's construction sector is powering Vision 2030

The infrastructure and construction industry is a crucial pillar of the government’s plan to overhaul the Saudi Arbia economy. Anwar Hadidi and Nav Dulay from Deloitte explain why.

Prior to the Covid-19 outbreak, it was reported that the infrastructure and construction industry in Saudi Arabia was amongst the largest in the Gulf Cooperation Council (GCC) region, with more than $825 billion worth of planned and unawarded projects. The industry had seen growth in the contracts awarded – from $11.2 billion in 2016 to $14.6 billion in 2018.

However, given the volatility experienced around the world as a result of the recent pandemic and the fluctuating oil price, the forecast for construction output growth has been revised from 4.6% to 2.9% in 20203. This forecast is based on a positive scenario that the market will return by the third quarter of 2020, with eased travel restrictions which will aid international mobility into the Kingdom. However, if this mobility forecast should alter, then there may be a further downgrade expected to the output growth projections, which are dependent on international infrastructure specialists and government support.

Further reading: GCC's construction industry reeling from Covid-19 economic impact.

With increased focus from both the private and public sector, the need for infrastructure and construction development will continue to grow in line with Vision 2030. As the Kingdom further opens the leisure and hospitality market, the ease of travel to the Kingdom will continue to drive growth in the hospitality sector.

This has seen an increase in the number of rooms being built, leading to international hoteliers having an increased construction and development need to drive their growth ambitions, supported by foreign direct investment. Although this has seen a recent marginal slowdown as a result of the impact of Covid-19, activity is expected to return with Saudi Arabia having the largest pipeline of rooms under development in the region with approximately 210 projects that aim to deliver over 69,000 rooms, which is in line with the Kingdom’s strategic vision to transform the country to further aid future stability.

Powering the construction sector

Saudi Arabia has embarked on a journey to undertake a large-scale economic overhaul, which has seen both private and public sector companies focused on reforms, further supporting Vision 2030. Under this, the government is planning Saudi Arabia’s economic, educational and related wholesale reforms with the aim of innovating and diversifying the Kingdom’s landscape.

To accomplish these goals, the government has created the National Transformation Project (NTP), an action plan to improve three overarching and important pillars of the country: economic enablers, standards of living for its citizens, and governmental operational excellence.

Vision 2030 and the NTP provide the foundations underpinning the integration of sustainable development goals into the national planning process. One of the key programs of Vision 2030 – Life Quality – is directly linked to the sustainable development goals. At the heart of all this sits Saudi Arabia’s infrastructure and construction industry.

With ongoing investment and technological advancements, the country is investing in diverse projects. The aim of such large-scale initiatives is to provide access to housing opportunities for lower-income groups, create new employment opportunities, and further diversify the economy. Saudi Arabia is planning to invest approximately $1 trillion in the country’s non-hydrocarbon sector by 20305. Some of the key projects include Neom, the Red Sea Project, Qiddiya Entertainment City, King Abdullah Financial District and Amaala, to name a few.

These substantial infrastructure investments are the foundation on which the Kingdom is envisioning its new future. Along with these ‘giga-projects’, Saudi Arabia is also investing in many social and urban development projects, such as the Sakani housing program, further illustrating the country’s commitment to driving development using smart tech.

In order to further enhance mobility in the Kingdom, the government is investing in expanding the transportation infrastructure through city infrastructure projects, such as the $22.5 billion Riyadh Metro and Riyadh Rapid Bus Transit System. Reflecting the changing times, Saudi Arabia’s infrastructure and construction industry continues to be driven by technology adoption, dynamic approaches to construction delivery and implementation of new operating standards, which further fuel infrastructure and construction growth in the country.

Technology adoption

With mega-projects such as Neom, the Kingdom’s PropTech market is expected to gain further traction. Approximately $2 million in seed funding has been allocated to home maintenance services startups such as B8ak, FalconViz, Ajeer, and Muqawiloon. PropTech is disrupting and improving the way transactions of residential and commercial properties take place, changing the traditional ecosystem. Alongside this and in the post-Covid-19 era, the need to drive technology adoption in construction with the use of AI, robotics and 3D printing will become more important to meet future demand in a changing world.

Dynamic approach to construction delivery

Technology adoption is expected to continue to transform construction delivery. The use of prefabricated building techniques, such as those used by the Ministry of Housing with 3D printing, reduces the construction time, provides standardisation, improves quality and is less labor intensive than traditional techniques whilst adding agility and addressing continued demand.

Implementation of new operating standards

To incorporate the sustainable development goals into existing processes, the Saudi government is actively working towards investing in green buildings and standardising the building rating system. The Ministry of Housing developed a new standard for rating buildings, known as the Mostadam Standard.

Referring to the Saudi Building Code (SBC) and designed to comply with existing legislation while reflecting regional building rating requirements, the Mostadam Standard was launched in 2019. The government remains conscious of the need to develop sustainable buildings in order to reduce the impact of buildings and construction on energy usage and CO2 emissions.

The infrastructure and construction industry remains crucial to the government’s plan to overhaul the Kingdom’s economy, more so now as post Covid-19 actions are being planned, taking into account the economic challenges the pandemic presents. With giga-projects incorporating a mix of technology and sustainable development elements, the government is trying to engage not only marginalised communities but the young demographic as well.

The Kingdom has ongoing support from some of the largest funds in Saudi Arabia, which continue to invest in key projects, such as the recently launched real estate company ‘Roshn’ led by PIF, which will specialise in developing integrated urban neighbourhoods containing residential communities across the country; this, coupled with an optimistic sense of improvement in the global trade environment, is further empowering the Kingdom to usher in a new era led by digital transformation and emerging industries, which will positively impact both current and future generations.

Anwar Hadidi is a Senior Executive Director at Deloitte Middle East, while Nav Dulay is a Senior Manager.