The outlook for Saudi Arabian construction remains bright as the industry’s output value is forecast to rise at a CAGR of 7.05% by 2020, compared with 6.35% during the review period (2011-2015). However, low oil prices present major downside risks to the forecast.
According to a report from Timetric’s Construction Intelligence Center (CIC), the industry is consequently set to rise from a value of US$105.6 billion in 2015 to US$148.5 billion in 2020, measured at constant 2010 U.S. dollar exchange rates.
The growth will be supported by increased government participation and investments in sectors such as healthcare, education and infrastructure construction to diversify the country’s economy away from oil and to support economic growth. The government’s White Land Tax initiative to address the country’s housing shortage will also support industry growth.
“There are, however, risks associated with the Saudi Arabian construction industry outlook, notably low oil prices, a slowdown in economic growth, a large budget deficit and military intervention in Yemen. Falling oil prices will likely affect the growth prospects of the Saudi Arabian construction industry, as the country generates 73% of its total revenue from the oil sector,” comments Danny Richards, Lead Economist with Timetric CIC.
The residential construction market is expected to remain relatively sizable over the forecast period, with 29.3% of the industry’s total value in 2020. The market will be supported by rapid urbanization, population growth and positive developments in regional economic conditions. Government efforts to reduce the country’s housing deficit will also help the market grow over the next 5 years. According to the United Nations Department of Economic and Social Affairs (UNDESA), the country’s population is forecast to increase by 30.7% between 2010 and 2030, which will boost demand for new residential buildings.
Furthermore, the energy and utilities construction market is expected to increase in importance over the next 5 years. Timetric’s CIC predicts the market to account for 27.5% of the industry’s total value in 2020. The government’s plans to meet the country’s growing demand for power and increase focus on developing renewable energy sources will be the major drivers behind the expansion in the market.