AECOM

Living materials
There is a new trend around the development of living materials being applied to construction,
such as when biological materials are used to support concrete construction, insulation and
flooring such as ‘bacteria’ and ‘fungi’ in replacement for far less sustainable materials.

Remote technology
As a rising trend through 2022, assisted by the issue of remote working, remote technologies
help to mitigate problems with administrative and building construction works. An example
of this is how the use of drones within the construction industry is on the rise, assisting in the
quantification process and identifying and mitigating safety hazards.

3D printing
This has already taken off within the construction industry and looks to grow at a record
pace in 2023.

Supply chain diversification

As a lesson learned from the pandemic, contractors had little choice but to pay premium
prices for materials and alternative suppliers due to the disruptions caused. 2023 will
further see stakeholders in the construction industry re-evaluating and streamlining current
procurement relationships. This may come with a risk in coordination, however, the industry
envisages cost efficiencies through diversification.

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Middle East Property & Construction Handbook 2023

KSA review
The Kingdom of Saudi Arabia’s (KSA)
spending budget for 2023 has been
approved at USD 295 billion (circa 16
per cent increase on 2022’s spend of
USD 255 billion) and is expected to post
another budget surplus as it continues
to stabilize public spending amidst
boosted revenues from higher oil prices.
After posting its first fiscal surplus in nearly a decade in 2022
(preliminary estimate USD 27 billion, 2.6 per cent of GDP),
the Kingdom’s finance ministry forecasts to achieve a surplus
of USD 4.25 billion or 0.4 per cent of GDP in 2023.

This is considered somewhat subdued compared to the

previous year’s surplus, but as analysts suggest, the expected
revenues are considered modest and based on oil prices that
are much lower than what is forecast for the year ahead.

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 AECOM

The IMF recognises Saudi Arabia As oil prices reduced in 2022, estimated USD 1,350 billion of
as one of the world’s fastest- this was when the decision construction projects currently
growing economies in 2022, was made by OPEC members planned in the Kingdom.
with sweeping pro-business to cut production, despite the
reforms, a sharp rise in oil prices pressures from the US to keep Saudi’s Crown Prince, His Royal
and recovery of oil production oil prices buoyant. Although Highness Mohammed bin
power. GDP is expected to the gains in oil prices in 2022 Salman, launched Vision 2030 in
expand by 7.6 per cent 2022, are now at around levels seen 2016 with the aim of dramatically
the fastest growth in almost a at the beginning of the year, the transforming and modernizing
decade and forecasts growth at outlook for oil remains positive Saudi Arabia and reducing
3.6 per cent for 2023. for 2023 as the global demand is its economic reliance on oil
expected to increase alongside revenues. This strategy outlines
Oil prices play a pivotal role in the lifting restrictions in China. economic and financial reforms
the country’s economy with and looks to utilise the country’s
around 40 per cent of Saudi In construction, KSA will investment power to create a
Arabia’s GDP attributed to oil. In continue to contribute thriving, diverse and sustainable
2022, oil prices were expected the largest volume of economy for its population.
to stabilize and somewhat new construction project Leading this drive is the Public
reduce from peaks seen in opportunities in the MENA Investment Fund, the Kingdom’s
2021, but as the Russia-Ukraine region in 2023. The major sovereign wealth fund, which
conflict unfolded, brent crude catalyst for this investment is has disclosed plans to invest
moved above USD 139 per KSA’s Vision 2030 that fronts the up to USD 266 billion into new
barrel in March 2022 amongst projects by 2025.
fears of supply shortages. In
addition, as the demand for
fuels depressed, largely due to Saudi Arabia Budget Expenditure 2023
China’s reduced industrial and
Military
economic output from strict 3%3%
6% Social Dev.
lockdowns, oil prices began 24%
to subside. With Saudi Arabia 7% Education
playing a leading role in OPEC as General Items
it makes up around one-third of 10%
Security
the organisations oil reserves, it Economic Res.
is pivotal in decision-making for 18%
15% Municpal Serv.
production policy.
Infra & Tran
18%
Public Admin

Source: Saudi Arabia MoF

Saudi Arabia key economic forecasts

50%
40%
30%
% of GDP

20%
10%
0%
-10%
2019 2020 2021 2022f 2023f

Revenue % GDP Expenditure Private Sector Credit Real GDP Growth Hydrocarbon

Source: Haver Analytics, Emirates NBD Research July 2022

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Middle East Property & Construction Handbook 2023

KSA key developments overview

Key projects that are paving the way for the Kingdom’s Vision 2030 are:

NEOM: At the center of Saudi Qiddiya: An entertainment, AlUla: As a cornerstone of the

Arabia’s Vision 2030 program, sports and arts hub, located in Kingdom’s cultural and touristic
NEOM is a new futuristic mega- southwest Riyadh. Qiddiya is set ambitions, the AlUla project looks
city located in northwest Saudi to include a Six Flags theme park, to develop one of country’s most
Arabia, on the Red Sea coast. It FIA grade-one racetrack, a Jack important archaeological and
has a total estimated value of USD Nicolas golf course and several cultural destinations and prepare
500 billion. NEOM is expected to arts and cultural centers. it to welcome visitors from around
host a population of more than the world. This major investment
one million and is set to be a hub ROSHN: Around USD 90 aims to make the AlUla region the
for innovation and a sustainable billion has been assigned to Kingdom’s cultural capital and
ecosystem for working and living. create large-scale modern and another key tourist destination.
integrated communities for Saudi
The Red Sea Project: nationals in nine cities across Green Riyadh: A large-
Set across 28,000km2 and nine four regions in KSA. The project scale urban forestation project
islands, this giga-project is has a goal to increase the rate of across Riyadh city to plant
underway. Consisting of 50 hotels home ownership to 70 per cent. circa 7.5 million trees in 3,330
(circa 8,000 keys), a new airport The first contract to be signed is a neighbourhoods, 43 parks,
and leisure and lifestyle facilities 3,000-home community, including 9,000 mosques, 6,000 schools,
served by 75km of new roads. associated infrastructure, in 64 universities, 390 healthcare
North Riyadh close to King Khalid facilities and 1,670 public facilities.
AMAALA: An ultra-luxury International Airport. Trees will also line 16,400
tourism project, spanning over kilometres of streets, roads, utility
4,100km2 and will include 2,500 lines (pylons, oil pipelines, etc.)
hotel rooms, estate homes and and 272 kilometres of valleys.
800 villas. The target is for an
operational zero-carbon footprint
with the project tracking more
than 15 sustainability criteria.

Diriyah Gate: A USD 50 NEOM

billion mixed-use historic, cultural Amaala
and lifestyle destination west of AlUla
ROSHN
Riyadh. The project’s intent is to The Red Sea Project Diriyah Gate
Qiddiya
showcase Saudi Arabia’s 300+ Green Riyadh
year history through a set of
heritage, hospitality, education, Jeddah Central
retail and dining experiences
for residents, tourists and
frequent visitors.

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KSA schemes

Jeddah Central

Rua Al Madinah

Entertainment
International
King Salman

Diriyah Gate

Asir Project
AMAALA

Ventures

Boutique
Qiddiya
ROSHN

TRSDC
NEOM

Saudi
AlUla
Park

Value
500.0 90.0 23.0 20.0 20.0 16.0 15.0 10.0 8.8 5.1 5.0 3.0 1.5
USD Bn

Awarded
13.4 0.7 0.0 0.3 2.9 6.6 0.4 1.0 2.3 1.7 0.2 0.3 0.0
USD Bn

KSA schemes value USDbn

KSA schemes awarded value USDbn

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Middle East Property & Construction Handbook 2023

Kingdom of
Saudi Arabia
Highlights 2022

NEOM NEOM Trojena Asian

The Line Winter Games 2029

In July 2022, His Royal Highness At the 41st OCA General

Mohammed bin Salman, Crown Assembly on 4 October 2022
Prince and Chairman of the in Phnom Penh, Cambodia,
NEOM Board of Directors, Saudi Arabia won the bid to host
announced the designs of the 2029 Asian Winter Games.
The Line, its city of the future This is planned to be held at the
in NEOM. HRH Crown Prince Trojena Development as part
Mohammed bin Salman said: of the NEOM giga-project and
“At The Line’s launch last year, is expected to be completed
we committed to a civilizational by 2027. The year-round
revolution that puts humans destination is expected to
first based on a radical change comprise a ski village, nature
in urban planning. The designs reserves, luxury hotels, wellness
revealed today for the city’s resorts, retail stores and
vertically layered communities restaurants. In addition it will
will challenge the traditional flat, host various sporting activities,
horizontal cities and create a including skiing, water sports
model for nature preservation and mountain biking.
and enhanced human liveability.
The Line will tackle the
challenges facing humanity in
urban life today and will shine a
light on alternative ways to live.”

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 AECOM

GCC Renewable NEOM Green

Railway Project Energy Hydrogen Project

In December 2021, the GCC In November 2022, Saudi Hydrogen is considered to be

supreme council approved the Arabia’s Energy Minister, Prince a renewable or “green” fuel,
establishment of the GCC Rail Abdulaziz bin Salman, as part especially if its electricity
Authority, which began activity of the Saudi Green Initiative at comes from renewable
in June 2022 to oversee and COP27, announced that Saudi sources, because it is able
manage the implementation Arabia will host the MENA to be produced without CO2
and integration of the region’s Climate Week in 2023. As Saudi emissions. In March 2022,
railway network. The network Arabia looks to finalise plans Saudi Arabia commenced
is expected to run from Kuwait for developing 10 more new construction on a USD 5
City through to Saudi Arabia via renewable energy projects billion wind and solar powered
Jubail and Dammam, and then and connect an additional hydrogen plant at NEOM. The
on to linking the major cities 840 megawatts of solar PV facility is planned to be on
of Manama in Bahrain, Doha in to its power grid, the Minister stream by 2026 and is expected
Qatar and the UAE cities of Abu called for action in the form of to produce up to 600 tonnes
Dhabi, Dubai and Fujairah before practical solutions and creating of green hydrogen per day,
reaching Muscat, Oman. Other more opportunities to pool making it one of the largest
countries in the Middle East, resources and collaborate to hydrogen plants in the world.
such as the UAE and Qatar, have overcome challenges together. At the end of 2021, Saudi
also taken steps to develop their As part of Saudi Arabia’s Vision Arabia’s Energy Minister, Prince
domestics rail networks in 2022. 2030, renewable energy is a Abdulaziz bin Salman Al-Saud,
central subject as plans have said the Kingdom has plans
been announced for more than to be the biggest producer of
USD 100 billion investments in hydrogen in the world as it aims
renewable energy projects with to produce 2.9 million tonnes
the strategic aim to produce 50 per annum (tpa) by 2030 and
per cent of its electricity from 4m tpa by 2035.
renewables by 2030.

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Middle East Property & Construction Handbook 2023

KSA: Key challenges in 2023

Inflation Resourcing Competition

− Oil/energy prices − Mobilisation − Unviable award prices
− Metal prices − Staff retention/attrition − Tendering rates at
− Timber prices − Resource capacity historic norms
− Cost of living − Availability in the market − Contractor liquidity
− Salaries − Unknown − Focus of contractors on
− Supply/transportation costs contracting capacity securing works over delivery
− Pricing of risk − Accommodation − Risk adverse pricing
− Readiness of supply chains

The major challenges for the KSA construction market are centred around
inflation, readiness of supply chains to meet local cities and remote location
demands, and the ability to attract private sector and foreign investment.

As Saudi Arabia’s ambitious − Works that are considered − Securing of supply:

plans begin to move from competitive bids are routinely Considerations should be
inception and design phases being undercut, raising given to potentially placing
to construction, the market further concerns about advanced orders/payments
is expected to further financial stability. This means for specific materials up
experience some of the a higher risk of insolvencies. front where there is enough
following challenges: − Global supply disruptions certainty on scope and
put further pressures on specification to be able to
− Ability and willingness of do so with confidence, as
supply certainty and pricing.
contractors to fix prices and ongoing price escalations
Sea freight capacity and
fluctuation clauses. This will continue to be an issue.
costs are currently lower
need more collaborative
than the peak reached in − Industry draw and focus on
procurement and
September 2021, but costs giga-project growth, leading
sharing of risk.
remain considerably higher to difficulties in staff retention
− Impacts on lead times than industry norms due and therefore project
and therefore schedule, to inflationary pressures continuity as schemes
as the industry adapts to and ongoing pandemic become under-resourced and
find alternative markets for restrictions in China. leading to potential negligent
materials e.g. aluminium, contracts.
steel, rebar, timber.

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KSA construction material price inflation

Highlighting the impacts of material price inflation during 2022, data from
the General Authority for Statistics Kingdom of Saudi Arabia allows us to
demonstrate the extent to which the global economic volatility has had on
local and regional markets.

KSA Construction Material Price Index

169.3
170 162.0
160
150.4
Index Jan 2020=100

150 143.8 149.7

134.8
140 135.2 132.5
133.6
130 128.2
120 117.7
116.7
110 111.9
106.2
100

Jul-22
Jul-20

Jul-21
Jun-20

Jun-21

Jun-22

Oct-22
Oct-20

Oct-21
Jan-20

Jan-21

Jan-22

Aug-22
Aug-20

Aug-21
Dec-20

Dec-21

Sep-22
Sep-20

Sep-21

Nov-22
Nov-20

Nov-21
Apr-20

Apr-21

Apr-22
Feb-20

Feb-21

Feb-22
May-20

May-21

May-22
Mar-20

Mar-21

Mar-22
Average Concrete Rebar Wires Aluminum Wood Tiles Sand Gypsum Cement

Source: General Authority for Statistics Kingdom of Saudi Arabia

Indexing construction material As we reach February 2022, the Evaluating material prices
prices from January 2020, it Russia-Ukraine conflict began against overall construction
can be seen that the average and China begun to implement costs in 2020-2022, the current
increase in material prices further strict lockdowns that material price escalation has
between January 2020 and resulted in further supply and the potential to impact CAPEX
November 2022 is estimated demand disruptions. This is costs in the region of +8 per
to be around 28 per cent. The seen with how metal prices cent and -12 per cent over the
initial rise seen in July 2020 escalated to nearly 70 per last two years. Many existing
can be attributed to the impact cent in April 2022. As we move construction contracts do not
of supply chain disruptions towards the end of 2022, it is address material escalation
caused by the initial phase of evident that material prices or purposely exclude change
coronavirus and adjustments have begun to soften. For orders for material escalation,
made to prices as Saudi Arabia example rebar prices have resulting in the risk being
implemented its VAT increase eased from peaks of 70 per firmly left with contractors,
from 5 to 15 per cent. As we cent in April 2022 to 33 percent subcontractors and suppliers
continue looking into 2021, October 2022. With less volatile to mitigate.
notable spikes and drops were materials, like concrete, these
Note: The average index is unweighted,
experienced as global cases remained relatively subdued
therefore wood plays a considerable
of coronavirus surged and since adjustments experienced role in the calculation of the average (an
lockdowns continued to further in June 2020, but still at a increase from 100 to 150 (+50 per cent)).
The amount typically used in Middle
disrupt supply chains and notable 15 per cent increase.
Eastern construction is limited. This factor
exacerbated price volatility. would reduce the overall average increase.

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Middle East Property & Construction Handbook 2023

Tender Price
Index (TPI)
The TPI is AECOM’s assessment of
construction tender prices in the
market. It is compiled by AECOM’s
Middle East Business Intelligence
team and is based on actual
returns of projects.
The Index is a measure of average price increases across
differing markets, project types and locations. It should
be regarded as a guide only when looking at any specific
project, as the pricing of individual projects will vary
depending on factors such as their scope, complexity,
location, timescale and end user requirements.

Received tender returns have been noted as considerably

irregular between parties, with increases being
considerably higher than expected as contractors
extrapolate high inflation across multi-year contracts and
price in excessive risk. In stark contrast, there have been
cases where the decreases are lower than benchmarked
norms in a bid to oust competition and utilise dormant
resources/stock. It has also been evident that
construction organizations are operating at lower margins
across the region. These are seen to be hedging markets
and will subside once economic volatility eases.

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