Saudi Arabia’s construction market is expected to grow by just over 40% by 2020 despite the current low oil price environment, a new report says.
According to Timetric’s Construction Intelligence Center (CIC), the industry is set to rise from a value of $105.6bn in 2015 to $148.5bn in 2020, measured at constant 2010 US dollar exchange rates.
Growth will be supported by increased government participation and investments in sectors such as health care, 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, the report says.
Average growth of 7.05 percent per year during the period will outpace the 6.35 percent per year seen during the review period (2011-2015).
However, low oil prices present major downside risks to the forecast, the report adds.
“There are, however, risks associated with the Saudi construction industry outlook, notably
low oil prices, a slowdown in economic growth, a large budget deficit and military intervention in Yemen,” comments Danny Richards, lead economist with Timetric CIC.
“Falling oil prices will likely affect the growth prospects of the Saudi construction industry, as the country generates 73 percent of its total revenue from the oil sector,” adds Richards.
The residential construction market is expected to remain relatively sizable over the forecast period, with 29.3 percent of the industry’s total value in 2020, the report says. 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 five years. According to the UN Department of Economic and Social Affairs (UNDESA), the country’s population is forecast to increase by 30.7 percent between 2010 and 2030, which will boost demand for new residential buildings.
The energy and utilities construction market is expected to increase in importance over the next five years. Timetric’s CIC predicts the market to account for 27.5 percent 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.