Purchase OBG Publications

Despite the recent fall in oil prices, Saudi Arabia’s government is pushing ahead with its ambitious development agenda. The outlook is thus bright for the Kingdom’s construction firms, with projects planned under government’s 10th Development Plan including investments worth $258.2bn in real estate; $151.5bn in petrochemicals; and $126.7bn in electricity, gas and water. Indeed, in the short term, costs for contractors and the wider construction industry are improving as a result of the fall in oil prices. Meanwhile, foreign firms are becoming increasingly active in the market thanks to recent measures to help smooth the process of market entry for foreign contractors, an illustration of the government’s commitment to engaging foreign firms in the construction industry.

A young population and rising disposable incomes signal an optimistic future for the Saudi Arabian real estate sector. With the population growing at a rate of 2.6% per year, the need for housing is expanding rapidly, especially given that 67% of Saudis are under the age of 30. The retail segment also offers significant opportunities for developers, with vacancy rates at shopping centres in the capital standing at 8% in the second quarter of 2015 and rents growing by 7% to $773 per sq metre. The hospitality segment is meanwhile experiencing strong growth in line with the government’s aim to boost tourism. In Makkah, for example, 500 hotels are in the pipeline, adding significant capacity to the city’s current inventory of 125,000 rooms in 650 hotels.

With Saudi Arabia’s 10th Development Plan the Kingdom has committed itself to responsible stewardship of the environment. The plan emphasises the importance of creating incentives and regulations that will underpin environmentally sustainable growth moving forward. Initiatives currently under way include moves towards more fuel-efficient cogeneration plants, carbon capture and storage, and investment in various renewable energy sources. In urban areas, major population growth has prompted several sustainable rehabilitation projects, with the most high-profile scheme set to transform one of Riyadh’s main water courses from a sewer into a clean, green ribbon of riverside parkland. Meanwhile in Damman, on Saudi Arabia’s east coast, urban wastewater is being treated and used for irrigation purposes, in the hope that the initiative’s success will encourage similar undertakings across Saudi Arabia by both state authorities and the private sector.

Saudi Arabia’s transport services have witnessed significant developments in recent times, and this is set to continue with an anticipated $190bn to be invested in the sector through to 2025. The majority of this – around $141bn – will go towards rail and public transport networks. Successive phases of railway development will extend the network across the entire country, with the aim of bringing the Kingdom’s total track length to 9900 km by 2040. In addition to the ongoing expansion of King Khalid International Airport in Riyadh and King Abdulaziz International Airport in Jeddah, a new airport has been completed in Medina and facilities are planned for Taif and Abha. Ongoing port developments – including King Abdullah Port, the first port in the Kingdom to be privately owned and financed – are seeking to capitalise on the Kingdom’s strategic location on the trade routes to many emerging markets. This chapter contains interviews with Abdullah Al Mogbel, Minister of Transport; and Sulaiman bin Abdullah Al Hamdan, President, General Authority of Civil Aviation (GACA).

Despite the global fall in oil prices, Saudi Arabia’s retail sector continues to enjoy robust growth, fanned by its solid base of domestic consumers and strengthened by a growing youth population and rising disposable incomes. The strong performance of retailers across a number of sectors is leading to increased demand for dedicated mall space, which is expected to command a premium in the short term. Indeed, the existing rental environment presents a challenge for many retailers in the Kingdom, with rent in some cases reaching up to 25% of tenants’ sales revenue, although in the fast food segment it is a more manageable 15%. However, the overall mood in the industry is one of optimism, buoyed by the presence of strong fundamental conditions for growth. This chapter contains an interview with Khalid Al Sehaibany, General Manager, Hamat Property Group.

Competition in Saudi Arabia’s telecoms sector continues to grow, with companies continually seeking to invest in the infrastructure that will connect customers to a broader range of communications services. As the number of mobile internet users continues to rise, the Kingdom’s operators are seeing demand for traditional voice and text services become gradually displaced by data services and mobile broadband. Meanwhile, and in line with the country’s economic diversification targets, IT firms are increasingly viewed by the government as essential to sustainable development, with the Kingdom’s latest five-year plan committed to enhancing the country’s IT infrastructure. Spending on cloud services is rising rapidly and is expected to reach $31.3m in 2015. This chapter contains interviews with Khaled Biyari, Group CEO, Saudi Telecom Company (STC).