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Sun 3 Oct 2010 02:51 PM

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Foreign contractors struggle to crack Saudi market

Latest report by Merrill Lynch finds non-Saudi firms make up only 22% of Saudi sector.

Foreign contractors struggle to crack Saudi market
SAUDI BUILDING: The kingdom has a total of $322.9bn of planned projects. (Getty Images)

Foreign contractors seeking to expand into Saudi Arabia are continuing to experience difficulty breaking into the local market, the latest research from Merrill Lynch has found.

“Dubai-centric civil contractors pursuing a greenfield expansion strategy into Saudi Arabia will lag peers that adopt a more aggressive M&A or JV strategy,” the bank reports in its latest MENA Construction industry overview.

The lender, a subsidiary of Bank of America Corporation, also said it expected lower margins due to intense competition among non-Saudi civil contractors.

“Our analysis reveals that non-Saudi contractors represented only 22 percent of the Saudi civil construction sector in 2009 and have resorted to sub-contractor status (and sub-contractor margins) for the Saudi giants: Saudi Binladen Group, Saudi Oger and El Seif E&C,” the report states.

“Years of underinvestment in infrastructure and the growing housing needs of a young population have contributed to the attractiveness of the Saudi market.

“Nontheless, regional contractors who sought to reduce their exposure to Dubai by diversifying into Saudi Arabia have not been that successful, in our view,” the report states.

The Saudi construction and infrastructure market is taking over from the UAE as the largest in the Middle East and North Africa region (MENA), with a total of $322.9bn of planned projects, compared to $252bn in the UAE, according to the report.

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