We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Tue 22 Feb 2011 12:00 AM

Font Size

- Aa +

Saudi’s time has come

It’s been two years since the last PMV show in Saudi Arabia, and how the construction industry has changed in the intervening years.

Saudi’s time has come

Major projects have been started, are underway and, in the
case of the record-breaking, Princess Nora University, nearing completion that
were barely off the drawing board when the PMV Saudi shoe last opened its doors
in Jeddah in 2009.

The Kingdom has taken the title off the UAE as the
undisputed home of
construction in the GCC with the
value of infrastructure and construction
contracts in the current 2009-2012 period expected to exceed $138 billion. And
there is more to come.

Whether it’s the King Abdullah Financial District in Riyadh, or the massive development of Jubail Industrial
City, an entire city out
of the desert, if your company doesn’t have a Saudi project strategy then it
may not be worth talking about. Because for the next few years at least: the
Kingdon of Saudi Arabia is where it’s at.

The Saudi
Arabia constuction story began as a
derivative of the wealth that was created by the oil and gas sector, however,
while demand for construction
equipment remains steady in that sector, it is other new factors that are
affecting demand for machinery and equipment.

The blue-ribbon projects have co-incided with massive
investment into infrastructure and this is set to continue. There are roads and
railways to build and the Saudi
Arabian government is investing $400
billion on infrastructure over the next five years as the entire country’s infrastructure
is upgraded.

Its booming economy is also demanding that investment is
made into the Kingdom’s energy supply. The oil may be fuelling the economy but Saudi Arabia’s
national grid is ill-equipped to handle the country’s forecasted electricity demands.
Nuclear energy plant construction has been identified as a crucial component
for the kingdom as it tries to offset its growing population, rising energy
demands while lessoning its reliance on its reserves of black gold.

Housing is also of paramount importance to the country’s
development. Over 70% of the population are below the age of 30 and six mega
economic cities are under development to provide long term jobs and housing. In
fact it is predicted that there will be 50% increase in demand for residential
housing in the next three years alone.

Thankfully, the dearth of housing is finally being
addressed, encouraging housing construction in the Kingdom which could be
boosted even further should reforms to home ownership be carried through. It is
a mouth-watering prospect that a boom in home ownership could really turn the
heat up on an economy that is already simmering well with oil prices once again

Growth to 2015

“I think we’re looking at least until 2015,” Waeil
Mandalouti, general manager of machinery and equipment supplier House of
Equipment tells PMV. “There is some business in Oman
and Bahrain, but for the
next few years everything for us will be going into Saudi Arabia.”

Understandably with the fallout of the downturn elsewhere, a
lot of companies have had to re-dress their approach to the market. Some like
Nabil al Zahlawi’s NFT, for example, have found themselves returning to a
market that during the boom time in the UAE they had moved away from despite
having originated their operations in the country.

Nabil al Zahlawi told PMV last year that Saudi had become a
very important country for the Manitowoc
dealer and heavy equipment trader.

“For us the Saudi market has become incredibly important.
For instance we supplied 1,000 pieces of equipment to Saudi Bin Laden that are
being used on the King Abdullah Financial District and we’ll see other

Meanwhile others consider themselves fortunate to have
entered the market early and are beginning to reap rewards of building up long-term
partnerships with the bigger contract players in the Kingdom.

House of Equipment’s owner
Arabtec is one company that has made no secret of its ambitions to embark on an
aggressive expansion plan across the Middle East, with Saudi Arabia its key focus (along with Syria and Egypt).

“At Arabtec we will continue to focus on Abu Dhabi, as there are still a lot of
projects there,” says CEO Thomas Barry. “Some may be a bit slow to come to
fruition, and margins will be tight because of competition from other local
contractors looking for work there. But our major focus will be Saudi Arabia.
They’ll be spending around $400 billion over the next few years to improve
residential areas, hospitals, schools, rail.”

In October last year, the company secured a $1.33 billion
contract from Saudi Bin Laden to build 5,000 villas, which includes a
residential project in the Eastern
Province. The potential
for its distributor of machinery, House of Equipment, is obvious.

“Overall, in terms of the sale of equipment, I would say
that Saudi is still a ‘neutral to buy’ market,” Mandalouti says: “With Arabtec
as our holding company, we’ve been able to work with some big names. For
instance, Saudi Bin Laden.”

Build it quick

It may cause nightmares for facilities managers everywhere,
but the build it quick ethos that reigned supreme over the boom years in Dubai seems to have
caught on with some planners in the Kingdom.

If anything, projects like the KAFD and the Pincess Nora Bint University are raising the bar when it
comes to the expected speed of build. With contractors passing on demanding
schedules to suppliers, Saudi is testing the very limits of the machine and
equipment distributor’s ability to keep the production line rolling.

“Everyone is focusing on Saudi and the projects are massive
not just in size. Take the challenge of the Princess Nora Univiersity,”
explains Al Zahlawi. “They went through the A-Z of everything that you need for
the campus in just two years that you normally expect to take 10-15 years.”

He adds ruefully: “This is a good challenge – fortunately,
we like this kind of project.”

Although it has got easier to set-up in the Kingdom, it
remains a difficult place to gain traction for machine makers, especially those
that lack the brand cachet of companies like Volvo or Caterpillar, for example.

The Chinese manufacturers that have made such a big impact
in the emerging markets, are
stilll behind the major OEMs in the Kingdom. As one observer puts it: “There is
a still a degree of snobbery that works again some of the Chinese companies.
But that is changing. Slowly.”

Interestingly, talking to Chinese manufacturers it is clear
that two of the biggest barriers to entry are the difficulties of finding an
in-country partner and the not entirely unrelated issue of a historical lack of
a physical

A representative of a major Chinese manufacturer told PMV
recently that the competitive nature of the domestic market in China was
damaging efforts to develop as suppliers to the global market. Indeed Chinese
manufacturers are yet to prove they have the sales and marketing clout to
properly assail a market as notoriously closeted as Saudi Arabia: “We would like to do
more there, we need to be there, but it is not easy for us.”

It may be that 2011 proves to be another missed opportunity,
but there is enough demand in the market to suggest that the rapidly evolving
leaders such as Sany, Liugong and Shantui may yet make their mark.

Arabian Business: why we're going behind a paywall

For all the latest construction news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Real news, real analysis and real insight have real value – especially at a time like this. Unlimited access ArabianBusiness.com can be unlocked for as little as $4.75 per month. Click here for more details.
Hal-Luke Savas 9 years ago

I think this excitement is about 30 years old; nothing new. It is also probable that it will go on for at least another 10 years. Subsequently, if you are not in Saudi Arabia already it may not be too late but you should not waste anymore time.

My recommendation is to hand pick motivated Saudis and build a core management team that has room for Saudisation. The most difficult aspect of any Saudi operation is the HRM and HRD element. The second most important element is the status of your operations vis-a-vis sponsorship aspects. It is by far the best option to enter the country as a foreign investor and build up operations with a motivated Saudi workforce.

Telcoguy 9 years ago

That sounds very sensible, I would assume then that if you are an expat working in KSA you may be working there pro-bono, right?
or that advise applies only to other people? I am just curious.