U.S.-Saudi Business Council: Value of Awarded Contracts Reach SR46 Billion in Q1 2022

The momentum of awarded contracts continued unabated during Q1’22 as the value reached SAR46 billion ($12.3 billion), according to a report by the U.S.-Saudi Business Council. The Kingdom’s macroeconomic environment continues to improve on the back of a robust oil market, ongoing implementation of its diversification strategies, and an expected acceleration of capital projects to bolster the domestic economy.

USSBC’s Contract Awards Index Performance Through Q1 2022

The USSBC Contract Awards Index (CAI) expanded to 212.31 points at the end of the first quarter. This marks two quarters and four months at above 200-points, respectively. The CAI has elevated above the 100-point threshold for 12 consecutive months, indicating an expected increase in construction activity over the coming year. The CAI last witnessed four consecutive 200 or higher points in 2019, as it maintained that level from June until December. The CAI grew by 120 points or 130 percent YoY, and increased by 3.26 points or 2 percent QoQ.

Overview of Awarded Contracts by Sector During Q1 2022

Oil & Gas

The oil & gas sector continued to dominate during Q1’22 as the total value of awarded contracts reached SAR15.1 billion ($4 billion) or 33 percent of the total. This follows a strong performance in 2021 whereby the oil & gas sector accumulated SAR43.5 billion ($11.6 billion) worth of contract awards. On a YoY basis, the oil & gas sector climbed by SAR11.2 billion ($3 billion) or 290 percent, signaling that the sector is off to an even faster start than in 2021 as Saudi Aramco continues to push forward with its capital expenditure plans

Real Estate

The real estate sector has consistently garnered one of the highest value of awarded contracts after rebounding in 2021. Within the real estate sector, the mixed-use market accounted for SAR4 billion ($1.1 billion) or 42 percent of all real estate contract awards. Meanwhile, the commercial real estate market accounted for SAR3.2 billion ($863 million) or 34 percent of the real estate sector’s awards. The residential market garnered SAR1.4 billion ($378 million) or 14 percent, while the hospitality market accounted for SAR990 million ($264 million) or 10 percent. The real estate sector increased by SAR5.4 billion or 126 percent YoY and by SAR2.1 billion ($558 million) or 28 percent QoQ.

Power

The power sector has witnessed a rise in contract awards that began in 2021 and has continued through the first quarter of 2022. The SAR6.9 billion ($1.8 billion) was dominated by SEC but also witnessed two sizeable contracts by the Saudi Power Procurement Company. The power sector grew by SAR1.7 billion ($450 million) or 33 percent YoY but decreased by SAR5.4 billion ($1.4 billion) or 43 percent QoQ.

Overview of Awarded Contracts by Region During Q1 2022

The Eastern Province accounted for the highest share of awarded contracts during Q1’22 with SAR20.2 billion ($5.4 billion) or 44 percent of the total. The oil and gas sector accounted for SAR14.7 billion ($3.9 billion) or 73 percent of awarded contracts in the Eastern Province, while the industrial sector accounted for SAR3.1 billion ($836 million) or 16 percent. Saudi Aramco awarded all the oil & gas projects, while the Industrial sector had one contract awarded. The real estate, water, transportation, petrochemical, power, and military sectors also contributed to the Eastern Province’s contracts awards.

The Riyadh region captured second place with SAR13.4 billion ($3.6 billion) in awarded contracts or 29 percent of the total. The real estate sector accounted for the highest share of awarded contracts as it witnessed SAR7.5 billion ($2 billion) or 56 percent of the total. DGDA and Qiddiya accounted for a majority of the real estate contracts. The transportation sector was awarded the second highest value of contracts with SAR3.7 billion ($1 billion). The Royal Commission for Riyadh City and DGDA attracted the highest value of awarded contracts in Riyadh for road work.

The Makkah region accounted for SAR6.5 billion ($1.7 billion) or 14 percent of the total. The water sector registered the highest value of awarded contracts with SAR2.8 billion ($739 million) or 42 percent. The transportation sector accounted for SAR1.7 billion ($453 million) or 26 percent of the total. The power sector captured the third largest share in the Makkah region with SAR1.2 billion ($318 million) or 18 percent of the total.

Contract Awards Outlook

As the construction sector continues its post COVID-19 rebound, the Kingdom’s economy is being supported by a number of key economic factors that will enable it to expand on ongoing diversification strategies.

“Despite breaking the streak of five consecutive quarters of growth especially after a significantly strong fourth quarter in 2021 of SAR70.2 billion ($18.7 billion), the value during the first quarter of 2022 still surged to SAR46 billion ($12.3 billion) marking a 140 percent increase YoY” said Albara’a Alwazir, Director of Economic Research at the U.S.-Saudi Business Council.

“The growth of the Kingdom’s economy, which witnessed sizeable increases to GDP due to global oil market dynamics and steady strengthening of its non-oil GDP will keep the construction sector active” he concluded.

The Q1’22 budget report revealed that SAR14.8 billion ($4 billion) worth of capital expenditures (capex) was spent, which accounted for only 15 percent of the annual budgeted amount. A pickup in capex is anticipated for the remainder of 2022 as numerous state social and physical infrastructure projects that were earmarked in the budget will commence.