U.S.-Saudi Business Council: Value of Awarded Contracts Reach SR94.5 billion in H1 2022

The total value of awarded contracts accelerated during Q2’22 to reach SAR48.6 billion ($12.9 billion) as the implementation of large scale mega-projects propels the Kingdom’s construction sector and the wider economy, according to a report by the U.S.-Saudi Business Council. The value of awarded contracts grew by an impressive 88 percent YoY and by 6 percent QoQ.

Through the first two quarters, the value of awarded contracts surged to SAR94.5 billion ($25.2 billion), marking a significant 110 percent jump compared to H1’21. The Kingdom is in the midst of an economic expansion as its GDP grew by 12.2 percent YoY during Q2’22, which was the highest growth rate since the third quarter of 2011. Oil sector GDP contributed with a 22.9 percent increase while non-oil sector GDP witnessed an 8.2 percent jump. Construction sector GDP contributed an 8.8 percent increase YoY. Furthermore, gross fixed capital formation (GFCF) grew by 28.8 percent YoY, with the private sector witnessing a 24 percent hike.

USSBC’s Contract Awards Index Performance Through Q2 2022

The USSBC Contract Awards Index (CAI) continued to trend higher as it reached 230 points by the end of the second quarter. The CAI has remained above 200 points over the last three quarters and last dipped below this level during the third quarter of 2021. According to the CAI, the construction sector has been in an expansion phase since Q2’21 when it surpassed the 100-point threshold after a challenging period stemming from the pandemic. The CAI grew by 128.2 points or 126 percent YoY and by 17.67 points or 8 percent QoQ. On a monthly basis during Q2’22 the CAI reached 200 points in April, 183.86 points in May, and 230 points in June.
Overview of Awarded Contracts by Sector During Q2 2022

Transportation

The transportation sector’s 14 contracts during Q2’22 elevated its share of awarded contracts to an impressive SAR22.3 billion ($6 billion), marking the highest quarterly tally in 9 years when SAR94.1 billion ($25.1 billion) worth of awards were given in Q3’13. The awarding of large infrastructure packages at Neom City’s ‘The Line’ during the quarter accounted for the surge in value. The transportation sector grew by SAR19.1 billion ($5.1 billion) or 597 percent YoY during Q2’22 and by SAR15.5 billion ($4.1 billion) or 229 percent QoQ. Through H1’22 the transportation sector has garnered the highest value of awarded contracts with SAR29.1 billion ($7.8 billion), which is SAR23.7 billion ($6.3 billion) or 437 percent higher than H1’21. It also accounts for 31 percent of the total value of contracts through H1’22.

Oil & Gas

Oil & gas maintained its position as a top performing sector after it witnessed 11 contract awards worth SAR9.7 billion ($2.6 billion). The awarding of contracts by Saudi Aramco as part of its oil field developments in the Eastern Province and the Neom Green Hydrogen Company’s construction of facilities at Neom accounted for all the contracts during Q2’22. The oil & gas sector grew by SAR6.6 billion ($1.8 billion) or 218 percent YoY but declined by SAR5.4 billion ($1.4 billion) or 36 percent QoQ. Through H1’22, the oil & gas sector has attracted the second highest value of awarded contracts with SAR24.7 billion ($6.6 billion), which is SAR17.8 billion ($4.8 billion) higher than H1’21. It also accounts for a 26 percent share of awarded contracts through H1’22.

Water

The water sector witnessed a climb in awarded contracts during Q2’22 as it reached SAR6.1 billion ($1.6 billion) from 15 contracts. The majority of contracts were awarded by the NWC, SWCC, SWPC, and MEWA pertaining to the construction of water distribution networks, desalination plants, and water storage facilities across the Kingdom. The water sector grew by SAR2.8 billion ($757 million) or 86 percent YoY and by SAR2.9 billion ($781 million) or 89 percent QoQ. Through H1’22 the water sector attracted SAR9.3 billion ($2.5 billion) worth of awarded contracts, an increase of SAR3.9 billion ($1 billion) or 72 percent higher than H1’21.

Overview of Awarded Contracts by Region During Q2 2022

The Tabuk region captured the largest share of awarded contracts by region with SAR21.2 billion ($5.7 billion) or 44 percent of the total. Neom’s awarding of three large scale infrastructure packages including the initial development of ‘The Line,’ accounted for SAR17.6 billion ($4.7 billion) or 83 percent of Tabuk’s total. The other contributing sector was oil & gas with SAR3.6 billion ($960 million) or 17 percent. The oil & gas sector witnessed two contract awards in Tabuk as part of the Neom Green Hydrogen Company’s first two contracts.

The Riyadh region registered the second highest tally as it attracted SAR9.1 billion ($2.4 billion) or a 19 percent contribution. The Riyadh region witnessed a diversified mix of awarded contracts from the civil, transportation, real estate, and healthcare sectors. The biggest contributor to the Riyadh region was the civil sector, which accounted for SAR5.1 billion ($1.4 billion) or 56 percent of the total. The King Salman Park project generated the largest contract award for the civil sector and the Riyadh region. The transportation sector contributed with SAR3.8 billion ($1 billion) or 41 percent of the total.

The Eastern Province contributed SAR8.4 billion ($2.2 billion) or 17 percent of the total. The oil & gas sector accounted for the highest share with SAR6.1 billion ($1.6 billion) or 72 percent. The water sector accounted for a majority of the remaining contracts in the Eastern Province with SAR2 billion ($530 million or 24 percent. Other contributing sectors included real estate, power, transportation, and industrial.

Contract Awards Outlook

The value of contract awards thus far through H1’22 has already reached 67 percent of 2021’s total on the back of robust investments across numerous Vision 2030 initiatives. Neom’s infrastructure projects in the transportation sector, King Salman Foundation’s development of King Salman Park, and Lucid Group’s construction of an electric vehicle manufacturing plant were one of the most significant projects awarded during Q2’22. Furthermore, the oil & gas sector led by Saudi Aramco, and the water sector witnessed sizeable contracts that aided in the surge of awards.

The Kingdom’s oil revenues thus far through H1’22 increased by 75 percent YoY to reach SAR434 billion ($116 billion). The windfall in oil revenues has prompted a change in the government’s tendency to adopt procyclical spending to a more prudent strategy that promotes fiscal responsibility. “The gradual shift in the rise of the private sector’s participation to develop the Kingdom’s non-oil economy is bearing fruit” said Albara’a Alwazir, Director of Economic Research at the U.S.-Saudi Business Council. “Investments in physical and social infrastructure projects with the support of the private sector has aided in the construction sector’s contribution to GDP and has provided new employment opportunities for Saudis. The culmination of supportive macroeconomic conditions since the outbreak of COVID-19 will see the Kingdom’s GDP rise to an estimated 7.5 percent in 2022, the highest in 10 years.”