New Market Study Published: Saudi Arabia Infrastructure Report Q4 2013

Whilst capacity constraints will weigh on growth over the near term, we believe the sheer size of the project pipeline in Saudi Arabia will ensure high growth rates over the medium term. We have priced in the anticipated delays in projects as a result of shortages in labour and materials, and therefore see growth at 7.1% in 2013. However, with project awards continuing at rapid pace, and a sizable backlog awarded since 2011, we anticipate activity to return to trend from 2015.

We have downgraded our near-term outlook for growth as labour shortages, as a result of the government's crack-down on visas and drive for Saudisation disproportionately impacts the construction sector. At the same time, a severe cement shortage has led the government to initiate measures including emergency funds to import 10mn tonnes of cement and construction of new facilities which should ease the shortfall over the year. Whilst these issues are expected to weigh on growth in 2013 and potentially into H1 2014, we believe that they should be resolved over the near term, especially given the impact of the labour shortages on the construction industry, a sector of strategic importance to the government. Once resolved, the clearing of the backlog, combined with more recently awarded contracts, such as the US$22.5bn Riyadh Metro project, should see growth return strongly from 2015, with 10% estimated.

Full Report Details at
- http://www.fastmr.com/prod/684693_saudi_arabia_infrastructure_report_q4_2013.aspx?afid=303

Recent developments:

* Rail projects: In August the contracts for construction of Lines 1-6 of the Riyadh Metro project were awarded to three consortia formed of international and local companies. In total, project is expected to cost US$22.5bn and be fully complete in 2019. Construction is hoped to start in 2014, although we anticipate some delays. In July, it was announced that the first phase of the US$16.8bn Mecca Public Transport Program was to enter construction in 2014, and be completed in 2017. Studies are currently underway on the project. The long delayed Land Bridge project is also moving forward, with a contract for design work on the US$7bn railway awarded in August. The design phase is expected to last two years.
* Electricity Revamp: Another dynamic sub-sector in Saudi Arabia continues to be power plants and transmission and distribution (T&D). The US$80bn (excluding nuclear), 10-year investment plan for electricity infrastructure (2008-2018) has led to significant activity in the energy sector. Contract awards continued in 2013, with Hyundai Heavy awarded a US$3.3bn contract for the 2,640MW Shuqaiq Steam Power Plant, which will be oil fired. In August, Siemens has signed a US$966mn contract with Saudi Aramco to supply components for the 4,000MW Jazan combined cycle power plant - which will be the world's largest regasification-based power plant.

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