The value of awarded contracts reached SR47.8 billion ($12.7 billion) during Q3'19 as the level of construction activities continue at an accelerated rate thus far in 2019. While the value of awarded contracts retracted during Q3'19 compared to the previous quarter by SR17.4 billion ($4.6 billion) or 27 percent, the rate at which contracts have been awarded still resemble that of the construction boom prior to the downturn of the economy. Further bolstering this notion is the y-o-y growth of contract awards during Q3'19 which jumped by 164 percent compared to Q3'18. Moreover, the first three quarters of 2019 witnessed a dramatic increase of SR87.2 billion ($23.3 billion) or 117 percent compared to the same period in 2018. As noted in our previous Q2'19 report, the value of awarded contracts thus far in 2019 has surpassed all that of 2018, further increasing during Q3'19 by a total of SR60.9 billion ($16.2 billion) or 60 percent. The SR47.8 billion ($12.7 billion) in awarded contracts during Q3'19 continued the trend seen thus far in 2019 as the oil & gas sector led all other sectors followed by the real estate sector. This quarter witnessed the industrial sector amass the third highest value of awarded contracts after a relatively slow place during the two previous quarters. These three sectors accounted for 80 percent of all contract awards during the quarter. Other notable contributing sectors include urban development, water, and transportation. As can be seen in the below chart, the value of awarded contracts is on pace to pass the SR200 billion ($53.3 billion) mark for the first time since 2015. The USSABC Contract Awards Index (CAI) reached 236 points at the end of the third quarter. The CAI remained above the 200 point mark for the fourth consecutive month as the ramp up in awarded contracts during Q1'19 and continued momentum during Q2 and Q3 elevated the CAI into a very healthy environment. The CAI marginally dipped compared to the previous quarter's 240.44 points. However, the CAI grew by an impressive 111 percent y-o-y compared to Q3'18. The CAI gradually decreased during Q3'19 as it reached 245.67 points in July, 242.21 points in August, and 236 points in September. The inconsequential drop in the CAI during Q3'19 is attributed to the surge in the value of awarded contracts during June, which reached SR48.7 billion ($13 billion) alone and caused the CAI to soar. This lead to the CAI normalizing throughout the third quarter. The CAI's run of four consecutive months above 200 points bodes well for the remainder of 2019 as the streak is likely to continue into 2020 given the current pace of awarded contracts. The CAI's rebound in 2019 is a welcome occurrence for existing contractors and potential international contractors looking to enter the market as the implementation of these contracts will commence over the next 6 to 18 months. The value of awarded contracts throughout 2019 continues to be dominated by the oil & gas sector. The oil & gas sector accounted for SR16.4 billion ($4.4 billion) or 34 percent of the total value of awarded contracts.On a YTD basis, the oil & gas sector has witnessed SR76.6 billion ($20.4 billion) or 47 percent of all awarded contracts by value. This marks the highest value of awarded contract for the oil & gas sector in a single year since the CAI's inception. The previous high occurred in 2009 at a value of SR60.5 billion ($16.1 billion), although it accounted for only 28 percent of awarded contracts by value that year. There was an expected drop-off in contract awards in oil & gas during Q3'19 after it achieved a record high of SR48.5 billion ($12.9 billion) last quarter. Nonetheless, Saudi Aramco continues to award projects involving the Marjan and Zuluf fields to local and international contractors as it has done throughout 2019. The real estate sector garnered SR12.1 billion ($3.2 billion) or 25 percent of the total value of awarded contracts. Within the real estate sector, the mixed-use subsector generated the highest value of contracts with SR7.6 billion, followed by residential with SR4 billion ($1.1 billion) and commercial with SR490 million ($130 million). Lastly, the industrial sector had SR9.6 billion ($2.6 billion) or 20 percent worth of awarded contracts. The largest contract by value in the industrial sector pertained to the construction of a tire manufacturing facility in the Eastern Province for the National Tire Company. The value of awarded contracts during Q3'19 within the Eastern Province continued to account for the highest share by region. Similar to the previous two quarters, the sheer magnitude of project volume and value awarded by Saudi Aramco continues to dominate all other regions. The Eastern Province witnessed SR30.1 billion ($8 billion) or 64 percent in contract awards. The oil & gas sector accounted for SR15.9 billion ($4.3 billion) or 52 percent of all contracts in the Eastern Province as Saudi Aramco accounted for a majority of the awards. The industrial sector also contributed significantly to the Eastern Province with SR9.4 billion ($2.5 billion) worth of contract awards. The remaining contracts in the Eastern Province were awarded across numerous sectors such as urban development, water, real estate, and transportation. The Eastern Province's YTD contribution to total awarded contracts thus far accumulates to SR98.9 billion ($26.4 billion) or 61 percent. The Riyadh region registered SR8.2 billion ($2.2 billion) or 17 percent of the total awarded contract during Q3'19. Two sizeable contracts were awarded in the Riyadh region for real estate and urban development that amounted to SR6.2 billion ($1.7 billion) and SR1.6 billion ($426 million), respectively. The Tabuk region came in third with a total of SR3.6 billion ($956 million) or 8 percent in contract awards. The real estate sector garnered the largest share in Tabuk with SR2.4 billion ($640 million). The largest contract pertained to the construction of mixed-use developments on behalf of The Red Sea Development Company in the amount of SR1.2 billion ($320 million). The oil & gas sector led all other sectors during Q3'19 and is likely to complete the year with the highest awarded contracts by value by a wide margin. The YTD value of awarded contracts, which reached SR76.6 billion ($20.4 billion) is a staggering 485 percent compared to the same period last year and 439 percent more than all of 2018. This impressive ascent of awarded contracts in the oil & gas sector occurred during a time of consistently elevated levels of spending by Saudi Aramco to boost the Kingdom's extraction, transmission, and supply of oil, gas and condensates. These numerous mega projects also involve the construction of necesSRy infrastructure and transportation capabilities in order to accommodate such developments The real estate sector registered the second highest value of awarded contracts for the second straight quarter as it reached SR12.1 billion ($3.2 billion). This brings the YTD value of awarded contracts in real estate to SR20.4 billion ($5.4 billion). This represents a 6 percent increase over the same period last year. The YTD value of awarded contracts for residential reached SR10.9 billion ($2.9 billion), SR7.9 billion ($2.1 billion) for mixed-use, and SR1.6 billion ($427 million) for commercial. Many of the residential real estate contracts pertain to the government's efforts to supply affordable housing throughout the Kingdom whereas the mixed use real estate contracts were primarily awarded by The Red Sea Development Company in addition to a significant project by Shomoul Holding in Riyadh. The industrial sector witnessed three large contracts during Q3'19 that tallied to SR9.2 billion ($2.5 billion) of the total SR9.6 billion ($2.6 billion) in awarded contracts. The YTD value of awarded contracts in the industrial sector came to SR11.9 billion ($3.2 billion). This marks a 113 percent increase compared to the same period last year. The three large contracts during Q3'19 pertain to the continued development of the mining sector and its downstream value chain as part of the Kingdom's broader goal to diversify the mining and manufacturing sector. Although the civil sector was not among the top three sectors with highest value of awarded contracts, there was a sizeable contract in July for the development of botanical gardens in Riyadh. The Riyadh Municipality awarded a SR1.6 billion ($426 billion) contract to Zaid Alhussain Group for phase 3 of the King Abdullah Botanical Gardens project. The project is considered to be the world's largest botanical gardens spanning 20 acres. It is expected that 30,000 visitors a day and up to 45,000 to 50,000 visitors at capacity will visit the gardens. The project will include a paleobotany garden, watchtowers, courtyards, restaurants, 5,000 parking spaces, and associated facilities. The project is expected to be completed by Although the civil sector was not among the top three sectors with highest value of awarded contracts, there was a sizeable contract in July for the development of botanical gardens in Riyadh. The Riyadh Municipality awarded a SR1.6 billion ($426 billion) contract to Zaid Alhussain Group for phase 3 of the King Abdullah Botanical Gardens project. The project is considered to be the world's largest botanical gardens spanning 20 acres. It is expected that 30,000 visitors a day and up to 45,000 to 50,000 visitors at capacity will visit the gardens. The project will include a paleobotany garden, watchtowers, courtyards, restaurants, 5,000 parking spaces, and associated facilities. The project is expected to be completed by the fourth quarter of 2021. While there was a moderation in awarded contracts during Q3'19 following a significant spike from the previous quarter, the resurgence in 2019 has been elevated to levels not seen since As previously mentioned, the value of awarded contracts is expected to surpass SR200 billion ($53 billion), while the CAI will remain elevated well above the 200 point mark into 2020. According to the Ministry of Finance's Q3 budgetary performance report, a total of SR121 billion ($32.4 billion) of the budgeted SR246 ($65.6 billion) in capital expenditures has been spent thus far. This indicates that approximately SR118 billion ($31.5 billion) in capital expenditures remain in the fourth quarter. However, the recently released 2020 preliminary fiscal budget forecasts total expenditures will fall to SR1,048 billion ($279.5 billion) for 2019 from the originally forecasted SR1,106 ($295 billion). Given that capital expenditures comprise 22 percent of total expenditures (as per 2019 original budget), it can be assumed that the new figure for capital expenditures decreased to SR230 billion. Consequently, approximately SR109 billion ($29 billion) in capital expenditures will be required to reach the estimated figure. While it is unlikely this level of investment is achieved in the fourth quarter alone, we expect continued heavy investments on par with rest of the year. Another noteworthy development from the 2020 preliminary fiscal budget report highlights that the mega-projects budget is expected to double in 2020 compared to 2019 allocations. This positive announcement places the construction sector at the top of the list of being a leader in driving non-oil growth over the medium-term. The construction sector's contribution to GDP is another sign of the sector's revival. In real terms, the construction sector grew by 1.28 percent q-o-q in the second quarter and by an impressive 4.4 percent y-o-y. As the awarded contracts enter the implementation phase coupled with the Ministry of Finance's expectation that mega projects will double in 2020, the construction sector will return to being a significant contributor to the Kingdom's economy. A few mega-projects that are expected to be awarded during Q4'19 that will elevate the value of awards include SADAF's Chlor-Alkali plant in the Jubail Chemical Industry Park in Jubail, SWCC's project to undertake the construction of a large water transmission system in Jubail, and Qiddiya Investment Company's plan to construct a sports complex in the entertainment city in Riyadh. — SG
