The construction sector faced immense challenges during 2020 stemming from the COVID-19 pandemic and significant declines in state revenues as a result of lower oil prices. Numerous project owners and operators were faced with necessary government-imposed health and safety precautions, liquidity crunches, global supply chains disruptions, reductions in manpower capabilities, and movement restrictions. This resulted in the lowest value of awarded contracts of SR80 billion ($21.2 billion) in 2020, according to a report by the US-Saudi Business Council (USSBC). Nonetheless, the value of awarded contracts rebounded during Q4'20 to reach SR16 billion ($4.3 billion), marking a 115 percent jump QoQ compared to Q3'20. This rebound was attributed to strong efforts to mitigate the spread of COVID-19, the gradual reopening of socially restricted activities, as well as liquidity and subsidy support by the government to stimulate the economy. The USSBC Contract Awards Index (CAI) fell to 95.4 points during Q4'20, suggesting projects reaching the executable phase are likely to slow in the coming 6-18 months. The decline in awarded contracts coupled with the increases in delays and cancelations of projects in the design and study phases led the CAI to dip below the 100-point threshold. The contraction of the project pipeline in execution is expected to roll over into 2021 as a number of major projects led by Saudi Aramco in the oil & gas sector are yet to be awarded. The effects of these delays will lead to many executable megaprojects being pushed back into the latter half of 2021 and into 2022. This will present challenges to the Kingdom's plans to expand its localization efforts as well as increasing the share of Saudi's working in the construction sector. The outlier in the construction sector in 2020 has been the exponential growth of the housing sector, which was driven by the development of affordable housing to meet pent-up demand. The value of awarded contracts by region was led by Riyadh in Q4'20 with approximately SR5.5 billion ($1.5 billion) or 34 percent of the total. The Riyadh region was supported by the real estate, transportation, and power sectors as they accounted for approximately SR5.3 billion ($1.4 billion) or 97 percent of the combined total value. The largest contracts pertained to Roshn's Riyadh Community Project in the residential real estate sector as well as the construction of roads and bridges for the Qiddiya Investment Company within the transportation sector. This brings the total value of awarded contracts in the Riyadh region to approximately SR24.1 billion ($6.4 billion) or 30 percent during 2020. The Tabuk region garnered the second highest value of awarded contracts with approximately SR3.2 billion ($859 million) or 20 percent of the total during Q4'20. The Red Sea Development Company accounted for approximately SR2.6 billion ($680 million) or 79 percent of all contract awards in Tabuk. The projects revolved around the development of its utilities infrastructure along with real estate construction work. For 2020, Tabuk accounted for approximately SR6.1 billion ($1.6 billion) or 8 percent of the total value of awarded contracts. The Eastern region edged out the Jazan region by 1 percent to reach approximately SR2.2 billion ($589 million) or 14 percent during Q4'20. The oil & gas, real estate, and industrial sectors led the Eastern region with approximately SR1.5 billion ($386 million) or 66 percent of the combined total value of awarded contracts. Despite the decrease in oil & gas contracts, the Eastern region accounted for the highest value of awarded contracts with SR34.6 billion ($9.2 billion) or 44 percent of the total in 2020. The real estate sector's SR5.9 billion ($1.6 billion) during Q4'20 increased the total value of awarded contracts to SR10.4 billion ($2.8 billion) in 2020. This placed the real estate sector at the fourth highest spot compared to all other sectors in 2020. The value of awarded contracts grew by SR4.8 billion ($1.3 billion) during Q4'20 compared to Q3'20 but still lagged compared to the same period last year, which reached SR12.2 billion ($3.2 billion). On an annual basis, the real estate sector in 2020 decreased compared to 2019 as approximately SR34.4 billion ($9.2 billion) worth of contracts were awarded last year. The value of awarded contracts in the power sector during Q4'20 of SR3.6 billion ($958 million) was the highest it achieved in 2020. For the year, the power sector generated SR8.1 billion ($2.1 billion) worth of contract awards, placing it as the sixth highest sector by value. The value of awarded contracts grew by SR2 billion ($544 million) during Q4'20 compared to Q3'20, but still lagged compared to the same period last year which reached SR4.4 billion ($1.2 billion). On an annual basis, the power sector in 2020 marginally lagged behind 2019 as approximately SR8.3 billion ($2.2 billion) in contracts were awarded last year. The water sector's SR3.2 billion ($862 billion) during Q4'20 increased the total value of awarded contracts within the sector to SR11.3 billion ($3 billion) in 2020. This placed the water sector at the third highest spot compared to all other sectors in 2020. The value of awarded contracts grew by SR2.3 billion ($607 million) during Q4'20 compared to Q3'20 but still lagged compared to the same period last year, which reached SR6.3 billion ($1.7 billion). On an annual basis, the water sector in 2020 fell behind 2019 as approximately SR21.9 billion ($5.8 billion) worth of contracts were awarded last year. Faced with the backdrop of a global pandemic and volatile oil prices in 2020, the construction sector witnessed steep declines in the pace of awarded contracts as well as the execution of ongoing projects. Companies grappled with lackluster demand and severe disruptions to global supply chains, which impacted the status of construction projects financially and on a human capital level. The Saudi government was faced with the decision of cutting spending in several areas to address the need for humanitarian support. The government expenditures to combat the pandemic were sizable as additional allocations above the budget totaled approximately SR159 billion ($42 billion) since the onset of COVID-19. These allocations served to stabilize the healthcare sector as well as keeping the private sector buoyant. However, the increases in spending were offset by a reduction of SR111 ($30 billion) in operational and capital expenditures that necessitated project delays and cancellations. The cuts in spending had the most impact on capital expenditures as this category fell from its budgeted SR173 billion ($46 billion) to SR137 billion ($37 billion) in 2020. The coronavirus pandemic impacted capital projects, especially Vision Realization Programs (VRPs). Furthermore, the government opted for a more targeted approach with its capital expenditures as it focused on developmental needs while improving its efficiency and effectiveness. As the global economy crawls back to a new normal, the role of the PIF will be instrumental in developing the local economy. The PIF will lessen the burden on the government, which has shouldered much of the capital expenditures over the years, as it will contribute up to 85 percent of the government's recently announced SR6 trillion ($1.6 trillion) in investment opportunities over the next 10 years. New projects that are part of the Vision 2030 strategy will account for SR3 trillion ($800 billion) or 50 percent of the SR6 trillion ($1.6 trillion). The role of Saudi Aramco, which has been the largest awarder of contracts in the oil & gas sector will be worth monitoring in 2021. According to data from MEED Projects, Saudi Aramco canceled or put on hold approximately SR82 billion ($22 billion) worth of contracts in 2020 alone. This figure is larger than the total value of awarded contracts across all sectors in 2020. The decision by Saudi Arabia during the most recent OPEC+ meeting to continue withholding the production of one million barrels per day through April 2021 to accommodate the global oil market, which allowed oil prices to hover around the $70 per barrel range, will impact Saudi Aramco's expansion plans this year. Despite the impact on Saudi Aramco's projects in 2021, the Kingdom is pushing forward with sizable privatization plans such as a SR60 billion ($16 billion) water expansion project. The newly created Water Transmission and Technologies Company (WTTC) will attract global investors to take part in the Kingdom's expansive water program. The resumption of the Renewable Energy Project Development Office (REPDO) tendering and awarding of round three in 2021 will boost contracts awards in the power sector. Round three will award approximately SR31.5 billion ($8.4 billion) worth of contracts in the second half of 2021 after delays in 2020. Category A and B submission deadlines were pushed to April and May 2021, respectively. The Residential real estate sector is expected to continue to expand construction activities as the Ministry of Housing aims to increase the supply of affordable housing options. The growth of the mortgage market that was witnessed in 2020 continued unabated in January of this year to grow by 33,000 contracts worth SR16.4 billion ($4.4 billion). "The construction landscape still faces headwinds into 2021 yet breakthroughs such as the increase in the distribution of vaccines, the gradual resumption of social activities, and opening up international travel bodes well for the global economy's outlook. Increasing demand albeit at a slower pace will also lessen the strain on the Saudi construction sector," commented Albara'a Alwazir, director of economic research at the US-Saudi Business Council. — SG
