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KSA CONSTRUCTIONOVERVIEW

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Overview of KSA’s Economic Outlook According to the International Monetary Fund (IMF), Saudi Arabia (KSA) has announced a bold reform program under its Vision 2030. Growth is expected to be robust over the medium-term as structural reforms are implemented (refer Figure 1). Risks are anticipated to arise from uncertainties regarding future oil prices and the impact on ongoing economic reforms. Moreover, KSA is expected to bring in additional revenues through new taxes and fees, including Value Added Tax (VAT), extra fees on expats working in the kingdom and potential additional costs imposed on foreign businesses.

KSA Budget OutlookKSA’s 2018 budget is deemed the largest ever and the government is expected to spend US$ 261 Bn.. The budget provides a roadmap for the ongoing economic transformation directing at the direction of oil prices and energy equities. Analysts predict that the prime feature of the budget were the key focus on structural reforms accompanying rising spending patterns. In 2018, the government forecasts a deficit of US$ 52 Bn., which is equivalent to 7.3%.

KSA’s public budget at a glance from 2015 to 2018

With KSA’s 2018 budget, the government is recommitting to investments in the future. The kingdom’s construction market is expected to show significant growth and offer lucrative potential due to its Vision 2030, NTP 2020, and ongoing reforms to diversify away from oil.

Figure 1 represents KSA’s *macroeconomic indicators

Population, 2015 – 2022

(all figures in %)

2015 2016 2017 2018 2019 2020 2021 2022

40

30

20

10

0

31.01633.025 34.359

31.74333.685

32.37735.046 35.747

Inflation Rate, 2015 – 2022

(all figures in %)

2015 2016 2017 2018 2019 2020 2021 2022

6

5

4

3

2

1

0

-1

2.2

5

2.2

3.5

2

-0.2

2.1 2

Real GDP Growth Rate, 2015 – 2022

(all figures in %)

2015 2016 2017 2018 2019 2020 2021 2022

4.5

4

3.5

3

2.5

2

1.5

1

.5

0

4.1

1.1

1.81.7

1.6

0.1

2 2

Current Account Balance % of GDP, 2015 – 2022

(all figures in %)

2015 2016 2017 2018 2019 2020 2021 2022

4

2

0

-2

-4

-6

-8

-10

-8.67

0.3971.219

-4.26

1.1550.6371.302 1.616

*Note: All figures are in annual percentage change; F: Forecasts. In January 2018, the IMF has recently raised its economic growth forecasts for KSA as oil prices rise. The government expects GDP to grow 1.6% in 2018 and 2.2 % in 2019. 1 SAR= USD 0.26652 Exchange rate taken. Source: IMF, October 2017.

Figure 2 represents KSA’s public budget at a glance from 2015 to 2018

Real GDP Growth Rate, 2015 –2020

Value in US$ Billion

240

220

200

180

160

140

120

100

80

60

40

10

2015 2016 2017 2018

162.04416

138.32388

185.49792208.68516

Budge Deficit, 2015 –2018

- 20

-40

-60

-80

-100

-120

-140

2015 2016 2017 2018

-97.81284-82.88772

-61.2996-51.9714

Public Expenditure, 2015 – 2018

Value in US$ Billion

280

270

260

250

240

230

220

210

200

2015 2016 2017 2018

259.857

221.2116

246.79752

260.65656

Budget Allocations, 2018

A 21% Military B 20% EducationC 15% Health Social DevelopmentD 11% Economic Resources and Public ProgramsE 10% Security and Regional AdministrationF 9% General ItemsG 6% Infrastructure and TransportH 5% Municipality ServicesI 3% Public Administration

Source: Albilad Capital’s report on Saudi Arabia Economy, December 2017.

Classification of KSA Construction Market The construction market in this report comprises of the building, infrastructure and energy markets.

Overview of KSA Construction Contractor Awards KSA’s contractor awards across the building, infrastructure and energy sectors are forecast to increase from US$ 34,151 Mn. in 2017 to US$ 40,068 Mn. in 2018. All companies that are working on contracts with government departments in KSA will need to modify their bills to include the 5% VAT.

The building construction sector is expected to register the highest contractor awards followed by the energy and infrastructure sectors in 2018 (refer Figure 4). Increase in population growth, urbanisation, and tourism are expected to drive growth in the building sector especially in the residential and leisure markets. According to Oxford Business Group, the government is stepping up investment in KSA’s transport infrastructure, fast-tracking key projects and creating new opportunities for service providers. Transport infrastructure gains prominence in the Vision 2030 and National Transformation Programme (NTP) as vital to economic growth. In 2018, the government has allocated 6% of its budget towards transport and infrastructure.

Figure 4 represents KSA’s building, infrastructure and energy construction contractor awards from 2015 to 2018 in US$ Mn.

Infrastructure sector: Roads, bridges, railways, ports, wastewater and sewarage

Energy sector: Oil & gas and power & water

Building sector: Residential, commercial, mixed use, airports, sports facilities, hotels & recreational facilities, healthcare, education facilities and industrial projects

Figure 3 represents the classification of KSA construction market

Source: Ventures ONSITE Projects Intelligence Database: www.venturesonsite.com

KSA Contractor Awards by Sector, 2015 – 2018

Value in US$ Billion

35,000

30,000

25,000

20,000

15,000

10,000

5,00

2015 2016 2017 2018

18,02214,70129,82723,582Buildings

5,7864,5953,2495,515Infrastructure

16,26014,85517,86920,902Energy

Landmark Project Announcements in 2017

KSA Boost for the Private Sector

• The US$ 500 Bn. NEOM city is 26,500 square kilometers (km) (10,230 square mile) zone and will focus on industries including energy and water, biotechnology, food, advanced manufacturing and entertainment. KSA government, the PIF and local and international investors are expected to invest over half a trillion dollars into it in the coming years. Phase 1 of the project is expected to be completed by 2025.

• KSA has officially declared that public movie theaters will return to the kingdom for the first time in more than 30 years in March 2018. Opening cinemas is anticipated to act as a catalyst for economic growth and diversification. By developing the broader cultural sector, it will create new employment and training opportunities, as well as enrich KSA’s entertainment options. By 2030, there are projected to be over 300 cinemas with more than 2,000 screens.

• KSA will allow women to drive effective from June 2018, ending a longstanding policy of the oppression of women in the highly conservative kingdom.

KSA is to inject US$ 19.2 Bn. into the private sector of the economy in a bid to stimulate activity in the non-oil sector, which has been hit by the slowdown in government spending as a result of oil revenue weakness. Housing and small business are major beneficiaries of the stimulus package. Among the measures announced in a decree by King Salman are a US$ 6 Bn. initiative on subsidised loans to provide housing, a US$ 4 Bn. injection into new building technologies, and a proposal valued at US$ 3 Bn. to support the funding of big infrastructure initiatives. Other big items include a US$ 0.4 Bn. initiative to support companies in financial distress, and a US$ 1.86 Bn. plan to refund government fees to small and medium enterprises.

KSA’s Major Construction Projects

Top projects expected to be awarded to contractors in 2018

Project Name Client

KA-Care - Alternative Energy Projects - Nuclear Plants King Abdullah City of Atomic and Renewable Energy (KA-care)

Jeddah Light Rail Transit Jeddah Metro Company; Ministry of Transport, Saudi Arabia

King Abdullah City of Atomic and Renewable Energy (KA-Care) - Alternative Energy Projects - Phase 1

King Abdullah City of Atomic and Renewable Energy (KA-care)

The Avenues Riyadh Shomoul Holding Company

Offshore Berri Field Saudi Aramco

400 MW Wind Power in Dumat Al Janda Renewable Energy Project Development Office (REPDO)

Ammonia Plant in Ras Al Khair Saudi Arabian Mining Company (Maaden)

South Obhur Project - Housing Complex Project - BP-04 & PB-06 Al Raidah (Rayadah) Investment Company

300MW Solar Facility at Sakaka Ministry of Electricity & Water, Saudi Arabia

King Fahd Causeway Passports Island (Saudi Sector) - Phase 2 King Fahd Causeway Authority

KSA’s major projects awarded to contractors in 2017

Project Name Industry Client Project Value (US$ Mn.)

Expansion of King Khalid International Airport - Terminal 1 & 2 Buildings General Authority for Civil Aviation (GACA), Saudi Arabia 1,493

Expansion of King Khalid International Airport - Terminal 3 & 4 Buildings General Authority for Civil Aviation (GACA), Saudi Arabia 1,390

AMC Long-Term Medical Care Hospital Buildings Anfas Medical Care (AMC) 1,300

Batterjee Medical City in Dammam Buildings Middle East Healthcare Company (MEAHCO) 1,070

Satellite Haradh Gas Compression Plants (Sa-GCP) - Package 2 Oil & Gas Saudi Aramco 1,000

South Haradh Gas Compression Plants (S-GCP) - Package 3 Oil & Gas Saudi Aramco 1,000

North Haradh Gas Compression Plants (N-GCP) - Package 1 Oil & Gas Saudi Aramco 1,000

Hawiyah Gas Plant Expansion Oil & Gas Saudi Aramco 1,000

Safaniyah - Phase 6 Oil & Gas Saudi Aramco 1,000

Maritime Yard in Ras Al Khair - Dredging & Reclamation Infrastructure Lamprell LLC, Dubai, The National Shipping

Company of Saudi Arabia (Bahri), Saudi Aramco 780

New International Airport in Hail Buildings General Authority for Civil Aviation (GACA), Saudi Arabia 500

Freeflow Pipelines of Haradh Oil & Gas Saudi Aramco 500

KSA’s Major Construction Projects

Project Name Industry Client Project Value (US$ Mn.)

Neom Business City Buildings Public Investment Fund (PIF) 500,000

The Red Sea Project Buildings Public Investment Fund (PIF) 8,000

Public Transportation Network in Taif Infrastructure Ministry of Transport, Saudi Arabia 7,199

New Jeddah Downtown Buildings Public Investment Fund (PIF) 4,800

New Energy Industrial City in Abqaiq Industrial Saudi Aramco 4,400

Al Faisaliah Housing and Administrative in Makkah Buildings Makkah Region Development Authority (MRDA) 4,000

Jizan Economic City (JEC) - Pure Terephthalic Acid (PTA) and Poly Ethylene Terephthalate (PET) Production Plant Industrial Pan-Asia PET Resin (Guangzhou) Co, Saudi Aramco 3,800

Waad Al Shimal Mining City - New Phosphate Mine and Industrial Complex Industrial

Saudi Arabian Mining Company (Maaden), Eastern Province, Mosaic Company, Saudi Basic Industries Corporation (Sabic)

3,200

Offshore Marjan Oil and Gas Field Oil & Gas Saudi Aramco 3,000

Berri Increment Programme Oil & Gas Saudi Aramco 1,500

Redevelopment of East Wing of the Prophet’s Mosque Buildings Public Investment Fund (PIF) 1,200

Batterjee Medical City in Dammam Buildings Middle East Healthcare Company (MEAHCO) 1,070

Source: Ventures ONSITE Projects Intelligence Database: www.venturesonsite.com

KSA’s major projects announced in 2017

KSA’s Major Construction Projects

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Conclusion

The large budget indicates that KSA is expecting significant revenue growth in the years to come. The Vision 2030, NTP 2020 and private sector investment boost, and ongoing reforms are likely to be the growth drivers for KSA’s construction market in 2018 and beyond. According to Riyadh officials, KSA’s economy is entering a post-oil era in which the kingdom’s mega-cities, which are under construction, will provide the country’s future growth.