Saudis build on oil boom in effort to cement the future

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Andrew England, FT Syndication Service
RIYADH: An unprecedented construction boom is gaining momentum in Saudi Arabia with a raft of highly ambitious, multibillion-dollar projects to upgrade infrastructure and meet pressing social challenges beginning to have an effect.
The boom may be less visible than in the kingdom's smaller Gulf neighbours, such as Dubai and Qatar, but the needs and the numbers are massive -- thousands of kilometres of new roads and railways; billions of dollars of water, sewerage and electricity plants; and 4.0m new housing units over the next decade, with investment of $320bn estimated to be required in housing through to 2020, according to Sagia, the kingdom's investment authority.
Estimates of the total value of projects vary as observers try to determine the difference between real and potential schemes. However, none doubts the huge scale of the plans.
Sagia officials cite a $624bn (£304bn, euro434bn) investment programme launched last year to take the country through to 2020 as King Abdullah and his government look to utilise the immense oil wealth the state is enjoying.
The king went on a trip to Europe on October 30 with a state visit to the UK and he and his delegation - including a posse of businessmen could be expected to showcase the boom and the opportunities it offers.
Economists put the value of projects announced so far at more than $30obn, with the construction sector growing at about 7.0 per cent and expected to sustain similar or higher growth through to at least 2010.
"If you look at the sheer numbers in Saudi Arabia the amount of project work that is required ... it is much more than what is happening in the rest of the region," says John Sfakianakis, chief economist at SABB bank.
The upshot is a swathe of public and private investment that is providing opportunities for both foreign and local investors, including a grandiose flagship project to build six new "economic cities".
In 2006, Sagia granted licences to foreign companies for projects with an estimated value of $65bn. This year it is expected to reach $75bn, Sagia officials say.
The hope is that the boom will have a multiplier effect on non-oil private-sector growth, develop infrastructure that is in need of repair following periods of little or no growth in the 1980s and 1990s and provide a platform for more diversified economic activity.
In spite of its image as a vastly rich country boasting 25 per cent of the world's known oil reserves, Saudi Arabia faces huge challenges as it seeks to improve services, reduce its dependence on oil, broaden the economy beyond the main centres, improve the skills of Saudi workers and tackle unemployment, which is about 12 per cent.
The kingdom has the Gulf's largest population, with 24m people (including some 6.5m expatriate workers) but its gross domestic product per capita is lower than the other Gulf Co-operation Council states, with the exception of Oman, according to McKinsey, the consultants.
Historically, Saudi Arabia has invested in infrastructure at a rate of about 17 per cent of GDP but now it is about 30-35 per cent, says McKinsey.
Experts also say one of the key differences between this boom and that of the 1970s is the participation of the Saudi private sector, from cement companies that are ramping up production to small and large building contractors.