Construction sector growth limited by unreliability of resources
As KSA accounts for over 25% of the GCC’s construction industry, strategic partnerships are required to avoid disruptions and delays, say leading experts
The Kingdom of Saudi Arabia is currently in the throes of a massive construction boom with new projects springing up continuously. According to MEED, the value of projects in the GCC reached $1.9 trillion as of May, representing a 35% increase from 2007. Saudi Arabia, the region’s largest construction market, owns the largest share at 25%. This enormous growth in the Kingdom’s construction industry has naturally put a tremendous strain on basic resources, mainly building materials, equipment and labor. In turn, this demand has led to a sharp increase in construction costs, which local analysts have noted is costing contractors in Saudi Arabia an average of a 20% loss in revenue on their projects.
“The onus is really on the contractors of mega projects to partner with capable suppliers who are able to provide effective and reliable solutions as they continuously face pressure to deliver on their huge fast-track projects. Specifically, they are looking for suppliers who would share, if not eliminate, the burden of ordering and receiving the required quantities of resources on time. Ready-mixed concrete is a prime example of this because it cannot be ordered all at once and stored like other building materials such as steel, wood and blocks. Thus, securing the required quantities is a daily issue for project managers,” said Fadi Mujahed, Marketing & Business Development Director at Saudi Readymix, the leading producer and supplier of ready-mixed concrete and related products in the Kingdom.
The key question most contractors in Saudi Arabia must ask themselves then is, ‘how do we ensure a reliable and adequate supply of essential resources from suppliers in order to deliver on time?’ This availability of resources directly impacts contractor profit, as project owners and investors are imposing strict financial penalties on contractors who deliver late in order to protect their sizeable investments.
Mujahed testified to this by saying, “Over the next five years, large and mega projects alone in Saudi Arabia will require an estimated 52 million tons of cement, according to our current estimates. This staggering figure, which we believe will continue to increase as more and more mega projects are announced, is causing a shift in perspective where reliable suppliers are now viewed as full-time partners critical to project success, especially since the projects are also increasing in size and complexity, and come with ever-tightening delivery deadlines.”
Mohammed Al-Ramahi, General Construction Manager with Consolidated Contractors Company (CCC), one of the largest construction and contracting companies in the world, also noted the importance of trusting suppliers, commenting, “When we sign a contract and establish the timeline and the deliverables, we agree to strict delivery schedules. If a deadline passes us by without us having met the stated deliverables, we can face liquidated damages of up to 10% of the total value of the project! And with the size and cost of the projects today, the incentive to deliver on time every time is definitely there. The issue becomes the ability to meet project requirements while maintaining a consistently high level of quality and this is why partnering with a trusted and reliable supplier is so important.”
The increased demand can be seen in record investments by Saudi Readymix totaling SR760 million in 2007 and 2008 in order to position itself as a reliable supplier in the construction sector of total concreting solutions. By offering contractors of large-scale projects the advantage of a dedicated fleet and labour force on their sites that is big enough to meet their needs, even the biggest projects can be adequately supplied without defaulting on others.
Mujahed concluded, “With the number of large and mega projects in the Kingdom’s pipeline today, we embarked on building our capabilities to be able to allocate resources to serve more than 15 mega projects concurrently while maintaining the same level of service to our other customers. These are all things that we have invested in, and are what the market is now demanding from serious players in the construction industry.”
