Vision 2030 drives the commitment for new construction projects in Saudi

Saudi Arabia's construction sector is ripe for new investments and developments as Vision 2030 drives the commitment for urbanization.

The Saudi government is investing heavily in new infrastructure and development projects, such as the $500 billion smart city NEOM and the regenerative tourism destination The Red Sea Global. These projects are creating a huge demand for construction services, and international construction companies have a significant opportunity to capitalize on this trend.

The Saudi government is also welcoming foreign investment and is providing incentives to attract international construction companies.

If you are an international construction company looking to expand your operations, Saudi Arabia is the perfect destination. With its strong economy, growing population, and ambitious development plans, Saudi Arabia offers a wealth of opportunities for construction companies.

Grankraft’s Pioneering Expansion in Saudi Construction

Grankraft is a standout example of capitalizing on the first-mover advantage and accessing new construction projects in Saudi Arabia.

For over two decades, Grankraft has been at the vanguard of customized construction, recently making its mark with the iconic Sheybarah Hotel on Saudi Arabia's Red Sea island. This landmark project was merely a prelude to the remarkable trajectory that would lead Grankraft to Saudi Arabia, inspired by the country’s potential under the Saudi Vision 2030.

Grankraft’s path to expansion was punctuated by the Sheybarah Hotel project, a beacon of hyper-luxury on the Red Sea, showcasing their expertise in specialized metals and full contracting. This venture underscored the importance of expert guidance when tackling new territories.

While incoming companies know they can benefit from favorable conditions in which to set up their operations in the Kingdom, the AstroLabs on-ground team supported Grankraft in approaching the right organizations and fulfilling the requirements to attain these advantages faster and smoother.

The CFO of Grankraft expressed the need for a market entry partner and said, “I would recommend company that is looking to expand to Saudi to find a local market entry partner like AstroLabs who can identify the needs from the authorities and use their local know-how to fast-track the process of expansion for businesses.” By advising on the partnership structure and navigating administrative hurdles, AstroLabs ensured that Grankraft could focus on what it does best: innovating and constructing.

Read more about the Grankraft's story.

Legal Frameworks for Construction Projects in Saudi Arabia

Understanding the legal regulatory frameworks is essential for both local and international entities aiming to participate in Saudi’s innovative construction projects.

At the heart of these frameworks lie the Shari'ah principles and the standardized practices of FIDIC (International Federation of Consulting Engineers) contracts, which create a regulatory environment tailored to the Kingdom’s cultural and legal foundations.

Shari'ah Principles in Construction Contracts

Saudi Arabia's legal system is grounded in Shari'ah, which also impacts construction projects. Shari'ah mandates clarity and fairness, prohibiting any form of uncertainty (Gharar) or speculation. Specifically, construction contracts often employ "istisna’a" agreements — building assets at a predetermined price and timeline while adhering to the Shari'ah principles for transparency and certainty.

FIDIC Contracts for International Standards

The most common construction contracts used in Saudi Arabia are FIDIC contracts, notably the Red Book. These international contracts are adapted, ensuring risk allocation and contract terms meet the unique demands of the Saudi market.

The adoption of FIDIC contracts that align with Shari'ah principles in KSAs illustrates the delicate balance between maintaining international construction standards and respecting local legal requirements. Amendments to the contracts are often done to enhance the employer's control and realign the engineer's role with local preferences. This dual approach lays out a solid foundation for successful construction projects in the Kingdom.

The Importance of Vision 2030 in Driving the Infrastructure for Saudi Giga Projects

At its core, Vision 2030 seeks to utilize the Kingdom's strategic location, cultural heritage, and investment potential to stimulate economic growth, technological advancement, and sustainable development. Central to this are Vision 2030's "Giga Projects" — mega-developments that promise to redefine the Kingdom's landscape. These projects, including NEOM, Qiddiya, Diriyah Gate, Amaala, and the Red Sea Project, are designed to foster economic activities, cultural exchange, and environmental consciousness.

The scale and ambition of Vision 2030 bring both opportunities and challenges. For the construction sector, it means a surge in demand for materials, skilled labor, and innovative project management approaches.

The government has already awarded significant contracts related to the development of the giga projects, which signals a future with robust activity and growth in the sector. Mordor Intelligence estimates the sector to reach $91.36 billion by 2029, with an annual growth rate (CAGR) of 5.37% between 2024 and 2029. However, this boom also underscores the need for sustainable sourcing of materials, advancements in construction technology, and the development of local talent to meet the demands of these time-critical projects.

Beyond its immediate economic benefits, Vision 2030 goal is to enrich the quality of life for residents, open new avenues for tourism, and elevate the Kingdom’s status on a global scale. By investing over $130 million (SAR 500 billion) in infrastructure, including airports and seaports, Saudi Arabia is bidding to become a global transport and logistics hub.

Digital Transformation Impact on Construction Projects

To increase efficiency across all project-related activities, constructors and developers are both turning to innovative technological advancements.

The digital transformation is shaping the construction sector in several ways.

Improving Efficiency and Reducing Costs

The adoption of digital technologies such as AI, ML, cloud computing, and IoT simplifies the procurement, distribution, and tracking of goods and services. This saves time and reduces costs by optimizing resource allocation and minimizing waste. The deployment of connected construction technologies across the value chain integrates assets, people, and processes into a single, intelligent, and secure platform. The result is faster compilation time with fewer resources.

Encouraging Innovation with Intelligent Solutions

Saudi Arabia's strategy to go digital includes embracing Building Information Modeling (BIM) and augmented reality technology applications. The use of augmented reality technology applications assists in translating and utilizing BIM models on construction sites, improving the accuracy of construction processes, and enabling better visualization of the final product. Furthermore, these intelligent solutions allow for the early detection of potential issues which lead to timely adjustments that save costs and improve construction outcomes.

Fostering Sustainable Practices

The digital transformation in Saudi Arabia also supports Vision 2030’s goals for sustainability and innovation. By leveraging digital tools, construction projects can achieve higher standards for environmental sustainability, from the efficient use of materials to the minimization of waste and carbon footprint. Techniques such as prefabrication and modular construction, supported by digital designs and simulations contribute to a significant reduction in waste generated on-site, as well as speeding up construction timelines. Furthermore, innovative tools such as digital twins — a virtual replica of physical assets — can simulate the performance of buildings in various environmental conditions, helping design more energy-efficient structures.

Emerging Subsectors: Driving Growth and Innovation

Several key segments within the construction industry are expanding, each contributing to the country’s urban and economic development goals.

Residential Construction in Saudi

Residential construction focuses on projects for single- and multi-family housing. Supported by governmental initiatives aimed at increasing homeownership to 70% by 2030, this segment is projected to keep expanding. Residents in Saudi Arabia will have more opportunities to own affordable housing and enjoy upscale residential projects.

Commercial Construction in Saudi

The commercial segment encompasses a broad range of projects, including leisure and hospitality buildings, offices, retail spaces, and other commercial facilities. With a strategic focus on boosting the tourism sector, commercial construction is set to thrive.

Industrial Construction in Saudi

Industrial construction is crucial for the diversification of Saudi’s economy, covering projects such as chemical plants, manufacturing facilities, and waste processing plants. The sector’s growth is fueled by investments in manufacturing and mining, which aligns well with the county’s efforts to expand its industrial base.

Infrastructure Construction in Saudi

Infrastructure development is a key priority within the construction industry, spanning rail, road, and public transport upgrades. The segment’s growth is heavily supported by groundbreaking government initiatives aimed at tackling climate change challenges and improving the national infrastructure, urban connectivity, and economic efficiency.

Energy and Utilities Construction in Saudi

Within this segment, the focus is on the development of renewable energy, gas, infrastructure, and utilities. The many public and private investments in electricity, power, and telecommunications are propelling the segment forward, which further highlights the country’s commitment to sustainable energy solutions.

Institutional Construction in Saudi

Covering educational, healthcare, religious, and research projects, the institutional segment is vital for the social development of Saudi Arabia. Investments in these areas will not only significantly increase Saudis' quality of life but also contribute to the expansion of the construction industry in the future.

Each of these segments represents a facet of Saudi’s comprehensive approach to construction, with innovative residential, industrial, and institutional projects and sustainable development strategies.

Understanding the Saudi Construction Chain

In Saudi Arabia, the construction sector operates under a unique model, where a government entity, such as the Public Investment Fund (PIF) would initiate and finance large-scale projects and then establish a subsidiary, referred to as a Public Development Company (PDC) to act as the decision-maker and project owner. This model reflects the Kingdom’s strategic approach to realizing its Vision 2030 through substantial public investment in construction projects.

PDCs, such as ROSHN, the Diriyah Gate Development Authority, and the Red Sea Development Company, oversee the development of these large-scale projects. These entities manage the entire lifecycle of a project, from its inception to long-term operations, embodying the ambition and governance structure unique to Saudi Arabia’s public sector-funded initiatives.

In scenarios where a PDC is not involved, often seen in some smaller-scale or private-sector projects, the role of the real estate developer becomes more prominent. Developers like Emaar, known for their work on the Dubai Downtown project, assume the responsibilities typically held by PDCs. They lead the project, managing its development and eventual operation, which may include hiring an external project manager to improve efficiency and effectiveness throughout the construction project.

Stakeholders and Project Team Members

In the successful completion of construction projects, many stakeholders and project team members play crucial roles. These individuals aid the seamless progression of the project from a mere concept to the finish line.

At the helm of decision-making and advisory roles are the regulators, such as the Ministry of Housing, which ensure compliance with national standards through approvals and permits.

The project’s lifeblood comes from owners and clients, entities like the Public Investment Fund (PIF) or Saudi Aramco, who not only finance but also define the project’s vision and requirements.

Financial institutions step in and offer the necessary capital through loans, investments, or public-private partnerships. Legal counsels navigate the complex legal system, advise on contracts, and manage risks and compliance, while master planners lay the strategic groundwork - everything from feasibility to environmental impact assets.

The project development and delivery team are responsible for turning these plans into reality. Public Development Companies, such as ROSHN, take charge of overseeing the development, collaborating closely with other key players to ensure the project's success. The project manager is the link that connects everything. They’re responsible for planning, budgeting, scheduling, and coordinating the stakeholders.

Within this team are also design consultants, including architects and engineers, who are tasked with writing the project’s blueprint and tailoring it to meet the client’s specifications.

Main Contractors and Subcontractors

Due to their scale, the construction of giga projects often requires collaboration between local and international companies through the formation of Special Purpose Vehicles (SPVs). This collaborative approach allows firms to pool their expertise and resources, which is essential for successfully overcoming the complexities and risks associated with large-scale construction projects. By fusing local knowledge and international experience, SPVs bring value and drive results.

Subcontractors, tasked with executing specific components of the project, play a big role in the construction process. Specialist subcontractors are often employed by the main contractor or nominated by the project owner to carry out specific tasks like demolition, excavation, electrical work, plumbing, etc.

Subcontractor Specializations

In construction projects, subcontractors can have a number of specializations, including general trades; mechanical, electrical, and plumbing (MEP); and specialties like roofing, landscaping, surveying and site testing, security and surveillance, cleaning and waste disposal.

General trades (GT) subcontractors work on demolition and earthworks, concrete, masonry, carpentry, insulation and fireproofing, drywall and plaster, flooring, doors and windows, painting and finishing projects.

Mechanical, Electrical, and Plumbing (MEP) subcontractors work on plumbing, heating, ventilation, and air conditioning (HVAC), electrical, fire protection, as well as elevators and escalators projects.

Licensing and Compliance

The regulatory framework governing the construction business in Saudi Arabia mandates that both local and international contractors obtain the necessary licenses to operate. The requirement highlights Saudi's commitment to maintaining high standards of quality and safety in construction.

For international contractors, establishing a local presence or branch office within the Kingdom is a prerequisite, reflecting the regulatory environment's emphasis on local engagement and compliance.

Real estate professionals, including brokers, agents, and agencies, are subject to a detailed licensing scheme, guaranteeing that property transactions are managed by highly professional and trustworthy individuals.

Brokers are required to have advanced licenses and qualifications, enabling them to independently manage transactions and oversee agents.

Agencies operate as intermediaries in property transactions licensed to facilitate dealings between property buyers, sellers, landlords, and tenants. They provide a range of services to ensure a smooth transaction process.

Regulatory Authorities in the Construction Industry:

• Ministry of Municipal and Rural and Housing (MOMRAH): The MOMRAH is a primary regulatory authority overseeing construction activities. The categories of permitted construction-related activities and their corresponding licensing requirements depend on the type of project, the height of the building, and any internal directives applied by the MOMRAH. Before commencing work, all consultants and contractors must obtain a classification/license from the MOMRAH to carry out contracting work or engineering. Throughout the construction process, various inspections must be carried out and signed off by the MOMRAH.
• Ministry of Housing: The Ministry of Housing holds authority over the residential construction sector. It issues permits and licenses for residential projects, develops and enforces building codes and standards, promotes affordable housing programs, and regulates real estate developers and brokers in the residential sector.
• Ministry of Investment (MISA): Foreign entities seeking to work on construction projects in Saudi Arabia must obtain a foreign investment license from MISA and establish a commercial presence in the Kingdom.
• Ministry of Human Resources and Social Development (MHRSD): The MHRSD supervises employer conduct and conducts inspections to ensure adherence to applicable rules and guidance.
• KSA Government Tenders and Procurement Law (GTPL): Public works, construction, and engineering projects are subject to the GTPL.
• Saudi Building Code (SBC): Construction and engineering projects must comply with the SBC, which sets out the technical, legal, and administrative regulations governing the minimum construction standards applicable to any project.

This multi-faceted regulatory framework underscores Saudi Arabia's dedication to fostering a construction industry characterized by excellence, safety, and compliance with international standards.

Supporting Roles and Services

After the completion of construction, the focus shifts to the operations and maintenance of the newly built infrastructure. This phase can be managed internally by the development company or outsourced to specialized facilities management firms, depending on the project's needs and the owner's strategy.

Facilities Management Companies are tasked with the operations and maintenance of buildings post-construction. They ensure the longevity and functionality of the infrastructure through services like cleaning, security, and utilities management.

The rise of proptech in Saudi and service providers introduces a layer of technological innovation to the sector, offering solutions for property management, transactions, tenant engagement, and data analysis. Thanks to these technological advances, the construction sector has become more efficient and responsive to the needs of its stakeholders.

Finally, crucial to the development and success of construction projects are the Royal Commissions. Established by the Royal Decree, these semi-autonomous government agencies manage specific areas with a focus on economic development and infrastructural projects, aiming to attract investment and foster industry growth.

Together, these entities and innovations contribute to a dynamic and integrated construction sector in Saudi Arabia, supporting the Kingdom’s Vision 2030 ambitions through their specialized services and expertise.

Upcoming Events & Exhibitions for Construction Projects

• INDEX Saudi Araba: Riyadh, 17.09.2024 - 19.09.2024
• Saudi Infrastructure Expo 2024: Riyadh 24.09.2024 - 26.09.2024
• Jeddah Construct: Jeddah 29.09.2024 - 01.10.2024
• CityScape Global: Riyadh, 11.11.2024 - 14.11.2024
• The Big 5 2024: Dubai, 26.11.2024 - 29.11.2024