© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
August 1, 2011 2:52 pm
Late into the evening, dozens of cranes outlined by blinking lights are still moving across the skyline and hovering over thousands of Asian workers scattered across sprawling construction sites in Riyadh, the Saudi capital.
Across the oil-rich kingdom, a construction spree is under way, fuelled by government plans to spend $400bn on infrastructure in five years to the end of 2013. This year, the government also earmarked an additional $67bn for new homes.
On the ground, contractors are racing against time to keep pace with projects they have been awarded to turn millions of square metres of sand into universities, hotels, housing, factories and energy projects.
But, while the government is spending heavily to spur growth in the economy, diversify output and create jobs, Saudis themselves complain that the construction market is monopolised by leading construction players such as Saudi Oger, owned by the Lebanese-Saudi al-Hariri family, and Bin Laden Group.
Small and medium-size companies are rarely awarded contracts and executives complain of limited or no access to the kingdom’s small pool of banks. These, the critics say, prefer to grant loans to high-profile families.
“The upper crust of the society keeps getting richer because the money cycle starts and ends with them, and the rest of the society is watching,” says Abdelaziz al-Qassem, a Saudi lawyer and reformist. “You have more than SR350bn [$93.3bn] in mega projects awarded to Saudi Oger and Bin Laden which create thousands of new jobs for foreign workers – not Saudis.”
While strict visa rules and quotas are imposed on smaller companies, critics say that influential companies bring in thousands of Asian workers and European and Arab engineers.
Saudis also complain that dividends from the construction industry barely trickle down. Many subcontractors, suppliers and accounting firms are offshoots of a mother company and are owned by other members or friends of the family, the critics say.
“Despite billions of dollars spent, as a Saudi I do not benefit . . . I end up with horrible infrastructure because these companies do not have enough capacity or time to deliver world-class infrastructure,’’ says one businessman and legal adviser. “Smaller contractors will always remain small. No one moves to the next stage or expands their business.”
Saudi Oger and Bin Laden Group did not respond to questions on the issue.
The frustration discussed usually only in private surfaced recently. Contractors are calling for a review of bidding legislation to enforce fair competition, according to Arab News, an English language daily newspaper. Some claim that government projects are awarded even if companies cannot deliver because they are overwhelmed by other projects.
Foreign capacity is unlikely to come to the rescue. For international companies, the Saudi market is lucrative, but challenging. The government, for example, insists that companies, even those with international reputations, produce a “certificate of accomplishments” from previous clients. They also face hurdles obtaining visas and residency permits to bring in workers or executives, experts say.
“Foreign companies know that the only way now to operate is to be forced to partner with a local partner,” says a Saudi lawyer.
An engineer at one construction company complains that owners import the cheapest labour possible with no skills or knowledge of basic English or French, the language of most of the engineers. This reflects on the quality of the building delivered, the engineer says.
“We keep missing deadlines and buying material at a premium because it is just not normal to have all these projects at once,” the engineer says. “The company never says: ‘No we cannot do it’ because it is more of an order from the government. Buildings take time to dry but supervisors just want everything to be done quickly because the governments want them inaugurated on certain days . . . regardless of the risk.”
Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.