With an astonishing $1.5 trillion pipeline of forthcoming developments, Saudi Arabia led the construction activity based on the JLL report. The Kingdom's ambitious plans underscore its role as a major player in the global construction industry.
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Saudi Arabia Led Global Construction Activity
A recent analysis published by the real estate firm JLL reveals that Saudi Arabia currently controls the largest building project pipeline in the Middle East and North Africa area, with a total value of $1.5 trillion. The MENA building pipeline is estimated to be worth $3.9 trillion, accounting for 39 percent of the total. Many of Saudi Arabia's pipelines are in the construction and infrastructure industries. These measures, which are part of Vision 2030 and aim to diversify the economy away from oil, continue to underpin the Kingdom's strong growth.
The research indicates increased construction activity during the fourth quarter of 2023, as seen by the higher indexes recorded. Compared to oil, which contributes one-third of Saudi Arabia's GDP, non-oil sectors currently provide half of the country's GDP. Moreover, the previous year's revenue generated by tourism was $66 billion. Projects granted during the first quarter were 23 percent leisure and hospitality projects.
On the other hand, Riyad Bank continues to identify favorable domestic demand circumstances even though problems like inflation, labor shortages, and increasing material costs have been recorded. Although it experienced a modest decline to 57.0 in March, the Purchasing Managers' Index continues to expand.
Economic Growth of Saudi Arabia
JLL's market intelligence head for the Middle East and Africa, Laura Morgan, stated that Saudi Arabia has become the most active player in the Middle East construction industry due to economic growth, a growing population, and modernization. In 2023, the real estate sector is expected to lead the market for projects in the Kingdom. She also pointed out that the sector's remarkable resilience to global challenges is indicative of the Kingdom's financial diversification strategies' success.
According to JLL's analysis, the nation is anticipated to grow its gross domestic product by 2.1 percent in 2024 and 5.9 percent in 2025. Despite the issues that Saudi Arabia is facing, such as rising inflation, elevated interest rates, and geopolitical concerns, JLL maintained a favorable prognosis for the country in the report. The impact of building prices on the vigorous expansion of the sector cannot reportedly be counted out, according to Morgan, who noted that the market dynamics are always experiencing change.
In addition, she stated that the Kingdom's construction activity could be subjected to undue pressure due to other market constraints, including a scarcity of competent labor, a supply of resources, and an overheating market. However, one of the challenges ahead is ensuring that huge projects create returns and stimulate productivity, both of which are essential for sustainable economic growth and will contribute to the further diversification of the economy.
Maintaining a more innovative atmosphere and investing in worker skills that support diversification are essential. Restructuring the fees and taxes that businesses are required to pay, notably at the municipal and local levels, would further stimulate the growth of the private sector. Since the PIF is increasingly important in the economy, it should continue to encourage investment from the private sector. Nevertheless, careful observation and assessment can help lower the risks of targeted interventions and industry policies, ensuring these policies have the desired effects.
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