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Building and ConstructionHealthy pipeline remains key long-termdriverThe construction sector in KSA holds key importance to the non-oil sector growth in KSA.KSA’s building and construction sector is involved in the manufacture and supply of floor tiles,gypsum and gypsum derivatives, communication cables, copper rods, conductors, accessories,pipes systems, welded and coated steel pipes. The sector also makes and supplies airconditioningsystems, process equipment, transmission and telecommunication towers, vitrifiedclay pipes for sewage systems, computer, telephone, and pilot cables, and modular buildings.Rapid economic development, huge petrodollar influx, shrinking average household size andrising income levels in the Kingdom in the last 2–3 years, has kept demand for residentialbuildings and infrastructure projects in an upswing. According to SAMA, construction activitygrew 9.9% YoY in 2007, contributing 4.6% to GDP in 2007 (compared with 4.5% in 2006). Thissector employed 2.3mn workers as of 2007, accounting for 38.9% of the total number ofworkers in the private sector. Moreover, The Industrial Development Fund in 2008 grantedSR24bn worth of loans to the construction sector, which made up 32% of the total loansapproved to the various sectors. The Government expects the sector to grow by 4.1% in 2008Long-term prospects for thesector remain positiveThe residential real estate segment, which accounts for approximately 75.0% of the total realestate developments in KSA, is currently experiencing a supply shortage. Moreover, KingAbdullah in 2007 introduced 1,800 development and infrastructure projects in Riyadh at aninvestment of more than USD31bn. These projects span the residential, education, healthcare,water & power, housing, and telecommunications sectors. The growth in population has alsotranslated into increased demand for infrastructure development, including the energy, waterand telecommunications sectors.Below are some statistics that support the construction sector’s long-term growth prospects:• 1.3mn housing units are required over the next seven years• Energy and electricity needs are growing, driven by rising population• 600 new factories have been planned• Telecom and water sectors are growing• Tourism and transport needs are increasing• The King Abdullah Economic City (KAEC) and the Jazan Economic City (JEC) are aloneworth USD54.0bn and are part of similar projects being set up.However, hit by the current global credit crisis, development work on many of these projects hastemporarily slowed down.The global crisis has led to asteep fall in value of contractsawarded in the Kingdom in 4Q-08.Within the GCC, economic growth historically has increased demand for residential, commercialand infrastructural projects. KSA is expected to account for 8.0% of the total USD118bninvestment in the sector. However, construction activity across sectors in the GCC has slowedin 4Q-08, led by the global crisis impacting top-line and bottom-line growth of companies. Realestate prices in the UAE have fallen and work on King Abdullah Economic City has lostmomentum, while construction of petrochemical facilities is also likely to slow down. Exhibit 127depicts the reducing value of contracts awarded to the construction sector in the GCC in Q4JUNE 2009SAUDI ARABIA FACTBOOK82