Interview: Khalid Al Amoudi
How does the current level of domestic financing available compare to the cost of the projects that are currently in the pipeline?
KHALID AL AMOUDI: I feel that low oil prices will have a very marginal effect on construction activities in the Kingdom over the short term. Construction and expansion of schools, universities, hospitals and private sector housing will not slow down significantly. A growing population and fast-paced Saudiisation in both the private and public sectors will create and sustain demand for such projects. New government regulations, including increased fees for private sector operations and the removal of subsidies on many items, will compensate for the loss of revenue from low oil prices and will allow spending on these essential projects to continue.
What particular factors could boost the production of local building supplies?
AMOUDI: Building materials such as bricks, cement, flooring and cladding materials are already being produced locally. In addition, new licences to manufacture these items are being issued, which has resulted in healthy competition and lower prices. In spite of increased tariffs on fuel and electricity, prices remain significantly lower than international rates. Additionally, the government provides mining for raw materials at nominal rates, while labour costs in Saudi Arabia remain very low in comparison to industrialised countries.
In terms of the supply and demand of local building materials, what is the current trend of the market?
AMOUDI: Growing demand for housing and other infrastructure projects keeps a good balance of demand and supply. My expectation is that the demand for building materials will rise as Saudi workforce earnings go up, making houses, cars, and domestic appliances more affordable. The banks have already been advised by the government to extend more loans so that Saudis can build residential and commercial buildings. We are building a brand new manufacturing unit near Jeddah, which will be approximately three times the size of the existing unit in Bahrah.
In addition to using the US-developed process of stiff mud extrusion and over/under deck firing in tunnel kilns, we now have the opportunity to use the cheap residual oil offered by Saudi Aramco, which will help to further lower the cost of production.
What sort of role is the private sector set to play over the coming years?
AMOUDI: The private sector has always been important, and today more than ever it is set to play a major role in the future growth of the Saudi economy. The government’s Vision 2030 is encouraging the private sector to increase its production and service capacity, thereby creating jobs that are less dependent on the oil industry for Saudi Arabia’s young and large population. Most of the products made in Saudi conform to high international standards thanks to the Saudi Standards, Metrology and Quality Organisation. These products will help increase exports to other countries, thus, bringing in valuable foreign exchange, which earlier was almost always earned through petrodollars.
How could long-term measures bridge the gap between demand and supply in housing, and in which ways could land be more efficiently utilised?
AMOUDI: I always feel that it is more important to have demand outstrip supply as this leads to a more efficient use of resources. A significant number of highly experienced Saudi businesspeople and business houses have the capabilities and resources to match demand at very short notice. The older practice of using land that was cheap and abundant has long since passed, and high-rise buildings in cities are in great demand. In the same vein, manufacturers are innovating their designs in order to maximise production, yet they are keeping the building and land size to a minimum.
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