PRODUCT MARKET STUDY (PMS)

Business Opportunities for Malaysian Companies in the Green Building & Construction Sector in KSA

Prepared By: MATRADE JEDDAH June 2015

CONTENTS 1. EXECUTIVE SUMMARY ............................................................................................................3 2. INTRODUCTION .........................................................................................................................3 3. OVERVIEW OF THE GREEN BUILDING AND CONSTRUCTION SECTOR ..........................4 4. DETERMINANTS OF MARKET GROWTH ...............................................................................5 -

Factors for Growth ......................................................................................................................... 5

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Hindrances of Growth .................................................................................................................... 5

5. PROJECTs IN GREEN BUILDING ............................................................................................6 -

King Abdullah Financial District (KAFD) ..................................................................................... 6

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King Abdullah University of Science and Technology (KAUST) ............................................. 7

6. PENETRATING THE GREEN BUILDING IN THE KINGDOM ..................................................9 -

Local projects .................................................................................................................................. 9

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International projects ..................................................................................................................... 9

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Finance .......................................................................................................................................... 10

7. BUSINESS OPPORTUNITIES FOR MALAYSIAN COMPANIES IN SAUDI ARABIA .......... 10 Green Construction .............................................................................................................................. 10 Building Construction ........................................................................................................................... 10 Construction of Houses ....................................................................................................................... 11 Infrastructure ......................................................................................................................................... 11 Engineering & Architectural Services ................................................................................................ 11 8. COMPETITION.......................................................................................................................... 12 9. RECOMMENDATION ............................................................................................................... 12 10.

CONCLUSION .................................................................................................................... 13

Major Building Construction Projects ..................................................................................................... 14 List of related Saudi ministries and organizations .................................................................................. 15 Major Saudi companies involved in green building and construction.................................................... 17 Selected Exhibitions & Trade Fairs .......................................................................................................... 18

1. EXECUTIVE SUMMARY In 2014, the Saudi economy expanded by 3.6 percent, accelerating from 2.7 percent in 2013. An increase in oil production, by 0.8 percent, year-on-year, and a new refinery coming on-line during 2014 meant that overall oil sector growth remained positive at 1.7 percent while the non-oil sector maintained a growth of over 5 percent for the eleventh consecutive year in 2014. Based on outlook for the current year, the forecast overall economic growth to reach 2.5 percent in 2015, mainly pushed down by negative growth in the oil sector. By year 2050, Saudi Arabia is expected to emerge as the 6th largest economy in the world, rising above Canada, United Kingdom and Switzerland, and is also set to be the Middle East’s richest economy in terms of GDP per capita1. The Kingdom of Saudi Arabia has captured 15 percent of the green building projects in the Middle East. Currently The Kingdom has more than 300 projects out of 2,000 green projects spread throughout the Middle Eastern countries, the area occupied by the green buildings in the Kingdom exceeded 20 million square meters by the end of last year (2014) but is expected to double in the current year. Economic development in Saudi Arabia is expected to continue growing at a favorable pace and research suggests that the Saudi Arabian the green building projects will be worth SAR200 billion (US$53.3 billion). However, as there are factors that encouraging market growth, there are also hindrances of growth in the industry that should be considered. The green building and construction sector in The Kingdom is attracting many interests. Currently, the players in the sector are mostly domestic conglomerates that are expanding their services portfolio. The entry of new companies has not changed the course of competition, as the market is in the early stage of development, leaving a lot of room to maneuver.

2. INTRODUCTION The construction Industry accounts for a 5 percent share of the Kingdom’s GDP as of 2014. Amid a consistently expansionary budget, that continued to increase expenditure despite squeezing the buffers amid falling oil prices in 2015, contracts worth US$79.1 billion were awarded across sectors of the construction industry in 2013. Contracts awarded began falling slightly to US$58.2 billion in 2014, propelled largely by the supply constraints and strict Saudiization measures imposed on the industry that accentuated the labour shortage and delayed existing projects from 2013, resulting in slower pace of fresh contracts awarded in 2014. Slowing oil prices 1

Citibank latest forecast.

by the end of the year are further likely to slow down the contractor awards in 2015 to US$ 52.9 billion though, growth is likely to continue at a moderate pace until oil prices recover and the earlier frantic pace of development is restored. The primary slant of construction activity is likely to be based across the building construction and infrastructure sectors. This study is aimed at providing some information regarding the market potential of green building and construction sector in Saudi Arabia, with a view to encourage Malaysian green building services and products providers, to take advantage of the growing industry, and capture a bigger market share in the Saudi’s green building market.

3. OVERVIEW OF THE GREEN BUILDING A ND CONSTRUCTION SECTOR The initiative of green building in the Kingdom was taken by Custodian of the Two Holy Mosques King Abdullah in 2009. The King Abdullah University for Science and Technology (KAUST) in Jeddah was the first green building constructed in the Kingdom and also the King Abdullah Financial District (KAFD) is the world’s largest green building development with more than 1.6 million square meters of gross site area. There are 140 such buildings throughout the Kingdom at present and 40 of them are in Riyadh. The existing green buildings cover an area of 12 million sq m, 10 percent of the green buildings in the GCC region and four percent in the world. The Kingdom’s school in Riyadh and the upcoming King Abdullah Financial City in Riyadh include some of the green buildings in the capital. On the environmental front, the Kingdom has announced its intention to spend SAR150 billion (US$40 billion) over a period of eight years beginning 2010 for the construction of “smart buildings” across the Kingdom. The smart buildings are aimed to promote long sustainability and energy efficiency through reduction in dioxide emissions, lower water consumption and better waste management. In order to encourage Malaysian companies to involve in the Saudi market, MATRADE Jeddah has always endeavored to connect Malaysian companies with their Saudi counterparts, so Malaysian companies can establish their presence in the Saudi market.

4.

DETERMINANTS OF MARK ET GROW TH

The resilience and the strength of the green building relates to a number of factors that shape their growth and act as the hindrances to their development. -

FACTORS FOR GROWTH

Some of the factors that encouraging growth includes the following: Government’s expansionary economic policy that affected various facets of the construction sector and its related industries including green building. Continuing economic liberalization and easing of doing business. Sustainable construction activities. Manageable inflation and relatively lower input prices vis-à-vis in the region. Economic diversification policy apart from the oil-industry. -

HINDRANCES OF GROWTH

On the other hand, the factors that hindering growth of the industry includes the following: Low awareness where many end-users are not familiar with the industry such as the concept of benefit from the general location of buildings for lighting and ventilation, renewable energy, water purification, environmentally-friendly building materials for health, safety and the security of the environment — a combined effort of engineering design, implementation, operation and management of construction assembly, waste and recycling. The unique desert climate of Saudi Arabia create opportunities and challenges, including ample sunlight, limited rainfall and potable water resources. Malaysian companies have an important role to play in conserving these resources, finding new and innovative methods to manage and sustain them, and exploring and developing alternative energy sources. Lack of transparency in doing business, bureaucracy, inconsistency of rules and regulations applied and the vague line of authorities in some areas.

5. PROJECTS IN GREEN BUILDING Investment in green building projects in the Kingdom is set to exceed US$26 billion across 76 projects. These projects include the King Abdullah Financial District, the world’s largest green building development, covering more than 1.6 million square meters of gross site area and King Abdullah University for Science and Technology (KAUST) in Jeddah was the first green building constructed in the Kingdom. Some brief projects as follow: -

KING ABDULLAH FINANCIAL DISTRICT (KAFD)

Riyadh's King Abdullah Financial District (KAFD) is now the largest project in the world that is seeking green building accreditation. The project involves building 34 towers in a site with a total area of 1.6 million square metres. It will provide more than 3 million square metres of space for various uses, 62,000 parking spaces and accommodation for 12,000 residents. The KAFD aims to create 44,000 new jobs and to be the largest financial centre in the Middle East.

The Saudi Binladin Group is the principal design and build contractor on the project. Sustainability initiatives at the project include an erosion sedimentation control plan to reduce pollution from dust and to control soil erosion. The company has land-watering in the project each hour and every day and other measures to control dust coming from the site. Traffic speed within the project is controlled for the same reason. The project will use alternative transport systems. The KAFD is to have a monorail system with six stations that will connect with public parking areas. There will also be parking for bicycles and changing rooms for people who come the district by bicycle.

The project requirements demand that water consumption must be reduced by 20 per cent. To achieve this, technology being used in the project includes dualflush toilet systems and low-water flow fittings. Buildings within the KAFD will also make use of gray water. Energy performance which may requires a 10 per cent reduction in energy use. The company introduced a lot of strategies to achieve this and they include low ultra-violet materials; shading device systems; heat recovery systems and efficient light fixtures. The company used at least 50 per cent of the materials from recycled material. This has involved using recycled steel and porcelain. Aiming that at least 10 per cent of the total cost will be in the form of recycled material and we could get to 20 per cent and more. Building materials have been selected which are extracted and manufactured within 500 miles of the project site for a minimum of 10 per cent of the cost of the total value of the materials used in the project, targeting 20 per cent as sustainable adhesives, paints, flooring and composite wood are being used to reach this target. -

KING ABDULLAH UNIVERSITY OF SCIENCE AND TECHNOLOGY (KAUST)

The King Abdullah University of Science and Technology (KAUST) at Thuwal (near Jeddah) in Saudi Arabia was recently announced as one of the winners of the American Institute of Architects’ Top 10 Green Buildings awards for 2010. KAUST’s new campus is Saudi Arabia’s first Energy and Environmental Design (LEED) certified project earning a Platinum certification, the highest rating in the United States’ green building rating system At 496,000 Square meters, the project also represents the world’s largest LEED Platinum project.

The university buildings have been specifically constructed to utilize natural light and ventilation. Also, the buildings support a roof capable of carrying 12,000 square meters of solar thermal and photovoltaic arrays. These arrays will use the sun to produce 3,300 megawatt hours of clean energy every year. High levels of recycled products can be found in the campus construction materials, and 75 percent of the construction material. The scale measures a whole building or structure in five areas of sustainability; sustainable site development, water savings, energy efficiency, materials selection, indoor environmental quality has been recycled. Building material selection for large projects the size of KAUST can have a large environmental footprint. The design team selected building materials that minimized any detrimental environmental effects. The construction items for KAUST included: Local concrete and steel with high levels of recycled content Interior finishes with low levels of volatile organic compounds and high levels of recycled content (gypsum board, carpet tile, ceiling tiles, paints, adhesives, millwork) Interior furniture systems that contain no volatile organic compounds (VOC), are Greenguard Certified, and have high levels of recycled content All the wood for the KAUST campus was purchased from sustainability managed forests and is Forest Stewardship Council (FSC) certified More than 75 percent of all construction waste was recycled for the KAUST campus KAUST have implemented a comprehensive recycling program to ensure that natural resources are not wasted. This plan will include glass, metals, plastic, paper, cardboard, batteries, compact fluorescent lights (CFL), electronics, and more.

6. PENETRATING THE GREEN BUILDING IN THE KINGDOM As in other countries, green building and construction works available in the Kingdom are in the public and private sectors. In the public sector, projects are awarded through competitive tenders issue by the government authorities, even though direct negotiations are possible depending on the types of the projects and/or proposal. Similar to Malaysia, for a foreign company to qualify for local projects/works, foreign companies should register with the relevant government authorities. Meanwhile participation in projects funded by the private sector could be both either through tender or direct negotiation, depending on the requirement by owner of the project. -

LOCAL PROJECTS

Most local contractors are organised as either limited liability companies (LLCs) or sole proprietors. Large local contractors tend to be organised as LLCs and are capable of fully carrying out large projects. In contrast, the vast majority of small local contractors tend to be organised as sole proprietors and carry out very small, specific tasks within larger projects for single entity government agencies. At the same time, there are many public sector, project-specific entities that tend to engage local contractors on small projects. Even the smaller sized local contractors have the technical ability and volume capacity to be competitive bidders on these small projects. -

INTERNATIONAL PROJECTS

For foreign entities wishing to do business in Saudi Arabia, a commercial presence must be registered with the authorities. It is necessary to obtain a foreign investment licence from the Saudi Arabian General Investment Authority (SAGIA), and once this licence has been received foreign entities must then register with the Ministry of Commerce and Industry. Until June of 2013, foreign entities engaging in construction projects in Saudi Arabia could register a commercial entity using several corporate structures, the most common of which were LLCs, branch offices, and Temporary Commercial Registrations (TCRs). As of June 2013, however, SAGIA has restricted foreign investors engaging in construction activity in Saudi Arabia so that they must be organised as either an LLC or a joint stock company (JSC) in order to obtain the requisite foreign investment licence. LLCs and JSCs are principally the same in that shareholder liability is limited. Essentially, the only advantage of a JSC over an LLC is that a JSC can be publicly listed and traded.

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FINANCE

In Saudi Arabia, projects are financed using a variety of methods including conventional finance, Shari’a-compliant finance, and project finance. In public sector projects, any financing of the public sector project must be approved by the Saudi Ministry of Finance. Assuming that the Ministry of Finance has approved the public sector project for government financing, the underlying government entity client pays the contractor for its services. In private sector projects, both conventional and Islamic financing structures are used. International banks as well as local Saudi banks engage in private sector project financing. While most international banks that finance private sector Saudi projects generally stick to conventional financing structures, local Saudi banks are required to use only Shari’a-compliant methods for financing private sector projects.

7. BUSINESS OPPORTUNITIES FO R MALAYSIAN COMPANIES IN SAUDI ARABIA Today, the scope for the green building market has widened and creates abundance of opportunities for Malaysian companies. The sheer size of construction works is a testimony to the excellent future of green building in Saudi. Construction is the largest non-oil economic sector in Saudi Arabia and only second after oil. There are many construction projects that have been announced an implemented, which will fuel up the need of Malaysian companies to operate and do maintenance works for these projects. There are ample business opportunities for our Malaysian companies such as in the following areas: GREEN CONSTRUCTION On the environmental front, the Kingdom has announced its intention to spend SAR150 billion (US$39.9 billion) over a period of eight years beginning 2010 for the construction of “smart buildings” across the Kingdom. The smart buildings are aimed to promote long sustainability and energy efficiency through reduction in dioxide emissions, lower water consumption and better waste management. BUILDING CONSTRUCTION With the steady pipeline of projects lined up by the government that encouraging the Public Private Partnerships (PPP), the building construction industry is set to become the fastest growing market in the GCC region in years ahead. For Saudi Arabia alone, investment in the real estate sector is expected to exceed SAR82

billion (US$21.9 billion) in the next three years, with investments in building new properties to reach SAR484 billion (US$129.1 billion) by year 2020. CONSTRUCTION OF HOUSES In April 2011, HRH King Abdullah ordered the construction of 500,000 unit of houses for Saudis at a cost of SAR250 billion (US$67 billion), and raised the value of loan provided to nationals by the country’s Real Estate Development Fund to SAR500,000 (US$ 133,000) from SAR 300,000 (US$ 80,000) per applicant. The project would take at least 10 years to be completed, thus enhance a good long-term potential for green building products/services.

INFRASTRUCTURE Saudi Arabia is leading in the Gulf region in terms of infrastructure and real estate projects that is worth SAR1.5 trillion (US$400 billion) over the next five years. The Kingdom’s infrastructure development program is considered the biggest in the GCC region, with US$385 billion has been allocated between 2010 and 2014. The country is also experimenting with Public Private Partnerships (PPP) for financing such infrastructure projects in areas such as railway networks, education and healthcare in order to revive the economic activities. Some of the major infrastructure projects are as follow: ENGINEERING & ARCHITECTURAL SERVICES Saudi Arabia’s architectural construction & engineering services remain one of the most important parts in the Kingdom’s strong economy. Significant investments in engineering and construction projects that open up opportunities for architectural services, bolster and diversify the economy. According to industry sources, more than 285 civil construction projects, valued in excess of US$260 billion, are currently underway or under design in the Kingdom. Industry sources expect an investment of around US$400 billion over the next five years on various projects, of which 70 percent of the work is government related. A number of airports in Saudi Arabia are set for expansion, including the Prince Mohamed bin Abdul Aziz International Airport in Madinah, as the Kingdom gives more attention to upgrade its airports’ infrastructure. The transportation sector initiatives are continuing with the Kingdom’s attempt to establish three new railway lines, the North-South, the Haramain high-speed project and the Saudi Land bridge. The utilities sector is also not excluded. The government approved

Madinah power and water plant and the tender for a 2,000MW independent power project in Riyadh. A contract was awarded for the Rabigh IWPP. The industrial construction sector received a major boost with the awarding of engineering, procurement and construction contracts of Jubail Oil refinery. Including Saudi Aramco, a total of US$9.6 billion worth of contracts to develop the refinery in 13 packages will be awarded. 8. COMPETITION The concept of green building in Saudi Arabia is behind Malaysia in many aspects and is undeniable, far behind the US and Europe. With only a handful of local companies to date, i.e. just over 10 local companies, only 150 Saudi engineers specialized in green building and an expert said that no matter how big they can become, these companies will never be able to match the market demand without an increase in competition. There are still very few international companies that are involve in the green building providing products/services in the Kingdom. Although there are rooms for foreign service providers, however, pricing would be the key aspect for success in this market. There is competition with respect to prices quoted for services. Competitive pricing will need careful planning as issues to be considered could be different that those encountered in Malaysia. 9. RECOMMENDATION Saudi Arabia is a promising market for green building products/services, in particular that offering the total integrated solution. Malaysian companies and related services companies should consider taking this opportunity to establish their presence in this market with the appropriate strategy. The Saudi market is a different and challenging market. Market access is hard to achieve. However these are few strategies to help our Malaysian companies enter the market: To liaise with Saudi partners who are knowledgeable of the market and trust worthy. To be committed for long-term involvement in the market. To form alliances and consortiums to enter the market as most of the projects require a very large scale companies (most projects require a minimum a company capital value of few billions). To establish their presence in the market by registering their offices in The Kingdom, as generally the Saudis prefer face-to-face interactions. To participate in exports promotion programs by MATRADE including seminar about the country and marketing missions to Saudi Arabia.

10.

CONCLUSION

The growing economy and market demand have led to remarkable business opportunities in the green building and construction sector in the Kingdom. Several Malaysian companies eventhough still very few, are making inroad into the Kingdom with millions worth of projects in hand. These Malaysian adventurers have had invested their money and sweat to reach at where they are, going through risks and challenges along the way. Saudi Arabia being a newly emerging market, much more efforts and initiatives would be expected for success, as compared to the more advanced developed markets in other part of the world.

MAJOR BUILDING CONSTRUCTION PROJECTS

Major Building Construction Projects

Project owner

Budget (US$ billion) 93

Completion

King Abdullah Economic City (KAEC)

Emaar http://www.emaar.com

Nuclear Power Reactor

KACARE http://www.kacare.gov.sa

70

2032

Saudi Housing Project

Ministry of Housing

68

2018

Sudair Industrial City

MODON http://www.modon.gov.sa

40

2029

Jazan Economic City (JEC)

SBG http://www.sbg.com.sa

27

2036

Kingdom Tower in Jeddah

Kingdom Holding http://www.kingdom.com.sa

26

2017

Jubail New Petrochemical Complex

Sadara Chemical Company http://www.sadara.com

20

2016

Haramain HSR network

Saudi Railway Organisation http://www.saudirailways.org

13.74

2016

Khozam Development

Khozam Development Co. http://www.qasrkhozam.com

13.33

2019

Renewable energy Project

KACARE http://www.kacare.gov.sa

13.30

2017

2030

LIST OF RELATED SAUDI MINISTRIES AND ORGANIZATIONS Ministry of Municipal and Rural Affairs Deputy Ministry for Classification of Contractors Riyadh Kingdom of Saudi Arabia Tel : +966 11-4043889 / 4043990 Fax : +966 11-4035433 Website: www.momra.gov.sa Saudi Arabian General Investment Authority (Singapore Office in Charge of Malaysia) Royal Embassy of Saudi Arabia, Singapore Tel : +65-6-2359540 Direct : +65-6-2359540 Email : [email protected] Contact person: Mr. Meshari S. Al-Khaled, Country Director of SAGIA National Committee for Contractors Council of Saudi Chambers P.O Box 6086 Riyadh 11442 Kingdom of Saudi Arabia Tel : +966 11 2182222 Fax : +966 11 2182111 Website: www.saudichambers.org.sa Saudi Council of Engineers P.O. Box 85041 Riyadh 11691 Kingdom of Saudi Arabia Tel : +966 11 4031414 Fax : +966 11 4032070 Email : [email protected] Wesite: www.saudieng.org Contact person: Eng. Ghazi Al-Ahmadi, Secretary General Saudi Green Building Council (SGBC) P.O.Box 66322 Riaydh 11545 Kingdom of Saudi Arabia Tel : +966 11 4190202 Fax : +966 11 4633988 Email : [email protected]

Website: www.saudi-gbc.org Contact Person: Dr. Eng. Mohammed Alhaj Hussein, Board Member of Saudi GBC Email : [email protected] Electricity & Cogeneration Regulatory Authority (ECRA) P.O.Box 4540 Riayd 11412 Kingdom of Saudi Arabia Tel : +966 11 2019045 Email : [email protected] Website: www.ecra.gov.sa/ Contact person: Engr. Nasser Al Qahtani, Vice Governor Faisal Alfadl Engineering Consultant P.O.Box 94763 Riayd 11614 Kingdom of Saudi Arabia Tel : +966 11 4888592 Fax : +966 11 4831384 Email : [email protected] Website: http://faisalalfadl.com Eng. Faisal Alfadl, Chairman

MAJOR SAUDI COMPANIES INVOLVED IN GREEN BUILDING AND CONSTRUCTION SAUDI OGER P.O. Box 1449 Riyadh 11431 Kingdom of Saudi Arabia Tel : +966 11 4773115 Fax : +966 11 4770079 Email : [email protected] Website: www.saudioger.com Contact: Mr. Fawzi Itani, Division Manager

EL SEIF ENGINEERING CONTRACTING CO. P. O. Box 11461 Riyadh 11461 Kingdom of Saudi Arabia Tel : +966 11 4549191 Ext. 308 Fax : +966 11 4542759 E-mail : [email protected] Website: www.el-seif.com.sa Contact: Eng. Fahad A. Bajsair, Senior Officer

AL MAJAL G4S P.O. Box 6930, Jeddah 21452 Kingdom of Saudi Arabia Tel : +966 12 2849622 Fax : +966 12 6659805 Email : [email protected] Website: www.almajalg4s.com Contact: Eng. Omar Mahdi, Vice President

ALFANAR CONSTRUCTION P.O. Box 86544 Riyadh 11632 Kingdom Saudi Arabia Tel : +966 11 920006111 Fax : +966 11 2105587 Email : [email protected] Website: www.alfanarconstruction.com Contact: Mr. G.V.S. Rao, Manager

THE ZAHRAN HOLDING CO. P.O. Box 7653 Riyadh 11472 Kingdom of Saudi Arabia Tel : +966 11 460 6444 Fax : +966 11 460 7871 Email : [email protected] Website: http://www.zahranholding.com Contact: Eng. Ibrahim Al Asseri, Executive

ZAMIL OPERATIONS & MAINTENANCE CO. LTD., (ZOMCO) P.O. Box 1922 Al-Khobar 31952, Kingdom of Saudi Arabia Tel : +966 13 8875513/8822494 x 203 Fax : +966 13 8822032 Email : [email protected] Website: www.zamil-om.com

PROJECT MANAGEMENT & DEVELOPMENT CO. (PMDC) P.O. Box 4843 Jeddah 21412 Kingdom of Saudi Arabia Tel : +966 12 6621800/6697181 Fax : +966 12 6620220 Email : [email protected] Website: www.lotus-sa.com Contact: Mr. Keith Procter, Business Development Manager

INITIAL SAUDI ARABIA LTD. P.O. Box 14048 Jeddah 21424 Kingdom of Saudi Arabia Tel : +966 12 6673451/6673125 Fax : +966 12 6695390 Email : [email protected] Website: www.initialsaudi.com Contact: Mohammad Bundakji,General Manager

SELECTED EXHIBITIONS & TRADE FAIRS

The Big 5 Saudi (9-12 March 2016) Website: http://www.thebig5saudi.com Cityscape Jeddah (5-7 April 2016) Website: http://www.cityscapejeddah.com Saudi Building And Interior Exhibition (11-14 May 2016) Website: http://www.sbie-arabia.com Saudi Build (26-29 October 2015) Website: http://www.recexpo.com

MATRADE Jeddah will continue to endeavor assisting our Malaysian companies doing business successfully in the Kingdom.

MATRADE Jeddah June 2015