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Saudi construction sector to be hit by tight economy, says builder

The construction industry in Saudi Arabia should prepare itself for the end of the construction boom of the past decade, Fawwaz Al Khodari, chief executive of Abdullah Abdul Mohsin al-Khodari Sons, told Reuters in an interview.24 Nov 2015

State budget cuts will soon begin to bite and labour reforms will begin to affect the industry, Al Khodari told the news agency.

Under new employment laws, private sector employees in Saudi Arabia are banned from working for more than 12 hours a day, and an employee must also be given a 30 minute break every five hours. There have been changes to how employees should be paid, and to their entitlement to leave.

"I think we should expect the difficult situation in the (construction) sector to go on for 18 more months," Al Khodari told Reuters.

"Companies are facing troubles mainly due to the labour reforms. We will see the result of the budget deficit later, but now we are in a situation where the pain is already there," he said.

The Saudi Arabian government is also believed to be considering significant cuts to its capital spending plans for 2016.

Saudi Arabia is likely to post a budget deficit of almost 20% of gross domestic product this year, according to the International Monetary Fund.

"I believe many projects that are not seen as being essential will be first to be shelved, including those that were tendered but not awarded," Al Khodari told Reuters.

Projects deemed 'inessential' would include plans for sports facilities rather than schools or hospitals, he said.

Any changes to Saudi Arabia's subsidised fuel prices would also have an impact, Al Khodari told Reuters. The United Arab Emirates regulated gasoline and diesel prices in August and introduced a new pricing policy linked to global prices. If Saudi Arabia follows suit, Al Khodari  told Reuters, this would hit companies with  large fleets of vehicles and equipment, including his own.

Al Khodari plans to increase the share of non-government contracts at his firm's business to 35% by 2018 from 15% currently, he said. 

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