However, this is still below the base period average growth of 3.6 per cent. The construction sector's long-term projected growth at only 2.7 per cent - based on historical performance projected forward - does not indicate robust opportunities for the industry. Nevertheless, with a projected GDP contribution of $15.7 billion by 2005, there is sure to be active competition for construction activity in the Kingdom.

The government of Saudi Arabia continues to initiate reforms to correct imbalances and strictures in the economy. Not only is it looking to the private sector to increase GDP contribution, it is looking to increased growth for potential tax revenues to help offset the heavy expenditure burden of government services. Basic subsidies for electricity, water and social services will of necessity be cut further.

With domestic debt equal to total GDP, there are few alternatives for the government but to find ways to attract additional foreign and domestic investment to maintain positive growth of the economy. However, with no policy discussion on the horizon to limit population growth to that of economic growth, growth targets of the latest development plan will not be met.

Gas initiatives under way with international firms may bring construction opportunities sometime after 2003 if agreements are reached as scheduled. Other sectors face inhibited investment opportunities due to the large 'negative list' by the government, including the upstream oil industry, telecommunications and insurance, among others.

The government's drive toward privatisation has never gotten out of first gear, with little accomplished over the last decade. Should privatisation move into high gear, an infusion of investment capital will surely impact positively on the construction sector.

The industrial cities of Jubail and Yanbu are contributing greatly to the growth of the industrial sector with industrial construction activities sharing through the multiplier effect.

Thirty-four new plants with a total capital investment of $4 billion are under construction in Jubail, while 57 others with a capital investment of $3.5 billion are in the design or planning stage. Nine plants with a capital investment of $1.5 billion-plus are currently undergoing expansion.

In Yanbu, two new major petrochemical projects are in the design and early construction stage adding to an estimated 54 industrial plants in operation. Further expansion of petrochemical downstream industries in Yanbu may await the implementation of the gas initiative to ensure adequate feedstock.

Similar industrial expansion - although to a much smaller scale - is occurring in other industrial cities of the Kingdom. Most of these are small and medium enterprises (SMEs), which is healthy, since SMEs have larger employment and income multipliers.

The question remains, however, will industrial development continue at the current pace given uncertainties arising from the 9/11 events?

In the sixth months after 9/11, lenders have started to insist that collateral of borrowers be fully covered for the risks of terrorism, especially chemical, petrochemical, fertiliser, skyscrapers and other high-risk industries, such as transport and storage of hazardous materials of all types.

Financial institutions in many countries are now scrutinising all loans in excess of $20 million if they have any terrorism exclusions. Without coverage, banks are backing off. The problem is, many international corporations are finding it nearly impossible to procure "full" terrorism coverage at a sane price. For example, before 9/11, one company's management paid $60,000 for $80 million of insurance, including terrorism coverage. After 9/11, only one carrier made an offer Ñ and the price was $800,000 for far less coverage. Recent events in the region may lead to financial institutions requiring similar coverage, thus limiting funding of projects and adversely affecting construction opportunities.

Ready access to, and availability of, long-term lending is a necessary condition for growth in construction activities. Currently, interest rates are low, encouraging long-term lending and thus construction activities. However, a consensus is emerging that interest rates have bottomed with increases on the horizon.

Added to the prospect that GCC banks will have to absorb increasing government debt issues, in view of the projected decline in oil prices, funds available for long-term lending required for construction projects will be limiting.

The highly erratic planned Saudi government expenditure for infrastructure development is shown in Table 2 with a low of $450 million in 1999 to a high of $2.69 billion budgeted for 2002.

The average increase over the base period 1996-2002 is an acceptable 102 per cent whereas, projections to 2005, based on historical performance, indicate an average decline of 28 per cent. In view of the high population growth relative to low GDP growth projections, funds available for infrastructure development will surely decline due to fund allocations necessary to maintain an acceptable level of higher priority social development.

The growing demand for personal loans and home mortgages due to the rapid increase in young married couples in their 20s and 30s requiring housing is highly evident. However, the Real Estate Development Fund, depending on repayment for funds to lend, is so short of funds that couples must wait eight to 10 years for a loan. Since domestic banks favour purchasing government debt to real estate mortgages, there are few alternatives to fuel the home real estate market, thus further dampening growth.

Commercial as well as residential real estate is not yet open to international markets in the Kingdom. It is true, that under the executive rules of the Foreign Investment Act, that approved foreign investors shall have the right to own properties to carry out licensed activity or house staff in accordance with provisions of the Non-Saudis Real Estate Acquisition Act. Such provisions are yet to be tested, plus little pledged foreign investment has been implemented to date.

Additionally, the private sector real estate developers have little representation in the international real estate market, as evidenced by the fact that only six Saudi developers are listed in the International Real Estate Digest versus eight for the UAE, six each for Lebanon and Jordan, with three for Bahrain and one for Kuwait. In short, the real estate market is mostly domestic driven, with little international impact envisioned.

Construction firms in Kingdom are mostly SMEa with only 11 firms listed in the top 100, as ranked by the Arab News. As indicated in Table 3, Saad Trading and Construction Company ranks as the 14th largest firm in 2001 with SR2.3 billion in sales turnover and SR2.856 billion of assets.

Jadawel International Group has far and away the largest assets at SR4.5 billion. On the other hand, the Samama Group of Companies has by far the largest number of employees at 13,000.

Jadawel has almost a 1.3:1 advantage over Al Suwaiket in sales turnover per employee. On the other hand, Jadawel has a 2.6:1 advantage over Makkah Construction in assets per employee.

Of interest to construction sector potential, the 11 largest firms only have a ratio of sales turnover to assets of 0.61 whereas sales turnover to capital of 2.92. Such a low ratio of turnover to assets depicts difficulty in obtaining sufficient loans to operate most efficiently.

If the above is the case for the 11 largest firms, obtaining adequate capital and loans to operate SMEs efficiently must limit domestic construction activity. It is no wonder that the domestic construction industry finds it difficult to compete against larger, well capitalised international construction firms.

In summary, the events of 9/11 have created additional difficulties in view of limiting availability of funds added to the already expected decline in oil prices and constricted government budgets adversely impacting construction activity. Each sector has to compete against limited budget allocations in the Kingdom and the GCC. Low past, current and projected GDP growth relative to high population growth shifts more financial resources into consumption rather than capital development critical to construction activities.

On the other hand, higher growth can be obtained given greater liberalisation in FDI and privatisation movement by the government. Institutional change is of greater importance than macro-economic conditions in opening development and construction opportunities, since the latter are constrained by external factors, while the former is only limited by recognition of opportunity and will to change.

Globalisation drives call for greater transparency in public and private sector activities in the region to attract sufficient FDI. The spillover of the Enron affair, where capital is moving away from firms with irregular accounts, may adversely impact on a region with known lack of transparency.