According to reports in September, a consortium formed of Chinese and Saudi Arabian companies was awarded a SAR2.7bn (US$720mn) contract for the construction of a section of the North South Railway in Saudi Arabia. The railway project is one of three new rail projects currently under way in the country that together will transform the country's transport infrastructure, creating a national rail network. The consortium is formed of China Civil Engineering Construction Corp and Saudi Arabian companies, Al Ayuni Trading and Contracting Co and Al Abdulaziz Al Omer Establishment for Trading and Contracting. The contract pertains to a 500km section of track that links the capital city, Riyadh, with the province of Al Qassim, where the railway goes through Buraidah. According to Gulf News, the contract is for civil works on the line, and China Civil Engineering will install the track on this section. The 1,300km North South Railway will link the northern mineral belt with Riyadh. It will have offshoots to the mineral-rich Hazm and Zubariya, as well as to the industrial zones of Ras Al Zour and Jubail (where the largest combined industrial and commercial port is located). The project is estimated to cost SAR20bn (US$5.3bn) in total, and is sponsored by the Public Investment Fund.

Since our last report, we have again adjusted our macroeconomic forecasts for Saudi Arabia. These figures constitute our latest update and may supersede those in the preceding section. For 2009, we are maintaining our gross domestic product (GDP) growth projection of 0.5%, and are now a little more pessimistic about the rebound in 2010. We predict a weakfish recovery with 1.6% growth (down from 2.7%). We have also trimmed the outlook for 2011 to 2.8% (it was 4.6%). As a result, we now think that Saudi Arabian GDP growth over the 2009-2013 period will reach an annual average of 2.7%. This compares with an annual average of 4.3% in the preceding five-year period. So the total ‘GDP effect’ on our freight projections, comparing the next five-year period to the previous one, is negative.

With some slight changes, we maintain earlier adjustments to our forecasts of freight volume by transport mode (looking at what might be termed ‘non-GDP factors’). Briefly, we had raised our road and airfreight projections (relative to GDP) to reflect greater highway construction and the beginnings of a low-cost carrier boom. However, we are now pulling that back in the light of the global economic downturn. We have reduced our maritime freight projections on the strength of a quieter oil market and lower demand, and are now linking those projections more explicitly to foreign trade movements. Pipeline throughput, mainly of crude oil, can be expected to grow at a slightly slower rate than the economy – as the government continues its role as the Organisation of Petroleum Exporting Countries’ (OPEC’s) swing producer. The net effect of all these movements is that we now expect total freight tonnage volume across the main modes to increase by an annual average of 1.1% over the 2009-2013 forecast period. This will be behind the growth of GDP.

According to our latest estimates, transport and communications GDP rose by 5.7% in 2008, ahead of overall GDP, which we estimate to have increased by 4.2%. For the 2009-2013 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole, but by a smaller margin. It will achieve average annual growth of 3.2%, versus 2.7% for overall GDP. The total value of transport and communications GDP will rise to US$31.6bn in nominal terms by 2013, representing 5.7% of Saudi Arabia’s GDP.

In terms of transport modes, we expect the fastest-growing one to be rail at an annual average of 3.7% airfreight (3.5%), road haulage (2.9%), pipeline throughput (1.9%), and sea cargo (0.3%). The slower growth of oil and gas pipeline throughput will reflect the cooling of the current oil price boom towards the end of the forecast period.