Time to start looking beyond oil when investing in Saudi Arabia?
Even though its oil-rich landscape has served as the primary driver of prosperity in the Kingdom of Saudi Arabia (KSA) for many years, it is now turning into an anchor. The steep decline in oil (USO) (OIL) prices since mid-2014 have been weighing down public finances in Saudi Arabia (GULF) (GAF). The economy has an urgent need to plug its fiscal deficit, which mushroomed to -17% of GDP last year.
Traditionally, development of infrastructure has been the primary responsibility of the government and public sector agencies. Now, with the scale of investment exceeding budgets, governments with stringent fiscal balances are increasingly welcoming long-term private partnerships in essential projects.
PPPs part of Saudi Arabia Vision 2030
The recent Islamic Development Bank (or IDB) Public-Private Partnership Forum meeting held in Riyadh had sessions focused on how PPP could support Saudi Arabia’s Vision 2030 reform plan. The kingdom is already entering into public-private partnerships (PPPs) for some major new metro and train projects. One such project is the Saudi Land Bridge project, a 950-kilometre intercity train project linking Jeddah with Riyadh. The utilities, airports, healthcare and real estate sectors should also offer opportunities from the point of view of public-private partnerships in Saudi Arabia.
Attempts to diversify beyond oil
The government also intends to boost FDI into the economy from the current 3.8% of GDP to 5.7% of GDP by 2030 and is already making attempts in that area. The proposed Saudi Aramco IPO can be seen as a stepping stone to Saudi Arabia’s intentions to diversify its revenue sources beyond oil. By taking 5% of the company public, the government wants to generate the investment corpus to diversify the economy’s revenue sources beyond oil. Technology and mining are expected to be two key areas that should rise with the tide.