Saudi Arabia Kicks Off $426 Billion Infrastructure Bonanza
Saudi Arabia unveiled a sweeping plan to develop infrastructure and industry across the world’s leading oil-exporting nation.
Crown Prince Mohammed bin Salman, who’s embarked on the biggest overhaul of the Saudi economy in its modern history, on Monday presided over the signing of agreements in planned deals before an invite-only crowd in Riyadh. The program will net more than $426 billion in investments by 2030 and add 1.6 million new jobs, according to a government statement.
The Saudi target for investment by 2030 “is actually growing as we speak,” Energy Minister Khalid Al-Falih said in an interview. As for the government’s outlays, “they’re significant,” and “over time there will be hundreds of billions of riyals that will be spent on both hard and soft infrastructure,” he said.
Saudi Arabia’s push for investment in railways, airports and industrial projects marks the latest effort by the biggest Arab economy to break its reliance on crude sales for government income. The Saudi government is ready to put its money into financing projects alongside international investors. Funding for projects including a new airport and rail links could require hundreds of billions of riyals in state spending.
On Monday, the kingdom sealed 37 deals worth $53 billion and announced 29 others valued at $960 million. Boeing Co. agreed to manufacture airplane parts in the kingdom and Thales SA will cooperate in defense. International Business Machines Corp. signed a deal for research into cloud computing and artificial intelligence.
Saudi Arabia is getting a makeover under the crown prince, who assumed his de facto leadership in 2017 vowing to steer the economy from its near-total dependence on crude by masterminding reforms known as Vision 2030. The kingdom’s infrastructure — from roads to water supply — was ranked 40th among 140 nations in the World Economic Forum’s latest Global Competitiveness Report.
But while higher public spending is projected to drive non-oil economic growth to 2.6 percent in 2019, the pace remains below levels achieved before 2014, when crude prices collapsed, according to Bloomberg Economics. The share of the government’s oil income will grow to 68 percent of total revenue this year.
With Saudi Arabia finding it harder to continue pumping fiscal stimulus into the economy, the infrastructure push will test investor faith after the killing of Jamal Khashoggi sparked global outcry. Al-Falih has said the program is expected to contribute $320 billion to the Saudi economy by 2030, equivalent to almost half of the country’s gross domestic product last year, and create 11 new industries from aerospace to biomedicine.
The kingdom is planning to boost expenditure this year by 7 percent, basing this year’s budget on an oil price estimated by Bloomberg Economics at as high as $80 a barrel. International benchmark Brent crude closed below $62 in London on Friday.
“The room for fiscal spending is actually quite limited,” Jaap Meijer, head of research at Arqaam Capital Ltd., said in an interview with Bloomberg Television. “Although fiscal policy is loosening a little bit into the new year, the scope of it has to be fairly limited.”
The program will link energy, mining and infrastructure projects and will include new defense industry initiatives seeking to bring technology and manufacturing to Saudi Arabia, Al-Falih said Saturday in Riyadh. The kingdom plans to restructure its power industry by separating ownership of power plants from the high-voltage lines used for transmission across the country and from the connections to homes and offices.
Known as the National Industrial Development and Logistics Program, the planned investment includes some projects that have already started and combines efforts across different industries. For example, the country has long planned to reform its electricity industry.
Some of Saudi Aramco projects will also come under the umbrella of the new program, including an industrial park on the Persian Gulf coast and a plan with Saudi Basic Industries Corp. to transform oil straight into chemicals, Al-Falih said.