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Few countries can claim to have as ambitious plans as Saudi Arabia. A number of mega-projects are set to come to fruition in the next decade, which will change not only the kingdom’s landscapes but, in many cases, the day-to-day lives of residents, too.
From theme parks and metro lines to the world’s tallest structure, here are 15 mega-projects shaping the future of Saudi Arabia. The non-oil economic activities outside the government contributed with a share of 50.7 % to GDP, with the manufacturing (excluding petroleum refining) with a share of 7.8 % being the most important sub-category within the non-oil economy. Saudi Arabia’s ‘giga’-scale reforms are gaining momentum, and this is only the beginning: Saudi’s extensive Vision 2030 economic and social reform program was launched in 2016 but has gained significant momentum this year. Political will behind reforms is high and the runway for continued momentum should extend into the next decade.
Saudi Arabia Set to Become World’s Fastest-Growing Major Economy in 2023
Saudi Arabia is set to overtake India as the fastest-growing major economy in 2023 after the latter lost growth due to weak demand at home and abroad. The Kingdom’s real gross domestic product grew by 8.8 % in the third quarter of 2022 compared to the same period in 2021, driven by an increase in oil activities, according to a report released by the General Authority for Statistics (GASTAT). According to Bloomberg, Saudi Arabia is expected to outpace India with 7.6% gross domestic product growth in 2023. This follows a 6.8% expansion forecast by the Reserve Bank of India, made by the end of March 2022. Last December, the Saudi Cabinet approved the state’s general budget for the fiscal year 2023. The budget covers total spending at SAR 1.114 trillion ($297 billion) and expects revenues estimated at SAR 1.130 trillion ($301 billion), producing a surplus of 16 billion riyals ($4.2 billion).
Privatization Program and Regulatory Framework
On Vision 2030, it is recognized that to achieving the Privatization Program’s ambitions, it requires three key strategic pillars, which are establishing the legal/regulatory basis, establishing the institutional basis and steering the sector privatization program. On the regulatory framework, the first pillar, different reports mention critical points for a privatization program to succeed including (but not exhaustive) clear regulations, identifying development areas that are compatible with the role of the future government as regulator and the role of the private sector as an operator, a high level of transparency and accountability, and others. It is important to put into place a series of cross-sector regulations applicable to all industries, including antitrust, health and safety, environmental protection, and intellectual property rights.
Saudi Privatization Program is built on three pillars: establishing legal/regulatory basis. Establishing the institutional basis and steering the sector privatization programs.
According to an international law firm (Linklaters), in July 2021, a new Private Sector Participation (PSP) law came into force which provided a comprehensive framework for the regulation of arrangements between the Government and private sector entities in relation to the provision of infrastructure and other public services projects. In January 2022, the National Center for Privatization (NCP) and PPP approved rules which govern how these agreements are reached. For examples, the Private Sector Participation (PSP) Law Implementing Regulations will require to have real competition in tendering processes and guarantee the public interest is protected. In addition, the new laws provide a plan to assure any conflict of interest is avoided. While we are not legal experts, the recent news indicates that changes have been made to engage international investors and to increase the private sector contribution to Saudi Arabia’s GDP.
Saudi Arabia participates in the World Economic Forum 2023
A high-level delegation from the Kingdom of Saudi Arabia is set to participate in the World Economic Forum (WEF) Annual Meeting 2023 in Davos, Switzerland, to enhance international cooperation and design joint solutions to today’s geopolitical, social, economic, and human development challenges. Returning to its regular winter format after the first summer Forum was hosted in May 2022 due to the COVID-19 pandemic, this year’s Davos session will run between 16-20 January under the theme of “Cooperation in a Fragmented World”. Reflecting the Kingdom’s balanced approach to geopolitical bridging between all nations and regions to reduce near-term risks while driving multilateral reform.
Saudi Arabia is undergoing an unprecedented transformation with sweeping social and economic reforms, c. $1 trn in giga project commitments, and rapid demographic shifts. The future of Saudi into 2030, identifying underappreciated global implications across oil, contractors, luxury, renewables and more.
Saudi Arabia in a Development Context
Situating Saudi Arabia from a development perspective is challenging. Its per capita GDP is well above the average of middle and middle-high income Emerging Markets and most comparable to some of the wealthier countries in Eastern Europe, but its Gini coefficient is closer to that of Turkey and Morocco provides a visual of the conundrum that arises when trying to situate Saudi Arabia in a comparative development context. Saudi Arabia does not fit into conventional development boxes. To situate Saudi within an EM framework, whether it is high income, emerging, or even potentially an advanced developing economy in a “middle income trap”, requires a broader context of fundamentals.
Economic Reform Commitments and Momentum
At least $900bn in giga-, mega-, and related project spending commitments to 2030: In order to assess Saudi Arabia’s giga-, mega-, and related project spending commitments we have built a key project-by-project database using data from Knight Frank, MEED, and cross-checking with official government guidance (mentioned in below figure).
Overall, it is estimated $951bn in spending commitments to 2030 of which c. $54bn has already been spent. Spending and project development is set to continue beyond 2030. For example, the government’s largest project, NEOM, is expected to complete Phase 1 in 2030 (estimated $320bn cost), though the total cost is estimated to be at least $500bn.
KSA’s growth in 2023 to be fueled by non-oil and oil sector activity
Kingdom’s macroeconomic performance and outlook for growth, fiscal policy, inflation, the labor market, the external sector, the overall business environment and reform momentum. The forecast for this year assumes continued momentum from 2022’s stellar 8.5 percent growth and expansion in non-oil domestic economic activity in 2023, led by the private sector.
It also noted that, overall, fiscal restructuring in the Kingdom continues to assist in streamlining operating spending and diversifying income sources. Not surprisingly, the fiscal balance expects to show a surplus in 2023, and over the medium term until 2025. This would represent the second year of consecutive surplus for Saudia Arabia following eight years of budget deficits.
In addition, public debt is forecast to remain below the government’s debt ceiling of 50 percent, the report added. Saudi Arabia’s unemployment rate continues to decline, while female labor force participation continues to grow. The share of women in the labor force has doubled in just four years, exceeding the Vision 2030 target already.
However, according to Strategic Gears’s experts, the supply of specialist talent will need to keep up with growing demand. This could have wide-ranging long-run implications including higher labor costs. The year 2023 is expected to witness interesting activity in the travel, tourism and hospitality space, entertainment and related industries, progress on green initiatives, as part of the Saudi and MENA Green Initiatives, and the mining industry.
Venture: Building the Saudi Tech Stack
The next five years should see $1 trillion of capital deployed across the Middle East in venture funding. By 2030, conservatively this figure could be $3 trillion, and if the Middle East were to grow in parallel to how the US grew (which we concede is an unlikely bull case for a number of reasons such as network effects and consumer density), the capital deployment could be as high as $9 trillion cumulatively between now and the end of 2030. This private tech stack will support and accelerate the development of the public tech stack.
Balanced approach to international relations
Saudi Arabia will seek to better balance its international relations between East and West during 2023. The kingdom has a long-standing strategic partnership with the US, which will remain a key trading partner and principal international security partner. However, Saudi Arabia will increasingly adhere to a more independent foreign policy approach than in the past, which implies close ties with China and Russia at the expense of antagonizing traditional allies in Washington and the EU. In part this reflects the ongoing shift in Saudi trade and investment ties towards Asia, especially China, and the success of the OPEC+ alliance led by Saudi Arabia and Russia in shaping global energy market conditions. Saudi Arabia has held high-level ministerial meetings with China, India and Japan in recent months, and will seek to deepen commercial and strategic ties with these major Asian countries in 2023.
Saudi Arabia, which we estimate will have recorded the fastest rate of economic growth among the world’s major economies in 2022, will post another year of solid albeit slower growth in 2023. The pace of growth will slow from an estimated 9.1% in 2022 to a reasonably robust 3.6% in 2023, which will place the kingdom just behind the UAE and make it the second fastest growing economy among the Gulf Co-operation Council (GCC) states. Oil production and exports will contribute less to overall growth in 2023 as international energy demand moderates in line with an expected slowdown of the global economy and recession in some of Saudi Arabia’s major export markets, especially those in western Europe. However, the energy and non-energy sectors will continue to benefit from large-scale investment by the state-owned energy giant Saudi Aramco and its subsidiaries, as well as “off-budget” spending by the Public Investment Fund (PIF) and the National Development Fund (NDF) on the kingdom’s evolving portfolio of economic development and diversification projects.