KSA sees '$1trn invested in real estate and infrastructure'

The Kingdom of Saudi Arabia (KSA) will see sustained property market growth, fuelled by Vision 2030 and the Iskan programme, with $1 trillion slated for real estate and infrastructure projects, said top ratings agency S&P Global Ratings. 


At least eight new cities are planned, predominantly along the coast of the Red Sea, with more than 1.3 million new homes, by end-2030. Numerous projects are also slated for existing main cities. With the ambitious target for Riyadh to become one of the 10 largest cities in the world, its population is projected to exceed 15 million by 2030 from around 8 million (2018 estimates).


Saudi Arabia's retail property market has a lot of long-term growth potential. Real estate will gain from various new programmes to provide local housing and invigorate the business and financial sectors via investments in commercial real estate, S&P said.


Winning sectors

Looking at sectors that stand to win from Saudi Arabia’s Vision 2030 S&P said energy, real estate, transport, tourism, health care, and digital infrastructure will see meteoric growth.


“It will fall to the debt-capital markets to support a large portion of these new opportunities, as the government and the banking sector alone will not be able to meet all the required funding needs,” said S&P.


“We do not anticipate taking any immediate rating actions on Saudi corporate entities, even as they carve out significant capex budgets over the next two-to-five years, because of their healthy balance sheets and strong liquidity.”


Energy sector

The energy sector is a substantial contributor to the government's revenues and its credit quality is currently benefiting from higher oil and gas prices. This windfall will help fund the government's share of investments despite its heavy capital expenditure (capex) burden.


The Saudi oil and gas sector will attract cautious but ongoing capex, said S&P. “Even so, we think exploration and production (E&P) will increase spending only modestly in 2022. Saudi Aramco (not rated) has publicly announced that its 2022 capex will be at the lower end of its guidance of SR150.0 billion-SR187.5 billion ($40 billion-$50 billion) compared to 2021 capex of SR119.6 billion ($31.9 billion). 


Saudi Aramco is reportedly focusing on upstream and downstream investments including expanding its crude oil production capacity to 13 million barrels per day (mmbpd) by 2027 and boosting gas production by more than 50% by 2030, in addition to the long-term goal of up to 4 mmbpd liquids-to-chemicals, all of which requires continuous capex.


Petrochemical industry

The petrochemical industry will be key to delivering Vision 2030. Despite the softer macroeconomic outlook, feedstock availability and affordability should help Saudi chemical producers mitigate some of the challenges of the inflationary and volatile operating environment. Investment in the domestic petrochemical sector is expected to ramp up.



Tourism has already received a substantial boost via aviation developments as well as projects intended to help attract 100 million visitors per year by 2030, such as the Red Sea Project, which envisages luxury hotels, marinas, and an airport.


As it is one of the key focuses of Vision 2030 and a main non-oil growth driver, tourism will provide investment opportunities for private local or international investors. 


Saudi Arabia aims to attract 100 million visitors per year by 2030, of which about a half to Riyadh, and including 30 million religious visitors (from eight million currently). The aim is for tourism to contribute 10% of GDP (about 3% currently) and create jobs for young Saudis. The country's modernisation efforts and investments in mega projects for tourism and entertainment--Neom, Red Sea Project, Qiddiya--should attract more international visitors.


The government aims to attract private investors to fund tourism developments. Saudi Arabia established a Tourism Development Fund in 2020 with $4 billion in capital, with a mandate to facilitate private investors' access to investment opportunities by providing funding to projects.


Hospitality infrastructure will be mostly funded by local and foreign private investors, with plans to add 500,000 hotel rooms by 2030 (around 62,000 branded hotels keys currently), the bulk of which will be in the mega projects. Material investments in the transport segment will create infrastructure to enhance travel, with proceeds from both public and private funds.



Digital infrastructure developed by telcos will be at the heart of investments including high speed broadband, 5G, and a strategic digital hub (the Mena Hub).


The Saudi telecommunications market is dominated by three players and is key to Vision 2030. The operators, with Saudi Telecom Co. (stc) as market leader, will help the country meet its Vision 2030 objectives and will also benefit from its expected economic growth. 


For the economy to achieve a successful digital transformation, advanced infrastructure and digital skills are required. To scale up the digital economy, 5G network and broadband development will continue. This will boost Saudi Arabia's e-commerce, digital banking and financial services, online education, and health care sectors, as well as other online services such as e-government.


Food and agriculture

Investments in the food and agriculture sectors aim to increase local production and adopt modern farming techniques. Despite strong demand and price increases, profitability in these sectors remains lower than before the pandemic, with rising input costs obscuring the path to recovery.


Food security is a key area of diversification given that the population is 33 million and growing, and about 80% of food is currently imported. Significant innovation and the adoption of new technology is under way.



The Ministry of Health will soon assume a regulatory role, with the private sector expected to play a more important part in developing health care, attracting more than $65 billion in investments.


Under Vision 2030, the government has committed to 88% of the population being covered by inclusive health services by 2025.


Vision 2030 and production localisation should support steady growth in other health care subsectors. The pharmaceuticals market is one of the largest in Mena and is expected to reach $10.7 billion by 2023, from $6.0 billion in 2018. Manufacturing localisation grew steadily to 40% in 2020, from 20% in 2016, and S&P expects government incentives will continue to attract investments.



Utilities face the mammoth task of reducing Saudi Arabia's fossil fuel dependency and meeting 70% of energy needs from renewables by 2030. “We expect more public-private partnerships (PPPs) and significant investments in the country's grids,” S&P said.


By 2030, Saudi Arabia targets to generate half its power via green assets and the other half from gas. To rapidly decrease its reliance on fossil fuels, the government has initiated the early decommissioning of some oil-fired power and water plants.


Seawater reverse osmosis installed capacity is expected to increase by more than five million cubic metres per day by 2026. Saudi Arabia is also working on becoming a major supplier of hydrogen worldwide to diversify away from oil exports.


A consortium comprising ACWA Power, Air Products, and Neom (a PIF affiliate) expects to close the $5 billion NEOM Green Hydrogen Project in Q4 2022. It will be the world's largest commercial hydrogen facility entirely powered by wind and solar energy and will aim to export green ammonia.-- TradeArabia News Service


Source: https://www.tradearabia.com/news/CONS_404098.html


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