Saudi Arabia: Diversification to drive infrastructure investment

By Jeanne Walters

As highlighted in our first note of this series, the need to invest in infrastructure has come into sharp focus in many economies across the globe. Saudi Arabia is no exception to this trend, both in terms of investments made in recent years as well as future plans.
Project-level data from MEED shows a sharp post-Covid upswing in the value of contracts awarded from 2021 onwards. Given that these contracts are likely to be completed over multiple years, this is consistent with a rise in infrastructure investment spending both in 2021 and beyond.
In addition to the value of projects that have been awarded and are currently in execution, there is a significant pipeline of planned projects in the Kingdom. The bulk of these projects are in the construction, power and transport sectors.
The push towards a smaller reliance on hydrocarbons is the most significant driver of Saudi infrastructure investment. This is reflected in both the additional infrastructure required to develop other sectors, as well as investment in clean energy generation itself.
While the move away from hydrocarbons is likely to be the biggest driver of infrastructure investment growth in the near to medium-term, infrastructure is also likely to be boosted by other global trends including growing regionalisation and digitisation.
The introduction of regional HQ requirements in the Kingdom are a clear sign of the desire to ensure that economic activity increasingly occurs within the borders of Saudi Arabia, rather than simply relying on imports, consistent with regionalisation trends seen in other markets.
The Kingdom is also arguably expanding domestic economic activity through the types of investments made by the Public Investment Fund (PIF). Saudi Arabia has also set out ambitious FDI targets, which will again build on the country’s domestic manufacturing market.
While some of the infrastructure spending described above will be paid for by the domestic private sector or through FDI, the vast majority of the projects currently in execution or in planning phases are government initiatives. This means that the Saudi government, either directly or via PIF, will need to provide the required capital.
The government remains well placed to cover some of the cost, with Saudi debt-to-GDP ratio low by international standards, at just under 27% in 2023. The Saudi government is also likely to continue to tap both domestic and international debt markets over the next several years.