ME PoV Summer 2018 issue
Saudi Arabia’s Vision 2030
Saudi Arabia has unveiled a number of mega projects to help transform the kingdom’s economy, including Neom, a city of the future on the Red Sea coast with a total investment requirement of US$500bn, and Al Qiddiya, a 334 sq.km. entertainment district in Riyadh. Their success depends much on whether the kingdom has learnt from previous attempts at economic diversification through other mega projects such as Riyadh’s King Abdullah Financial District (KAFD) and Jeddah’s King Abdullah Economic City (KAEC).
The need: Stimulate economic growth and create jobs
Saudi Arabia's Vision 2030 sets out an ambitious economic development roadmap that seeks to diversify the kingdom’s economy beyond the oil sector. It aims to attract foreign investment, stimulate economic growth, create the jobs needed to employ the kingdom’s rapidly growing labor force and develop a more resilient economy.
Data from the Economist Intelligence Unit (EIU) shows that the oil industry still contributes over 40 percent of Saudi Arabia’s Gross Domestic Product (GDP). As such, oil price declines earlier this decade–from a high of US$115 per barrel in June 2014 to a low of US$29 per barrel in January 2016–led to a substantial slowdown in the kingdom’s economy. Real GDP growth in Saudi Arabia declined from 3.7 percent in 2014 to -0.7 percent in 2017. Although oil prices continued to recover in 2018–to over US$70 per barrel in April–they are well below the highs reached earlier this decade. Subdued oil prices continue to act as a drag on the kingdom’s economy, with the EIU forecasting that real GDP growth in Saudi Arabia will be 1.0 percent in 2018 and 2.0 percent in 2019.
The focus: Economic diversification
Saudi Arabia’s Vision 2030 program is being led by Mohammad Bin Salman Bin Abdulaziz Al-Saud, Crown Prince and Chairman of the Council of Economic and Development Affairs. An ambitious economic development roadmap, Vision 2030 will be delivered through the National Transformation Program (NTP). The NTP has set out a series of interim goals to be achieved by 2020 that include the creation of over 450,000 jobs in the non-government sector and the strengthening of partnerships with the private sector to increase the private sector’s contribution to GDP. The target for the economic diversification of Saudi Arabia is to increase the non-oil sector’s contribution to GDP from 58 percent in 2016 towards a regional benchmark of 69 percent by 2020.
The vision: Key projects
A number of major infrastructure projects are being delivered through Vision 2030, many of which are being led by the Public Investment Fund (PIF). Below is a summary of two of these projects, Neom and Al Qiddiya.
The city of Neom is one of the major transformational projects being delivered by Saudi Arabia. With a land area of 26,500 sq.km., Neom will be located in the Northwest region of the country on the Red Sea coast. A combination of the Greek for new (neo) and the Arabic for future (mostaqbal), Neom has been designed to create jobs in a diverse range of growth industries that include new and renewable energy, mobility, biotech, technological and digital sciences, advanced manufacturing, media and entertainment. Japan’s Softbank intends to invest in what will become the world’s largest solar plant at Neom as well as a major tech fund in the city. Although the project is in the early stages of development, total funding requirements for Neom are estimated at approximately US$500bn.
Al Qiddiya is another major transformational project being delivered. Located approximately 40km southwest of Riyadh, Al Qiddiya will be an entertainment district that will include theme parks, water parks, motor sports, cultural and heritage events, hotel resorts, retail and residential development across 334 sq.km. of land. Al Qiddiya aims to capture demand from Saudi Arabian tourists who currently spend their tourism Riyals in Dubai, Abu Dhabi, Oman and elsewhere in the Gulf, in addition to attracting international tourists from across the region. A key focus of Al Qiddiya is to create jobs in Saudi Arabia’s tourism and hospitality sectors while at the same time enhancing the leisure infrastructure in the Kingdom.
A key success factor for Saudi Arabia's Vision 2030 will be dependent on whether the Kingdom has learnt from previous attempts at economic diversification through other mega projects, such as Riyadh’s King Abdullah Financial District (KAFD) and Jeddah’s King Abdullah Economic City (KAEC). Changing market dynamics, global economic challenges and, in certain cases, a lack of alignment with immediate market requirements meant that many of these projects did not reach their full potential with regard to attracting the investment and creating the businesses and the jobs they were slated to do.
To succeed this time around, Saudi Arabia needs to scale and phase the planned mega projects in line with anticipated market demand, clearly differentiate the offer from current and planned competing schemes in the region and build a legal and regulatory environment that enables the foreign investment required to deliver these projects.
by Martin Cooper, Director, Financial Advisory, Deloitte Middle East