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The Kingdom of Saudi Arabia (KSA) will have sustained real estate market growth, fueled by Vision 2030 and the Iskan program, with $1 trillion earmarked for real estate and infrastructure projects, S&P Global Ratings said.
At least eight new cities are planned, mostly along the Red Sea coast, with more than 1.3 million new homes by the end of 2030. A number of projects are also planned for existing capital cities. With the ambitious goal of making Riyadh 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 real estate market has a lot of potential for long-term growth. The properties will benefit from various new programs to provide local housing and strengthen the business and financial sectors through investments in commercial real estate, S&P said.
Winning sectors
Looking at the sectors that stand to gain from Saudi Arabia’s Vision 2030, S&P says energy, real estate, transportation, tourism, healthcare and digital infrastructure will experience meteoric growth.
“It will fall on the debt capital markets to support much of this new opportunity, as the government and the banking sector alone will not be able to meet all the necessary funding needs,” S&P said.
“We do not expect to take any immediate rating action on Saudi corporate entities, even as they commit significant capital budgets over the next two to five years, due to their healthy balance sheets and strong liquidity.”
Energy sector
The energy sector is a significant contributor to government revenues and its credit quality is currently benefiting from higher oil and gas prices. This windfall will help fund the government’s share of investment despite a heavy capex burden.
The Saudi oil and gas sector will attract cautious but ongoing capital investment, S&P said. “Even so, we think exploration and production (E&P) will only increase spending modestly in 2022. Saudi Aramco (unrated) has publicly announced that its 2022 capex will be at the low end of SR150.0 billion-187.” 5 billion ($40 billion-$50 billion) compared to 2021 capital expenditure of SR119.6 billion ($31.9 billion).
Saudi Aramco is reportedly focusing on upstream and downstream investments, including expanding crude oil production capacity to 13 million barrels per day (mmbpd) by 2027 and increasing gas production by more than 50% by 2030, in addition to a long-term target of up to 4 mmbpd of liquids into chemicals, all of which require continuous capital.
Petrochemical industry
The petrochemical industry will be key to achieving Vision 2030. Despite the softer macroeconomic outlook, feedstock availability and affordability should help Saudi chemical producers mitigate some of the challenges of an inflationary and volatile operating environment. Investments in the domestic petrochemical sector are expected to increase.
Tourism
Tourism has already received a significant boost from the development of aviation, as well as projects aiming to attract 100 million visitors a year by 2030, such as the Red Sea project, which envisages luxury hotels, marinas and an airport.
Being one of the key focuses of Vision 2030 and a major driver of non-oil growth, tourism will provide investment opportunities for private local or international investors.
Saudi Arabia aims to attract 100 million annual visitors by 2030, roughly half of them to Riyadh, including 30 million religious visitors (up from eight million currently). The goal is for tourism to contribute 10% of GDP (currently around 3%) and create jobs for young Saudis. The country’s modernization efforts and investments in tourism and entertainment mega projects – Neom, the Red Sea Project, Kidia – should attract more international visitors.
The government aims to attract private investors to finance the development of tourism. In 2020, Saudi Arabia established a $4 billion Tourism Development Fund with a mandate to provide private investors with access to investment opportunities by providing funding for projects.
Hospitality infrastructure will be mainly financed by domestic and foreign private investors, with plans to add 500,000 hotel rooms by 2030 (currently around 62,000 branded hotel keys), most of which will be in mega projects. Material investments in the transportation segment will create infrastructure to improve travel, with revenues from public and private funds.
Telecommunications
Digital infrastructure developed by telecommunications will be at the center of investment, including high-speed broadband, 5G and a strategic digital hub (Mena Hub).
The Saudi telecommunications market is dominated by three players and is key to Vision 2030. Operators, with Saudi Telecom Co. (stc) as a market leader, will help the country meet its Vision 2030 goals and also benefit from the expected economic growth.
For the economy to achieve a successful digital transformation, advanced infrastructure and digital skills are needed. In order to increase the digital economy, the development of 5G network and broadband access will continue. This will boost e-commerce in Saudi Arabia, digital banking and financial services, online education and the healthcare sector, as well as other online services such as e-government.
Food and agriculture
Investments in the food and agricultural sector are aimed at increasing local production and adopting modern agricultural 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 around 80% of food is currently imported. Significant innovations and adoption of new technology are underway.
Health protection
The Ministry of Health will soon assume a regulatory role, and the private sector is expected to play a more important role in the development of health care, attracting more than $65 billion in investment.
As part of Vision 2030, the government has pledged that 88% of the population will be covered by inclusive health services by 2025.
Vision 2030 and localization of production should support steady growth in other sub-sectors of healthcare. The pharmaceutical market is one of the largest in Maine and is expected to reach $10.7 billion by 2023, up from $6.0 billion in 2018. Localization of manufacturing has grown steadily to 40% in 2020, up from 20% in 2016, and S&P expects continued government incentives to attract investment.
Communal services
Businesses face the enormous task of reducing Saudi Arabia’s dependence on fossil fuels and meeting 70% of its energy needs from renewable sources by 2030. “We expect more public-private partnerships (PPPs) and significant investments in the country’s networks,” S&P said.
By 2030, Saudi Arabia aims to produce half of its energy through green means and the other half from gas. To rapidly reduce its reliance on fossil fuels, the government has initiated an early phase-out of some oil and hydro power plants.
Installed seawater reverse osmosis capacity is expected to increase by more than five million cubic meters per day by 2026. Saudi Arabia is also working to become a major supplier of hydrogen worldwide to diversify away from oil exports.
A consortium of ACVA Power, Air Products and Neom (an affiliate of PIF) expects to close the $5 billion NEOM green hydrogen project in the fourth quarter of 2022. It will be the world’s largest commercial hydrogen plant powered entirely by wind energy and the sun and will aim to export green ammonia.
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