Opportunities increase as Riyadh accelerates Vision 2030
In April 2016, Saudi Arabia’s Crown Prince Mohammed bin Salman al-Saud unveiled his vision for economic and social reform in the kingdom.
The launch of the Saudi Vision 2030 fired the starting gun for a new era of investment in the kingdom that is accelerating diversification, plugging the housing shortage, opening up tourism, and expanding the kingdom’s manufacturing base.
At the core of the Vision 2030 programme, are a series of flagship ‘gigaprojects’ that are driving growth, investment and job creation in the kingdom.
These include the $500bn Neom future city, The Red Sea Project, Amaala, Diriyah, Qiddiya and Al-Ula, which were announced in 2017. Others followed, such as King Salman Park, Riyadh Sports Boulevard and Jeddah Downtown.
For much of the past five years, these projects largely have been in planning and design. And while there have been contracts awarded, the best is yet to come.
With only eight years remaining until the 2030 finishing line, Saudi Arabia’s Vision 2030 gigaprojects are entering their main construction and delivery phases. Thousands of project packages are in the pipeline that will drive project spending and business opportunities for many years.
As the kingdom emerges from devastation of the Covid-19 pandemic, these projects, together with surging oil prices and increasing private sector investment, will deliver an economic surge that will provide opportunities for companies and investors in almost every area of the economy.
The new opportunities are not only in construction. The political, institutional, and financial reforms of the past six years are also generating prospects in new areas such as renewable energy, advanced technology, transport, shipbuilding, healthcare, food, and aerospace. Behind it all, is the kingdom’s new economic champion, the Public Investment Fund (PIF).
The delivery of these large masterplan developments introduces huge new challenges for Saudi Arabia, for the PIF and for the kingdom’s projects industry.
Riyadh must deliver an estimated $1.18tn of projects by 2030 – about $147bn a year. To achieve this, it must place an estimated $569bn of construction contracts by 2025, according to projects tracker MEED projects. This represents a massive 230 per cent increase on the $112bn of awards made in the previous five years.
It is an unprecedented ramping up of activity and, unless action is taken, Saudi Arabia’s projects industry will be hit in the next 24 months by the nightmare of an overheating market – inflation, delays, disputes, bankruptcies – which could undermine the entire Vision 2030 agenda.
Riyadh is exploring ways to increase construction capacity in the kingdom, including plans to develop super-contractors involving local and international firms, or through acquiring or investing in local and regional contractors.
But the fastest way to build capacity is to attract international contractors to the market. Companies around the world can see the Saudi opportunity, but many are deterred by its reputation as a difficult place to do business.
Riyadh must rip up the kingdom’s construction playbook and restructure the industry to recruit construction firms as partners rather than contractors. The move to deliver projects through partnerships between government sponsors and contractors will entice international players back into the market.
Riyadh has shown that it is ready to innovate. Legislative updates, such as limiting government contracts to Saudi-headquartered companies and the newly launched public-private partnership law, are significant changes in the market.
Saudi Arabia 2022
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