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New development projects in Saudi Arabia

Last week, the Saudi delegation to the World Economic Forum informed the world that their country was back to business and open to investors, this after the Khashoggi case rendered Western investors reluctant to deal with Saudi Arabia. This week, Saudi officials have backed up their talking points with a development plan worth as much as $450 billion and including 300 initiatives in various sectors of the economy.

Incorporated in the National Industrial Development and Logistics Programme (NIDLP), those initiatives seek to turn Saudi Arabia into an industrial powerhouse and create 1.6 million jobs up to 2030. Seeking to increase the value of non-oil exports to $260 billion by then, from an expected value of $77.6 billion in 2018, Saudi Arabia needs to attract as much as $450 billion of investments from the private sector over the next decade.

To welcome future investments, the Kingdom hosted on Monday its second major investment conference since Khashoggi’s murder. The event was organised in the Ritz-Carlton Hotel of Riyadh and was a great success for the Kingdom’s Crown Prince Mohammed bin Salman as well as his goal to modernise the Saudi economy through Vision 2030. Indeed, it is reported that 37 deals combining a value of $54 billion were signed during the conference, including a hydrocarbon resins factory deal between the local chemicals company Alrafiyah and US-based Eastman Chemical for a value of $500 million. On the same occasion, 29 pacts were announced in logistics, mining and energy for nearly $1 billion.

Although the NIDLP aims at attracting private investments and bolster privatisation, the Saudi government pursues its historical policy of supporting public-private partnerships. For the conference, 20 deals rooms were created so that officials from the 34 government agencies could meet with private sectors and present them with future opportunities. Most investment opportunities included in the NIDLP are backed by enablement packages and BOT (Build-Operate-Transfer) deals, meaning that Saudi government agencies will distribute concessions to private partners in the form of financial incentives, stimulating regulations, funding, human capital development, R&D centres and industrial zones. For instance, the Saudi Export Development Authority (SEDA) and Saudi Industry Development Fund (SIDF) are to launch enablement packages to boost export financing.

Castlereagh Associates examined a government paper titled “Investment Opportunities: Integrating towards a prosperous future”which was published by the NIDLP. The paper presents more than 60 initiatives in the mining, industry, logistics and energy sectors, seeking as much as $20 billion from investors. Below, lies a table with the top 10 deals incorporated in the “Investment Opportunities: Integrating towards a prosperous future”, with a combined value of $16.4 billion.

For each of these sectors, the government proposes different values to attract investors, including 6 enablement packages. First, investment opportunities integrate a solid understanding of future domestic demand and how it can be stimulated. Second, the government aims at creating industrial zones, R&D centres and talent hubs to support the work of private companies. More particularly, NIDLP is focused on bringing the fourth industrial revolution to the Kingdom by developing “4.0 capability centres”, establishing 100 model factories and improving telecom infrastructure to integrate the newest technologies. Saudi Arabia and the UAE are expected to develop smart cities and need to adopt 5G technology and the Internet of Things. Al Khobar, in the Eastern Province of Saudi Arabia, was actually the first city in the region to get 5G network thanks to the Saudi Telecom Company (STC). Third, government agencies offer private entities export enablement packages, funding and financial incentives. Finally, new regulations are set to be introduced to stimulate business in the four aforementioned sectors.

Mining:

Already accounting for $17 billion a year in the GPD, Saudi Arabia’s mining sector is set to become the third pillar of the country’s economy, after oil and petrochemicals. Ultimately, the country seeks to reach $40 billion in fully integrated mining values chains (upstream, mid and downstream) through private-public partnerships. To attract investments, the NIDLP plans to enhance data access, conduct geologic prospects, provide competitive energy prices and introduce well-trained Saudi engineers in geology, mining and metallurgy. Building and vocational training programmes are also set to be encouraged throughout the Kingdom’s Higher Education system. Additionally, SEDA is meant to provide export enablement packages such as Export-Import bank services and streamlined export procedures. For R&D, it is said that on top of $3.4 billion in public research spending, there will be a Mining Centre of Excellence focused on applying innovation and consulting services for technology dissemination and extractive metallurgy support. A Metallurgical Alloy Development Centre will also be created to provide such services.

Looking to build an extensive logistics network to support mining, the paper under study plans to build a new copper and zinc smelting plant as well as steel mega-plants to be used as potential outlets for base metal and iron ore production. SIDF is set to provide mining companies with loans up to 75% of their capital invested, at competitive rates and with an 18 months grace period. An Exploration Fund worth $133 million is set to be operative by 2020 to support explorers and de-risk their operations. On the regulations side, mining will be made easier through a new mining investment law, online and streamlined licensing processes and a one-stop-shop for mining investors in each of the 13 Saudi regions. Health and Security regulations as well as an online National Geological Database are set to be updated. Below lies a table with 11 mining projects introduced in the “Investment Opportunities: Integrating towards a prosperous future” paper. Most of these initiatives are promoted by MA’ADEN, the Saudi Arabian Mining company.

Energy:

Already being a global energy powerhouse and aiming to become a hub for renewable energy, Saudi Arabia also plans to attract heavy investments from the private sector. Earlier this month, Khalid Al Falih, the country’s Energy Minister announced 12 new tenders in this green sector at the Abu Dhabi Sustainability Week. In fact, Saudi Arabia plans to reach a renewable energy production capability of 60GW by 2030 and has already 35 projects in mind to deliver such goals. Additionally, Riyadh plans to boost the production capacity of gas to 18 billion standard cubic feet by 2020, to support the growth of industries and clean electricity, this in a country where 45% of the electricity comes from oil.

With the inauguration of the King Salman Energy Project (SPARK) last December, Saudi Arabia plans to continue the development of energy parks with more than 35 such parks planned to be constructed by 2030. Such industrial zones for energy will also have improved transmission and distribution infrastructure such as smart grids and smart meters technologies. The power export enablement package from the state will also seek to leverage under-utilised generation capacity via interconnected agreements. Moreover, national efficiency standards will be enhanced and the National Centre for Renewable Energy Data will be created to provide renewable energy data and information to all users, thus enabling better usage.

King Abdullah City for Atomic and Renewable Energy (KACARE) is meant to provide talent through a Renewable Energies Human Resources development programme. For R&D, KACARE is also meant to enter partnerships with private investors to localise technologies in renewable energy. Such partnerships are estimated to be financed with $266 million. Another $85 million will be invested in aquaculture to increase species possibilities and best possible Feed Conversion Ratio. The table below presents the 11 initiatives included in the “Investment Opportunities: Integrating towards a prosperous future” paper. Most of those initiatives are either promoted by the Saudi Arabian General Investment Authority (SAGIA) or the National Renewable Energy Authority.

Industry:

The key point of the “Investment Opportunities: Integrating towards a prosperous future” paper is the Industrial sector, which includes 32 initiatives detailed below. For most of the initiatives, the government agency of “Industrial Clusters” is particularly involved.

Industrial sector investments up to 2030 are hoped to reach $300 billion, thus making the bulk of NIDLP investments. Automotive manufacturing, chemicals, commerce, food processing, pharmaceuticals and medical supplies as well as military manufacturing are the main industrial sectors of interest to the programme. Saudi Arabia hopes to localise 50% of its military hardware use in ten years through Saudi Arabian Military Industries (SAMI) and has on Monday reached deals with European military companies such as France’s Thales and Belgium’s Cockerill Maintenance and Engineering (CMI). $50 billion of further projects in military, chemicals, small businesses are also meant to be announced later.

With nearly 4 million diabetic people in Saudi Arabia, the country is well advised to develop its pharmaceutical capabilities and boost its medical supplies. The NIDLP seeks to favour locally manufactured products and to provide long contract periods with investors to secure demand. Additionally, it also provides off-take agreements to drugs’ manufacturers to support their investments. In addition to a National Command Centre easing end-to-end clinical trial processes, industrial zones are likely to be further developed and enhanced with access to academia, modern facilities and equipment.

Considering the higher R&D investments and risks linked to the pharmaceutical industry, the SIDF will offer longer repayment terms up to 20 years for vaccines, plasma and biologics drugs. On the regulations’ side, registration of new drugs will be made easier, especially for drugs combating life threatening conditions and drugs having already been approved by foreign authorities like the European Medicines Agency. Verification reviews of each drug are said to not be longer than 30 days.

For food processing, industrial zones will have specific infrastructure and equipment such as cold storage, ready warehouses and logistics solutions. For aquaculture, six to eight marine clusters are to be developed throughout the Kingdom with facilities such as floating docks, ice factories, gas stations and boat maintenance workshops. Additional infrastructure such as feed mills, processing plants and hatcheries are also planned as well as awareness campaigns made to increase the general public’s knowledge concerning locally produced seafood and its health benefits in relation to foreign produced seafood.

With the future purchase of SABIC by ARAMCO from the Public Investment Fund (PIF), chemicals are likely to see great investment opportunities in Saudi Arabia. SIDF will provide loans with up to 2 years grace periods for chemicals investors. Financial incentives such as a specific tax regime, sustainable and competitive power tariffs and access to cheaper feed stock as well as longer term contracts are also meant to attract investors in this industry. Industrial zones with infrastructure for basic and intermediate chemicals are planned to be installed on both the West (Yanbu) and East (Jubail) of the country and access to dedicated special economic zones like SPARK will be facilitated.

Finally, for the aerospace industry, Saudi Arabia aims at encouraging local investment in aviation manufacturing and Maintenance, Repair and Operations (MRO). For this, tax and duty relief are intended while educational programs in aviation and training collaboration are also meant to bolster local talent in the industry. Aerospace clusters will be located near the main airports of Riyadh and Jeddah while eight new companies and operations are to be established in this industry.

Logistics:

The missing piece to NIDLP reforms is logistics and according to Nabil Al Amoudi, the Transport Minister, this sector has certainly not been forgotten. Indeed, Saudi Arabia seeks to become a logistics hub in the region as it seeks $35 billion in new investments up to 2030, by building 5 new airports, expanding or constructing 5 air freight stations and building up to 4,000km in railway lines, the country hopes to reach its goals of becoming a regional logistics hub. Altogether, with 60 initiatives, the country aims to be ranked 25th in 2030 in the World Bank Logistics Performance Indicator, from its 55th place in 2018. The UAE were already ranked 11th last year.

Talking to CNBC, Minister Al Amoudi said that reforms in the logistics sector were meant to ensure that good business opportunities remain sustainable over the long term. The Transport Minister asserted that with the region’s largest economy, political stability over a century and a market that consumes a lot, Saudi Arabia provides great business opportunities. More particularly, the Kingdom is an Origin Destination for many cargoes, which makes logistics development a rather rational investment. In addition to ensuring that future cargoes meant for its domestic market will find adequate ports and airports, Saudi Arabia aims to develop its re-exporting sector and to create more bounded zones in the eastern parts of the country.

For attracting investment, a national transport strategy and integrated masterplan will be implemented to ensure the alignment and integration of logistics projects. With new airports, upgraded sea and land ports infrastructure, as well as increased railway cargo and urban transport capacity, this plan will be comprehensive. Three to four Original Equipment manufacturers (OEM resell another company’s products under their own branding) are set to be supported by a dedicated Auto City and multiple supplier manufacturing plants with automotive test tracks, an auto academy (meant for vocational training), logistics hub and other shared services to ensure the development of the automotive sector in Saudi Arabia. Such OEMs are set to have duty rebates for every car produced and up to 15% of the car value will be given as production incentive, to be spent on Saudis’ wage support, experts and knowledge transfer and training.

On the regulations’ side, the government seeks to provide an industrial database and reports from the Industrial Information, and to improve standard of safety for the railways, aviation industry and to ensure flexible national private-public partnerships that will facilitate private investments and bolster transparency in the logistics sector. Below lies a table with the 7 logistics initiatives included in the “Investment Opportunities: Integrating towards a prosperous future” paper. Due to the importance of railways for the future of logistics in the Kingdom, the Saudi Railways Company is the main promoter of the following initiatives.

Sources:

Arabian Business, 7 November 2018, “How the UAE, Saudi Arabia are planning a 5G revolution”

ABC News, 28 January 2019, Aya Batrawy, “Saudi Arabia showcases $53 billion in deals at conference”

Arab News, 29 January 2019, Hala Tashkandi and Frank Kane, “Saudi development program targets $450 billion investment, 1.6 million new jobs”

CNBC, 27 January 2019, Natasha Turak, “Saudi Arabia seeks more than $425 billion in investments for massive infrastructure program”

Trade Arabia, 20 December 2017, “Non-oil revenue to back Saudi Arabia budget for 2018”

Vision 2030/NIDLP, 25 January 2019, “Investment Opportunities: Integrating towards a prosperous future”

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