Whether you are a first-time visitor, a regular, or a resident in Saudi Arabia, one can always do a double take when the scale of strategic ambition in the Kingdom presents itself.
The societal, economic, and cultural transformation that is underpinned by Vision2030 is astonishing. This can manifest when you see the number of cranes reaching into the skies over the Diriyah Gate Authority area in Western Riyadh, visiting the newly opened Sindalah Island in the azure blue waters of the Red Sea, or attending the Cityscape Global conference and viewing rendered pictures or models of Qiddiya the entertainment city which plans to host 45m[1] guests a year. The energy is palpable everywhere you go.
It would be foolhardy to expect a transformation path on this scale to be linear i.e. all objectives met on time, on budget and to original plans. That is why over the last few months the first ‘reset’ of perhaps many has emerged in the Kingdom. This ‘recalibration’[2] as some are calling it, is not of the ambition, but how to deliver it. Leadership, capital and other resource is being redirected in some key areas. This ‘minor course adjustment’ is viewed by those close to the detail, as a good thing. Describe it as ‘taking a beat’ or a ‘strategic deep breath’ before entering a new unwritten phase, either way those at the operational level view it as a sensible focus on priorities. This next chapter in the long transformation journey can be attributed to plenty of variables, but a few key current factors stand out, oil prices, Foreign Direct Investment (FDI) and some hard stop deliverables.
In order to sustain the Vision2030 programme the IMF estimate Saudi needs crude oil to remain around $96 a barrel[3]. Conflicts in both Europe and the region continue to influence oil prices, resulting in the Kingdom reducing oil production to 2m barrels a day to sustain higher prices. The capital demand in the immediate term is clearly demonstrated by, according to one report, $4.2bn of construction contracts awarded to Saudi and Chinese developers for Diriyah this summer. Oil market fluctuation is nothing new, but the breadth and depth investment planned requires long term planning. So, it is good news that the Kingdom reportedly retains foreign reserves of $428bn[4], and almost $1Tn of assets under PIF. The latest pragmatism that is being rolled out across projects therefore remains welcome.
FDI in H1 2024 was just under $10bn[5] according to the Saudi General Authority for Statistics. This was higher than the same period last year, but viewed by analysts as a stagnation, especially as the target for the year is $29bn. The good news is that there has been some significant activity in the second half the year, perhaps generated by the likes of the Regional Headquarters (RHQ) programme which has apparently witnessed the target of 500 RHQ issued licences surpassed by 40. The FDI strategic objective for the Kingdom remains at $100bn annually by 2030, demonstrating the ambition, but also explaining some of the newly planned changes to Foreign Investment Law led by the Ministry of Investment (MISA). The recent agility and sense of realism by which the ministries are approaching FDI is reason to be cheerful.
Finally, it is with great anticipation, both for the Saudi people and for international investors and the supply chain, that the Kingdom has some time sensitive strategic deliverables amongst the myriad of other projects. It will be no mean feat to put on, in order, the Asian Football Cup in 2027, the Asian Winter Games in 2029, Expo in 2030 and then arguably the jewel in the crown the FIFA World Cup in 2034. The Kingdom is already the G20’s fastest growing tourism destination[6] with a 64% increase in tourism in 2023 reaching 27m foreign visitors.[7] No wonder then that with this visitor increase ahead of some very public international events, the leadership charged with having the infrastructure ready are currently prioritising efforts.
Given these three factors, it should come as no surprise therefore that the PIF governor Yasir al-Rumayyan said at the recent Future Investment Initiative (FII) conference that Saudi intended to reduce “the proportion of funds invested overseas to between 18 and 20 per cent, down from 21 per cent today and a high of 30 per cent in 2020.”[8] This is a deliberate refocus on the domestic economy. Furthermore, across the projects, operational leaderships are changing (the CEO of NEOM has recently been replaced[9]), and tactical resources are being redirected. This may be viewed negatively by some outside the Kingdom, given it makes for an exciting headline, but for those that know the market well, this is a sensible stock take and provides plenty of optimism when taking the long view to make Vision2030 work. Expect many more minor course adjustments as the journey continues.
[2] FT 16th Oct 24
[3] Gulf Business 9th Sept 24
[4] FT 16th Oct 24
[5] The Business Times Sep 30th 224
[6] Travel and Tour World 11th Nov 24
[8] FT 29th Oct 24