With almost three-quarters of the government’s budget originating from oil revenues, the slump in prices poses a threat to the Kinfdom. Saudi Deputy Crown Prince Mohammed Bin Salman deserves applause for his efforts in introducing sweeping reforms through the Saudi Vision 2030 and The National Transformation Plan (NTP) 2020 at the right opportune time. The NTP will majorly focus on restructuring various government agencies to deliver on the Vision 2030 and other national priorities.
What is Vision 2030 all about?
Vision 2030 aims to minimize the kingdom’s reliance on oil as a revenue source and promote economic diversification. The Vision aims to raise non-oil revenue to US$ 160 billion by 2020. Vision 2030 has three themes: “A Vibrant Society”, “A Thriving Economy”, and “An Ambitious Nation”.
What Vision 2030 means for the Construction Industry?
Following are the reforms Crown Prince Mohammed Bin Salman announced that will have an impact and offer opportunities for the construction industry in Saudi Arabia:
• Aramco transformation and PIF (Public Investment Fund): Shares worth less than 5% of Aramco, a company he valued at up to US$ 2.5 trillion, will be sold and some of the proceeds will go towards the sovereign wealth fund worth US$ 2 trillion.
• Religious tourism: Tourism was the second biggest contributor to the kingdom’s economy and is given strong focus, which is likely to help sectors such as aviation, hospitality (aims to double hotel rooms by 2020), etc. The vision is to increase the number of foreign Umrah visitors’ annual capacity to 15 million by 2020 and 30 million by 2030. To facilitate this, a third expansion of the Two Holy Mosques has been launched apart from modernizing and increasing the capacities of airports. In addition, Makkah Metro project has already been initiated. KSA plans to more than double the number of Saudi heritage sites registered with UNESCO.
• Renewable energy: To satisfy the increase in energy demand, the government is looking to tap renewable energy potential 9.5GW of renewable energy is targeted by 2030.
• Subsidies: The plan is to raise the efficiency of the government’s support system and make the best use by redirecting it and targeting eligible citizens and economic sectors. The free market rates over the long term will improve productivity and competitiveness among utility companies.
• Improved health care services: The government is planning to privatize public hospitals to increase efficiency and productivity. Further plans to grow and improve the insurance base, reduce patient waiting time, and train future doctors and specialists are underway. The public sector will focus on monitoring and law making, promoting preventive care, fighting diseases and encouraging citizens to make use of primary care as a first step.
• Retail: Traditional retail continues to dominate 50% of the market as compared to just 20% in a number of GCC countries. This provides significant room to increase the penetration of modern trade and e-commerce channels (targeted to reach 80 % by 2020).
• Housing: While 47% of Saudi families own their homes, the government aims to increase this to 52% by 2020. The government also plans to allow non-Saudis to own real estate in certain areas, which would boost demand in those areas. Non-Saudi’s comprise one-third of population and the high income segment among them are likely to capitalize on this opportunity, which should result in strong demand.
• Logistics: Saudi Arabia plans to leverage its geographical advantage, by developing itself as a key hub connecting the three continents of Asia, Europe and Africa. The kingdom has made huge investments in the construction of ports, railways, roads and airports. To take full advantage of these investments, the kingdom plans to work with the private sector and enter into a new series of international partnerships.
• Developing cities and sectors: To ensure enhancements to quality of life for all and meet the needs and requirements of its citizens, KSA will continue to ensure high quality services such as water, electricity, public transport and roads are properly provided. Open and landscaped areas will also be developed further, to meet the recreational needs of individuals and families. KSA plans to localize its oil and gas sector, create a new city dedicated to energy, and construct a national gas distribution network.
• Entertainment: By 2020, there will be more than 450 registered and professionally organized amateur clubs providing a variety of cultural activities and entertainment events. Among its 2030 goals is to have three Saudi cities be recognized in the top-ranked 100 cities in the world, and increase household spending on cultural and entertainment activities inside the Kingdom from the current level of 2.9% to 6%.
• Privatization: To increase the private sector’s contribution from 40% to 65% of GDP.
Saudi Arabia replaced its incumbent oil minister Al-Naimi since 1995, with Khalid al-Falih, the chairman of Aramco to meet Vision 2030 reform challenge. The ministry of water and electricity’s head was sacked after Prince Mohammed criticized the manner that new higher tariffs were implemented. The ministry has now been split, with the water portfolio being incorporated into a new Environment, Water & Agriculture ministry; electricity will be part of Mr Falih’s energy ministry. The prince remains committed to the reduction of energy and utilities subsidies, which are expected to generate as much as US$ 30 billion a year for the government by 2020.
The IMF called the Saudi plan an “ambitious, far-reaching effort” but has warned that the implementation of the Vision 2030 would be a challenge. Only time will tell if Vision 2030 will help make Saudi Arabia a global economic powerhouse and lead the kingdom to greater fortune, which will no longer be dependent on oil.
The table below lists some of the major projects in Saudi Arabia, which are in the tender for construction stage and construction expected to commence during the second half of 2016.
Project Name Value in US$ Mns
1. Fadhili Power Plant 4,700
2. Taibah Integrated Solar Combined Cycle
(ISCC) Power Plant 3,500
3. Ras Tanura – Clean Fuel Project – Package 1 2,040
4. Manaret Makkah Tower 1,330
5. Yanbu Petrochemicals Project 1,000
6. Asir – Jizan New Road – Jizan Part 956
7. Jeddah Jizan Coastal Highway – Mecca & Asir Part 881
8. Qasim – Makkah Direct Highway – Qassim Part 853
9. Asir Jizan New Road – Asir Part 794
10. King Faisal Specialist Hospital & Research
Centre (KFSH&RC) in Jeddah – Residential Compound 658