Key Saudi economic sectors set to receive investment boost amid Vision 2030 spending

A large portion of investment flow will come from the debt market, with support from the kingdom's Public Investment Fund, S&P says

The Riyadh skyline. Under Saudi Arabia's Vision 2030, real estate will gain from various new programmes. Reuters

Key sectors of Saudi Arabia’s economy, from real estate to tourism and energy, are set to benefit from investments flow through the Vision 2030 programme as the kingdom continues to diversify its economy, according to S&P Global Ratings.

These sectors including digital infrastructure, food and agriculture healthcare, telecoms and utilities will see significant spending growth over the medium and long term, with funding to come largely from the debt capital markets, the rating agency said in a report.

“We do not think the government's Public Investment Fund and the banking sector alone will be able to fund these investments. It will fall to the debt-capital markets to support a large portion of these new opportunities,” it said.

Riyadh is striving to diversify the country's oil-dependent economy, create jobs for Saudi citizens, draw high-skilled talent and attract investment to the kingdom.

Vision 2030 has led to significant project announcements across various sectors to support the country's ambitions for economic diversification.

Saudi Arabia's real estate market is set to benefit with $1 trillion slated for property and infrastructure projects, S&P said.

“This should support demand for residential properties over the longer term, with growing interest in lifestyle-orientated developments and smaller and more affordable units driven by the expanding expat population and local households' changing preferences,” it said.

The office market has been boosted by a government initiative designed to attract multinational companies to establish their headquarters in the kingdom. This momentum is expected to continue amid strong occupancy rates and limited new additions in the next three years, S&P said.

The retail property sector also has long term growth potential, backed by a young population, increasing urbanisation, expanding tourism and expected significant growth in the entertainment industry.

The tourism sector, a central plank of the country’s diversification drive, will be a main non-oil growth driver, providing investment opportunities for private local or international investors as Saudi Arabia aims to attract 100 million visitors per year by 2030, S&P said.

“The country's modernisation efforts and investments in mega projects for tourism and entertainment — Neom, Red Sea Project, Qiddiya — should attract more international visitors,” it said.

The country plans to develop railroads, expand existing airports with a focus on Riyadh and Jeddah, and launch the new Riyadh International Airlines (RIA) at the end of the year that will complement existing carriers Saudia, flynas and flyadeal, S&P said.

“Aviation will be one of the biggest winners from growth in international, regional, and domestic tourism,” S&P said.

The “material” funding needs will need to be partly addressed by the government, but private funding will also be important, it said. Some $100 billion has already been allocated to foster Saudi aviation.

Food and agriculture sector also stands to benefit from investments into the Vision 2030 programme. Food security is a key area of diversification and about 80 per cent of food is currently imported, the agency said.

In the healthcare sector, a growing population and increasing insurance coverage requirements are fuelling strong demand for speciality clinics and ambulatory care centres, it said.

Growth in the sector will be further supported by a sharp rise in primary visits to hospitals as government is promoting preventive care screening for chronic diseases.

Utilities face the “mammoth task” of reducing Saudi Arabia's fossil fuel dependency and meeting 70 per cent of energy needs from renewables by 2030.

“We expect more public-private partnerships (PPPs) and significant investments in the country's grids,” S&P said.

The energy sector is a substantial contributor to the government's revenue and its credit quality is currently benefitting from higher oil and gas prices, the report said.

This windfall will help fund the government's share of investments despite the heavy capital expenditure burden, it said.