Saudi Arabia’s 350bn riyal fund finalising strategy for infrastructure co-investments by April

The government-owned investment vehicle has yet to decide how much capital it will allocate to infrastructure projects

FILE- In this Sept. 22, 2019 file photo taken with a slow shutter speed, vehicles pass in front of the landmark Kingdom Tower, at left, during celebrations marking Saudi 89th National Day, in Riyadh, Saudi Arabia. The United States’ Gulf allies have pushed for hawkish policies by Washington to pressure, isolate and cripple Iran, but this high-stakes strategy is now being put to the test by the surprise U.S. killing of Iran’s most powerful military commander. As the region braces for what comes next, Saudi Arabia and the UAE are calling for de-escalation. (AP Photo/Amr Nabil, File)
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Saudi Arabia’s National Development Fund, a 350 billion Saudi riyals (Dh342.7bn) investment vehicle, expects to finalise by April a strategy that will lay the framework for its co-investments in the kingdom’s infrastructure projects with private sector investors, its governor said.

"We have teams that are developing that approach now," Stephen Groff told The National on the sidelines of the Milken Institute Middle East and Africa Summit in Abu Dhabi on Tuesday.

“We have just got this new strategy [of infrastructure investments] approved at the end of January, so we are at the early stages of getting all of this set up,” he said.

The government-owned investment vehicle has yet to decide how much capital it will allocate to infrastructure projects and what will be its ratio of co-investments with private sector investors, Mr Groff said.

The fund, created in 2017 through a royal decree, is a combination of eight existing sectoral development funds overseeing sectors including agriculture, human development, industrial development and real estate.

“We act in the sense of a holding company,” he earlier told delegates during a panel discussion on sustainable finance. “The idea is to transition this entity into a development finance entity with the capital base of these funds, utilise it better .... and add infrastructure [to the sector development list].”

Saudi Arabia, the biggest Arab economy and Opec’s top oil producer, is trying to overhaul its economy to cut its dependence on oil revenues. Through its Vision 2030 programme, a radical economic and social reform agenda, the kingdom is trying to develop new non-oil revenue streams and reduce state spending. Riyadh is seeking the private sector’s help in development of the kingdom’s infrastructure– a sector that traditionally relied on government financing.

There has been a lot of development in the infrastructure space over the past few years such as efforts to form public-private partnerships, Groff said. The fund’s objective is to spearhead those efforts “to take a lot of the weight off the government in infrastructure investments.”

The NDF is currently in the process of identifying projects in infrastructure space and classifying them on different criteria, ranging from their potential for business opportunities to potential for increasing economic activity, he said.

The idea, he said is to package these projects properly and club smaller deals into bigger bundles that would grab investors’ attention, he noted.

“With the unpredictability of the future …. [the] government very much recognises the importance of diversification and this fund is set up to support that process and put the country on a sustainable path of development.”

The fund, through its long-term strategy, seeks to closely work with private sector investors in achieving the sustainable development goals (SDGs). The governments and private sector investors globally need to spend about $4 trillion (Dh14.7tn) a year to reach SDG goals by 2030. However, there’s a sending gap of about $1.2tn a year.

“The challenge is how do you really scale up investment to achieve SDGs,” Mr Groff said.

Some of the sectors that need investments to achieve SDGs including food, telecommunications, power, renewable energy and transportation, are relatively attractive for private investors, he noted.

“These are attractive opportunities, but even in these sectors, we are still seeing a gap [in spending],” he noted. “We need to figure out how we encourage the private sector and enable it to make more investments.”