Saudi Arabia to invest $500bn for bright future

The new outlays follow huge spending sprees by governments around the region designed to make up for a decline in private-sector investment.

With additional reporting by Asa Fitch

The Saudi Arabian General Investment Authority (SAGIA) will spend US$500 billion (Dh1.83 trillion) by 2020 on investments in energy, ports, logistics and education, says the head of the government organisation.

That comes in addition to $400bn the Saudi government has already pledged to invest in infrastructure in the coming years, Amr Abdullah al Dabbagh, the SAGIA governor and chairman, said at an entrepreneurship conference yesterday in Dubai. "It will be … mostly in petrochemicals … minerals, power and water. A total of $300 million in opportunities from now until 2020," Mr al Dabbagh said.

A further $100bn will be spent on transport and logistics, "mostly in updates to airports, seaports and developments in the railway infrastructure and logistics hubs", he said. Another $100bn is to be spent on universities, health and life sciences.

Created in 2000, SAGIA aims to make the country a more attractive destination for investment and ease regulations that have historically made doing business in the kingdom difficult.

The new outlays follow huge spending sprees by governments around the region designed to make up for a decline in private-sector investment. Bolstered by persistently high oil prices Saudi Arabia, the largest crude exporter in the world, has been one of the most active government spenders in the Gulf.

It has built new cities to expand its industrial base and diversify away from oil, including the $120bn King Abdullah Economic City.

It has also spent billions of dollars on universities and education infrastructure to provide opportunities for young people in the Gulf's most populous country.

Kuwait, Qatar and the UAE have also recently announced major infrastructure projects to take advantage of higher oil prices.

Abu Dhabi is spending hundreds of billions of dollars diversifying its economy with projects such as Emirates Aluminium, a smelter near the border with Dubai, and Masdar City, a major clean-energy development. Like Saudi Arabia, Abu Dhabi is also upgrading roads, bridges, airports and other infrastructure to prepare for the development of home-grown industries.

This year the Saudi government said it would spend $400bn developing infrastructure until 2015 and would accelerate that wave of construction to take advantage of lower construction and raw materials costs.

"This is over and above the $400bn spent on infrastructure," said Mr al Dabbagh.

"This is a commitment that the kingdom has made in capital expenditure spend over the next five years for infrastructure-related projects." Oil prices have stayed above $80 per barrel recently, giving the impetus for spending across the region.

But despite the high prices, many governments in the Gulf are projecting that they will run budget deficits to keep up the pace of investment.

Last December, Saudi Arabia estimated it would run an $18.7bn budget deficit this year, its second deficit in a row. Abu Dhabi said it would run a $23bn deficit in a bond prospectus in July, although that figure assumed oil prices averaging $60 per barrel.

Oil has stayed well above that level for most of the year, potentially reducing or even eliminating the projected deficit.