Saudis gear up for economic transformation with new deals
▶ First of several deals expected to be signed during Saudi king’s state visit
Saudi Arabia is pushing ahead with new investments aimed at fuelling its vision to diversify its economy away from its dependence on oil.
Yesterday, the kingdom said it would generate billions of dollars in new revenue through the development of the holy cities of Makkah and Madinah. Plans were also outlined for joint investments with Russia in renewables and other energy projects.
The kingdom is laying foundations for a huge economic transformation, part of its Vision 2030, led by Crown Prince Mohammed bin Salman.
The Public Investment Fund said it will develop homes, hotels, retail space and museums in Makkah and Madinah that will contribute 15 billion Saudi riyals (Dh14.64bn) a year to the Arab world’s largest economy by 2030.
The number of visitors to Makkah and Madinah is expected to rise to more than 30 million and 23 million, respectively, by 2030.
Plans by the world’s two biggest oil producers to establish a joint investment fund is expected to be among a number of agreements that will be signed between the two countries during King Salman’s state visit to Russia this week.
“In principle, the talk revolves around earmarking $1bn (Dh3.67bn) just for energy projects and I as an energy minister am pleased by this because we are focusing on developing our cooperation not just within the framework of Opec or even outside Opec, but also developing cooperation in the fields of oil, gas, power and renewable energy,” said Russian energy minister Alexander Novak. Saudi’s economic growth is expected to rebound to a rate of 3 per cent next year led by non-oil sectors, the Institute of Chartered Accountants in England and Wales said.
Russia and Saudi Arabia plan to set up a US$1 billion energy fund as the world’s two biggest oil producers seek to cement a partnership that was bolstered by their brokering of a global oil output cut.
The agreement to establish the fund is expected to be among a number of agreements that will be signed between the two countries during King Salman’s state visit to Russia this week, Russian energy minister Alexander Novak told the Dubai-based Al Arabiya news channel.
“With regards to the energy fund, there is in fact a decision [to set it up] and during the king’s visit to Russia the decision will be made,” said Mr Novak in a transcript of the interview published on the channel’s website.
“In principle, the talk revolves around earmarking $1bn just for energy projects and I as an energy minister am pleased by this because we are focusing on developing our cooperation not just within the framework of Opec or even outside Opec, but also developing cooperation in the fields of oil, gas, power and renewable energy.”
Russia and Saudi Arabia are leading efforts to trim global oil production by 1.8 million barrels of oil per day through a sixmonth agreement that ended in June and which was extended to the end of next March to help prop up oil prices and reduce the glut in the market.
“The Saudi Russian fund seeks to open up the northsouth energy relationship with investment in projects that helps co-ordinate the future of energy markets,” said Theodore Karasik, senior adviser at Washington, DC-based geopolitical risk consulting firm Gulf State Analytics.
“In addition, the move opens new avenues of cooperation between Russia and Mena.”
Mr Novak said a number of Russian companies are exploring various aspects of cooperation with Saudi Arabia.
Gazprom Neft, the oil arm of Russian gas giant Gazprom, and other companies are expected to sign agreements with their Saudi counterparts, Mr Novak said.
Russian energy companies are also exploring the possibility of working with Saudi Aramco, the world’s biggest oil producer, in the oil services field in the kingdom. Russian companies and in particular Rosneft, the country’s biggest oil producer, are also interested in oil trading co-operation.
Novatek, Russia’s largest nonstate gas producer, and Saudi Arabia are also discussing cooperation in gas production in Russia, the minister said. Russia sits on the world’s second-largest gas reserves after Iran, according to BP statistics.
“Natural gas is likely to be the main focus with Russian energy companies and their subsidiaries operating in the kingdom,” said Mr Karasik.
Russia is also interested in partaking in Saudi Arabia’s renewable energy projects, the minister said.
The kingdom plans to generate 9.5 gigawatts of electricity from renewable sources, mainly solar and wind, by 2023 at a cost of up to $50bn.
The energy fund is not the first effort at a partnership between the two countries
In 2015, the Public Investment Fund and the Russian Direct Investment Fund signed a memorandum of understanding to co-invest as much as $10bn.
The agreement was signed during then-deputy crown prince Mohamed bin Salman’s visit to Russia. The two sides also agreed to cooperate in the field of nuclear energy.
Saudi Arabia’s sovereign wealth fund, Public Investment Fund, plans to develop mixed-use projects in the holy cities of Makkah and Madinah that will contribute annually 15 billion Saudi riyals (US$3.99bn) to the Arab world’s largest economy by 2030.
The two companies, Rou’a Al Haram in Makkah and Rou’a Al Madinah, have been created and will be tasked with the development of the projects, which include hotels, residential units, commercial space, and museums.
The developments are expected to serve the increase in worshippers to the two cities and create new revenue streams as part of the country’s Vision 2030 aimed at weaning the kingdom off oil income.
The companies’ “establishment is in line with Vision 2030, which aims to provide an opportunity for the largest possible number of Muslims to perform Hajj and Umrah, and to enrich and deepen their experience through the development of the Two Holy Mosques,” the fund said in two separate statements.
The fund did not disclose the cost of the projects.
The Makkah projects will create around 160,000 jobs by 2030, with an estimated annual contribution to GDP of 8bn riyals. Construction is expected to commence next year with completion of the first phase anticipated in 2024. The Madinah project will generate around 200,000 jobs, with an estimated annual contribution to GDP of 7bn riyals.
Construction is due to start next year with the first phase of development expected to be completed by 2023.
The number of visitors to Makkah is expected to rise to more than 30 million by 2030 and visitors to Madinah to 23 million.
The first phase of the Rou’a Al Haram’s projects will span an area of 854,000 square metres, delivering 115 buildings of various architectural designs.
The development includes 70,000 new hotel rooms that can handle 310,000 visitors per day, 9,000 residential units, 360,000 sqm of commercial space and prayer areas for more than 400,000 worshipers.
The project will be located 1,430 metres away from the Kaaba. Rou’a Al Madinah will develop a 1.3 million sqm site nearly 1,000 metres away from the east wing of the Prophet’s Mosque.
The Madinah projects include constructing 500 new housing units and 80,000 hotel rooms, increasing hotel capacity to welcome 240,000 guests per day.
The number of prayer areas will also be able to accommodate 200,000 worshipers per day.
The development also includes commercial space, cultural centres and museums.