Saudi Vision 2030 projects, service sector to pick up on consumer demand
Saudi Arabia is expected to witness a pick-up in construction for its Vision 2030 projects and the services sector, underpinned by consumer demand and a growing workforce, S&P said in a report.
The sheer scale and size of projects - estimated to be exceeding $1 trillion - suggest large funding requirements across government and government-related enterprises, particularly the Public Investment Fund (PIF).
Therefore, the government is recalibrating to prioritize projects based on economic returns and reassessing timelines to avoid economic overheating and funding pressures, the report said.
“We therefore project a more gradual execution of investments, and that the government's net asset position will gradually fall, but remain comfortably strong, through to 2027,” S&P said.
S&P Global Ratings revised its outlook for the kingdom to positive from stable and affirmed its 'A/A-1' long- and short-term foreign and local currency unsolicited sovereign credit ratings.
However, over the longer term, Saudi Arabia will likely emerge as a more diversified economy, with more jobs created for broader workforce participation, S&P said.
The non-oil sector – including government activities – account for about 70% of the kingdom’s GDP.
While debt will fund a considerable part of the kingdom’s development, foreign direct investment and portfolio inflows are expected to gradually increase from a low base.
The newly passed investment law, effective from February 2025, seeks to achieve parity between domestic and foreign investors and ease rules and regulations to make foreign investment more attractive.
Moreover, the government is encouraging the kingdom's large firms to increase investments in the local economy to about $1.3 trillion by 2030 via the Shareek program.
Despite the non-oil growth momentum, lower oil production because of OPEC+ production cuts will drive economic expansion of just 1.4% in 2024, from a 0.8% contraction last year.
Given weak global oil demand, especially from China, and increasing crude oil supply from non-OPEC+ countries like the US and Canada,
Saudi Arabia and OPEC+ decided to extend the existing production cuts until the end of November, gradually easing them through to November 2025.
The kingdom promised additional voluntary cuts in excess of the OPEC+ quota.
“We estimate Saudi oil production will average 9.0 million barrels per day (bbl/day) in 2024, down from 9.6 million bbl/day in 2023. Oil production should then increase in line with higher global demand from next year,” the report said.
