Saudi $1 Trillion Investment Plan Continues Diverging from Oil Industry

Saudi Arabia plans to invest $1 trillion by 2030 as part of a national investment plan, focusing on non-oil sectors like clean energy, real estate, and logistics. 
 

Saudi Arabia continues its move away from a dependence on the oil industry. The nation is planning a major investment in its future, targeting six strategic sectors with a massive $1 trillion by 2030. Goldman Sachs Research has called this plan a “capex super-cycle.” The focus is shifting away from oil, with less funds going to the oil sector compared to earlier projections.

Saudi's Diversification Beyond Oil

In previous decades, the oil industry dominated the Saudi economy. Nowadays a reversal is occurring. The Middle Eastern nation is paying closer attention to non-oil sectors as part of Saudi Arabia's Vision 2030. Goldman Sachs Research estimates that around 73% of the investment will go into non-oil areas. This is a significant increase from the earlier forecast of 66%. The country's leaders see the future in sectors like clean energy, real estate, mining, transportation, logistics, and digitalization.

Clean Energy Takes the Lead in Saudi Arabia

One of the biggest shifts in Saudi Arabia's investment strategy is in clean energy. The government plans to spend $235 billion on this sector, up from a previous estimate of $148 billion. This increase is mainly driven by the expansion of renewable energy, particularly solar power. Saudi Arabia has more than doubled its solar energy capacity target for 2030, raising it from 58.7 GW to an ambitious 100-130 GW.

A Plan that Supports Economic Diversification

The Saudi government aims to reduce its dependency on oil. So, it is channelling funds into other vital sectors that can support economic diversification. One such sector is mining. Saudi Arabia plans to issue more than 30 mining exploration licences this year alone. To encourage further investment in this sector, the government has established a $182 million mineral exploration incentive program too.

Another area of focus is transportation and logistics. Saudi Arabia wants to become a global logistics hub and a leading international travel destination. The government plans to invest around $100 billion in aviation and another $100 billion in electric vehicles, logistics, and related sub-sectors.

Saudi Oil Sector Sees Reduced Investment Projections

While Saudi Arabia remains one of the world's largest oil producers, the oil sector is set to receive less investment than anticipated. Between 2024 and 2028, capex in the oil industry could shrink by $40 billion. This reduction aligns with the country's broader Vision 2030 goal of moving towards a greener economy. Yet, natural gas remains a crucial part of Saudi Arabia's strategy for decarbonization and economic development.
Goldman Sachs Research adjusted its estimates for Saudi Arabia's investments in "upstream" oil and gas. The forecast now suggests a range of $190-220 billion, down from the previous $230-260 billion.

Saudi Arabia's Fast Progress in Renewable Energy

Saudi Arabia's progress in renewable energy has accelerated over the past year. By June 2024, Goldman Sachs Research had identified about 11 GW of solar photovoltaic capacity in the execution pipeline. Additionally, another 16.7 GW of solar and wind capacity was in the planning stages. These developments highlight the country's commitment to clean energy and reducing its carbon footprint.

Financial Implications of the Saudi Investment Plan

Funding such a massive investment plan comes with challenges. Saudi Arabia has traditionally relied on bank loans to support its growth. Yet, the KSA's government faces some financial pressure. This is due to oil prices hovering around $80-$85 per barrel and production reduced to 9 million barrels per day.
Goldman Sachs Research estimates that Saudi Arabia's budget deficit will widen to 4.3% of GDP this year, up from 2% last year. The increase in spending accounts for about 2.6 percentage points of the deficit, while lower oil revenues account for the rest. It's unclear how this higher deficit will affect the pace of planned investments.

Financing Saudi Arabia's Capex Super-Cycle

To finance its ambitious capex super-cycle, Saudi Arabia will need to explore alternative sources of funding. The country’s banking sector is already feeling the strain. At this moment in time, loan growth is outpacing deposits. So, according to Goldman Sachs Research, Saudi Arabia may face a funding gap of around $25 billion per year for its capex projects.

Yet, the Saudi government has taken steps to develop and deepen its equity capital markets. This is aiming to ease the burden on its banking sector. A significant development in recent years has been the progress in the debt capital markets. The Saudi government’s Public Investment Fund (PIF) has played an active role in this area. So far, in 2024, the PIF has issued bonds worth $7.8 billion. In doing so, it's providing a vital source of funding for the country's investment plans.

Saudi Arabia Continues its Shift Away From Oil

Saudi Arabia is at a key point in its economic journey. The country is investing $1 trillion by 2030 across six key sectors, with a clear shift away from its traditional reliance on oil. Clean energy, real estate, mining, transportation, and logistics will all benefit from this massive investment. Although there are financial challenges ahead, Goldman Sachs Research believes that Saudi Arabia's investment cycle will remain strong. Yet, the country must adapt and find new funding sources to reach its ambitious goals.

 

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