The Saudi Vision 2030 was announced in April 2016 and represents Saudi Arabia’s roadmap to diversify its economy and address the challenges brought by low global energy prices. In June 2016 the National Transformation Program 2020 (“NTP”) was launched by the Saudi Government as part of the implementation of the Saudi Vision 2030 with the aim of meeting interim targets by 2020 through various strategic initiatives across 24 Saudi governmental bodies.
The Saudi Vision 2030 and the NTP include a strong emphasis on increased private sector involvement and investment and the privatisation of a large number of Government businesses as well as the development of various industries.
Expected Cost of NTP initiatives over 5 years
These plans will result in opportunities throughout Saudi Arabia .This Article looks at some of those opportunities with particular reference to Saudi’s Eastern Province where a significant proportion of the initiatives are focused.
Saudi Vision 2030 and the NTP
The Saudi Vision 2030 sets out a wide range of strategic and economic goals aimed at reducing the dependency on oil production and Government spending. Particular highlights include:
The NTP sets out strategic objectives with interim targets to be achieved by 2020, key performance targets and benchmarks of the 24 Government bodies involved and in each case links them to Vision 2030. The NTP also lists the various initiatives to be undertaken by each Governmental body involved. A total of 534 initiatives were approved for 2016 with a total cost to the Government over the next five years of around SAR 270 billion.
The NTP is therefore essential reading for international and domestic companies investing and operating in Saudi Arabia.
As the core area of Saudi Arabia’s petrochemical and industrial production and a key area for transportation and logistics, the Eastern Province of Saudi Arabia is a huge beneficiary of many of the initiatives and projected investments outlined in the NTP. The emphasis on “buying Saudi” and localisation will also have an increasing impact on how foreign investors will need to adapt to operating in Saudi Arabia.
Some key initiatives and 2020 targets in the NTP
There is a wide-ranging list of initiatives and 2020 targets in the NTP. Those which will directly or indirectly impact on the Eastern Province include:
Energy, Industry and Natural Resources (NTP budget - SAR 2.5 billion)
In line with the localisation initiatives in the NTP, under its “In Kingdom Total Value Added Programme” announced to suppliers in December 2015, Saudi Aramco aims to double the amount of locally made and supplied goods and energy related services to 70% of its supply chain within five years. This is expected to create 500,000 local jobs.
Health Sector (NTP Budget - SAR 23 billion)
Education (NTP budget - SAR 24 billion)
Under the NTP approximately SAR 3 billion is allocated for developing colleges and institutes in Jubail and Yanbu Industrial Cities.
Environment, Water and Agriculture (NTP budget - SAR12.9 billion)
Housing (NTP Budget - SAR 59 billion)
Housing is the biggest area of Government expenditure under the NTP. Over SAR5 billion is committed in the NTP for housing development in Eastern Province in addition to very significant budgets for developing residential and community areas and public facilities in Jubail, Yanbu and Ras Al Khair.
King Abdullah City for Atomic and Renewable Energy (“KACARE”) (NTP budget - SAR 5 billion)
KACARE is working with the RCJY on a solar energy project with 50MW capacity for Yanbu Industrial City.
Royal Commission for Jubail and Yanbu (“RCJY”) (NTP budget – SAR 41.5 billion)
The RCJY is second only to the Ministry of Housing in its size of budget under the NTP. Significant initiatives include the development of new infrastructure in Yanbu Industrial City (including localising the renewable energy and rubber industries and establishing industrial gas and steam networks), Jubail Industrial City and Ras Al Khair Industrial City.
One of the biggest elements of the RCJY’s budget under the NTP is for developing value-added manufacturing and transformation products. Currently the limited chemical conversion industrial base in the Eastern Province means that most relevant petrochemical output is used for basic chemicals and polymers and only relatively small amounts of specialty chemicals and end use products are produced. The establishment of a downstream specialty chemicals and end use product sector is seen as critically important in establishing a higher added-value manufacturing industry
Saudi Arabian General Investment Authority (NTP budget - SAR 1 billion)
Technology (NTP Budget - SAR8.3 billion)
In Eastern Province the NTP budgets for a smart city to be established in Yanbu and for the automation of Jubail and Ras Al Khair Industrial Cities.
Transportation (NTP budget - SAR 5.5 billion)
The General Ports Authority is expected to be on the privatisation list. Initiatives include setting up private sector operation and maintenance concessions, and development of an integrated programme to improve port efficiency, which will be of particular importance to the ports in Eastern Province.
Specific initiatives also include establishing multi-modal logistics hubs in each of Jubail and Yanbu with Yanbu also to have a minerals port.
Developments since the launch of Vision 2030 and the NTP provide strong evidence of the fast pace of change, with both foreign and local investors being involved in significant opportunities in Saudi Arabia and the Governmental authorities (such as the RCJY) being proactive in seeking and promoting initiatives and private sector involvement.
The range of initiatives and opportunities spans social and community related projects (housing, sports centres, public facilities) and the education, healthcare, municipal services, energy, environmental, industrial and manufacturing, oil and gas, technology and transportation sectors.
The conditions allowing 100% foreign-owned trading companies have come into force and although geared at large investments by multi-national companies, several foreign groups have already been approved to establish such entities.
One of these companies is US conglomerate 3M, the largest chemicals manufacturer in the USA, which was granted a 100% trading licence in June 2016. 3M is establishing a facility in Dammam which, when completed, will be the largest manufacturing plant in the MENA region.
The massive projected budget of the RCJY under the NTP and the targets of diversifying into higher added-value and transformation industries with the support services required for greater infrastructure and more workers should result in many opportunities throughout Eastern Province.
The agreement announced in May 2016 of General Electric’s deal with Saudi Arabian Industrial Investments Company involving an initial US$1.4 billion (with potential increase to US$3 billion) of investment in manufacturing projects evidenced the Government’s commitment to increasing foreign sector investment and promoting the development of local industry.
Hard on the heels of the NTP launch, Saudi Aramco and Saudi Arabian Basic Industries Company announced that, in support of Vision 2030, they had agreed to establish a joint venture to set up and operate a fully integrated crude oil to chemicals complex in Eastern Province which is expected to lead to the creation of a 100,000 direct and indirect jobs.
In August 2016 it was reported that in line with Vision 2030 the RCJY had signed 24 contracts with up to 16 private sector investors for the development of commercial centres, hotels, housing, medical clinics and other projects in Jubail and Ras Al Khair Industrial Cities.
Investments may take the form of joint ventures and/or public private partnerships and given the initiatives in the NTP many opportunities can be expected in the Eastern Province particularly in the energy, education, housing and municipal services, transportation and oil and gas sectors.
It is also expected that there will be a number of privatisations with related opportunities for foreign and local investors, lenders and advisers.
Further initiatives in relation to the Saudi Vision 2030 and the NTP are expected and we will issue further updates on significant related developments.
With the launch of our third Saudi office in Al Khobar, Al Tamimi & Co are perfectly placed to advise on opportunities and issues in Eastern Province and across Saudi Arabia relating to Vision 2030 and the NTP.