Saudi market still waiting for clarity

21 June 2016

Spending stalls as government undergoes transformation

Saudi Arabia’s much-publicised National Transformation Plan (NTP) is having a deep impact on all areas of public spending. But the planned reforms raise a number of questions over short-term investment plans.

Government bodies across a number of sectors are undergoing transformation. The most important changes include: dissolving the Ministry of Electricity & Water and splitting its responsibilities between two Ministries; replacing multiple key ministers; new heads of Saudi Aramco, the Saudi Arabian Monetary Agency, the Saudi Railway Company and the National Water Company (NWC); and restructuring at the General Authority for Civil Aviation (GACA) and the Public Transport Authority.

Most of the bodies were preparing private sector investment or partial privatisation initiatives. GACA was tendering a public private partnership (PPP) contract for Taif Airport. The NWC was preparing to tender a set of built-operate-transfer deals. The Ministry of Health was planning PPP hospitals.

Many of these plans have been postponed due to the high-level changes. New sets of consultants are being hired or sought to set new strategies and advise on new, different privatisation plans.

The state of flux has resulted in confusion for developers, contractors and even banks trying to win work in the kingdom.

The project pipeline should eventually recover, with a greater emphasis on private investment.

For now, the result is a massive drop in contracts being awarded (except to consultants). MEED Projects data shows that project contract awards in Saudi Arabia have fallen around 60 per cent between the first half of 2015 and 2016 so far.

If the intention of the NTP is to reduce government spending in response to low oil prices, it is already a resounding success. If the intention is to attract private sector investment, the results will not be visible until Riyadh’s plans become clearer.

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