SAUDI ARABIA
Positive on a reforming Saudi Arabia Faithful+Gould’s David Clifton and Donal O’Leary provide an overview of Saudi Arabia’s economy as it enters 2018
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PEC’s commitment to maintaining constraints in production, coupled with a series of geopolitical events (Kurdistan, Iraq and Iran) and pipeline breakages, means that oil pricing has returned to a $67 per barrel point that has not been seen since May 2015. Although US shale production has picked up most of the lowhanging fields of production, it will subsequently require major investment into new, harder to develop and costlier locations, and therefore we are less likely to see the decline in crude prices. This gives the potential for a lesser budget deficit for the year than currently forecast. The 2018 budget shows an overall increase of 9.9% to $263
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billion, which includes a 13.6% increase in capital spending to $54 billion. Although this incorporates some already committed monies to new projects, we expect to see a significant uplift in government project awards through the year. With 12% of the budget being funded by debt, we would anticipate a significant further bond issuances soon, – both in US dollars and local denominated Riyals. Total government expenditure is significantly increased when including the Public Investment Fund’s $22 billion and other funds committed to stimulus at $13 billion – a record total of $298 billion. With change very much on the agenda, we’ve seen construction awards lower than we forecast, due to a relatively
“We expect the significant rollout of project management offices (PMOs) across the government and semi-government sector to gain traction during 2018, with prioritised projects and programmes being rolled out at a significant pace”
poor end to the year, at a level comparable to 2016 of- $22bn. Market dynamics are leading awards away from buildings, roads and rail to a high level of activity on power and water and oil and & gas (relative to the previous year). This is expected in the short term to continue, as the delivery lead times on independent power projects (IPP) and independent water and power projects (IWPP) for delivery is significant, and power and water capacity need to be in place early in the development curve. The funding models for these type of developments are well understood regionally, and successful schemes are already in operation. Over the course of 2017, the pipeline of programmes and projects within the industry