The Private Sector in Saudi Arabia

The Private Sector in Saudi is the “New Financie

With lower oil prices and limited government revenues, the private sector is expected to increasingly finance projects in Saudi under Public Private Partnerships (PPPs). Saudi had the biggest PPP market in MENA last year, with 18 projects (valued at around USD 42.9 billion) underway according to MEED Projects. This is expected to remain the case in 2018 following the Resolution No. 665 announced in July 2017 by the Council of Ministers, which is expected to see the private sector finance ten sectors including housing, healthcare, transport, municipalities, education, religious tourism, labor, environment, water, agriculture, IT, telecommunications, energy, industry, and minerals.

As a result, the “first mover advantage” is expected to grow in the PPP field. The successful completion of Prince Mohammad bin Abdulaziz Airport (PMAA) under a PPP between the General Authority for Civil Aviation (GACA) and a consortium comprising of TAV Airports, Al Rajhi and Saudi Oger is an example of both setting a PPP precedent in a specific sector, and of first mover advantage. There were five PPP projects after that in the airport sector, three of which were signed between GACA and the same consortium (Al Rajhi and TAV Airports), highlighting the first mover advantages in the PPP field.

While the education sector accounted for just 2% of the PPP market (as of September 2017), this is expected to increase rapidly over the next five years following the announcement by the Saudi Arabian General Investment Authority (SAGIA) to privatize parts of this sector. Tatweer Building Company (TBC) on behalf of the Ministry of Education launched in January 2018 phase 1 of the school PPP program. Phase 1 includes 60 schools (kindergarten, elementary, intermediate, and secondary boys and girls public schools) situated in Jeddah and Makkah. The PPP utilizes the design, build, finance, maintain, transfer model of the schools, and extends over a 20-year period.

The Ministry of Education will likely launch phases 2 and 3 soon to reach the Ministry’s goal of 1,600 schools financed by the private sector, and to also eliminate the number of rented schools. The Ministry of Education have successfully decreased the number of rented schools from 7,122 schools two years ago to 5,150 schools this year following the operation of 1,257 new purpose built schools – with the goal to completely eliminate the number of rented schools in the coming years.

Similarly, the Ministry of Housing and the Ministry of Health, among other sectors, are also keen to launch PPPs in 2018. PPPs are without a doubt a step in the right direction in terms of increasing Foreign Direct Investment (FDI) from 3.8% to 5.7%, and the percentage of private sector investment from 40% of GDP in 2016 to 65% by 2030 – in line with Saudi’s National Transformation Program and Vision 2030. In addition to improving project materialisation rates in Saudi to match the growing demand for social infrastructure in the Kingdom.