Progress report: New plans for the budget are focusing on a variety of sectors

With Saudi Arabia’s recent budget providing the financial fuel for the country’s economic expansion and diversification, the government’s ninth development plan (NDP) 2010-14 provides the roadmap. The most recently updated version of the plan divides SR1.4trn ($373.1bn) among five development sectors. Developed by the Saudi Ministry of Economy and Planning, the development plan incorporates various long-range strategies and goals into five themes: improving citizens’ standard of living and promoting their quality of life; developing national manpower and increasing employment; spreading development evenly among the Kingdom’s regions; increasing structural development by economic diversification; and increasing the competitiveness of the domestic economy.

Concrete Goals

In seeking to translate these more abstract concepts into tangible progress the plan has set a number of social and economic growth targets. These include maintaining an average annual real GDP growth rate of 5.2%; a gross fixed capital formation rate of 10.4%, including an oil sector rate of 7.9%, private sector rate of 11.8% and government sector rate of 5.2%; a 4.5% growth rate for merchandise and service exports, including a 10% rate for non-oil exports; a 7.7% growth rate for merchandise and services imports; and a final consumption rate of 5.4%. By the end of 2014, the target rate of Saudiisation is 53.6% with an overall unemployment rate of 5.5%. Fuelled by ongoing investment incentives, the private sector is projected to grow by an average annual rate of 6.6% and encompass 61.5% of national GDP by the end of 2014.

In order to achieve these targets, the NDP channels the country’s financial and regulatory efforts into five distinct areas: human resources, social and health services, economic resources, transportation and communication, and municipal and housing services. The $385.1bn in planned expenditures will be divided among these five sectors according to perceived need. This substantial influx of investment will not only provide for physical infrastructure, but also a significant employment boost with plentiful investment opportunities for the private sector in the short term. Human resources will receive more than half of all funding at $195bn (50.6%), followed by social and health services with $73bn (19%), economic resources with $60.5bn (15.7%), transportation and communications with $29.6bn (7.7%), while municipal and housing services accounts for the remaining $26.7bn (7%).

Human Resources

According to the NDP, goals related to human resources include increasing the capacity of primary, intermediate and secondary schools nationwide to more than 5.3m students, while boosting domestic universities’ total capacity to 1.7m students. The state also has plans to construct 25 technology colleges, 28 technical institutes, 50 industrial training institutes, 10 research centres, 15 university technological innovation centres in association with the King Abdulaziz City for Science and Technology (KACST), and at least eight technology incubators at KACST and other universities.

This segment has seen fast-paced progress through the first three years of the programme. The sector received 26% of the Kingdom’s annual budget in 2011 and 24% in 2012, totalling SR150bn ($40bn) and SR169bn ($45.03bn), respectively. In 2012 these funds were used to establish 742 new schools and on 2900 school-construction projects still under way, among other things. This trend is set to continue in 2013 with SR204bn ($54.3bn), or 25% of the budget, allocated to financing work on 15 new colleges, 539 new schools and 1900 ongoing school-construction projects as well the refurbishment of another 2000 schools.

Social & Health Services

Improving health and social services for the country’s expanding population will require a significant capacity-boosting campaign coupled with quality improvement measures. In terms of capital investments, this will require the construction of 117 hospitals, 750 primary health care centres and 400 emergency centres by 2014. This will add capacity for an additional 56,379 beds to Ministry of Health (MoH) hospitals, 20,296 beds in other government hospitals and 20,860 beds in private sector hospitals. Other targets include boosting the ratio of health workers to beds to 0.7 physicians and 1.4 nurses per bed for MoH hospitals, 0.93 and 1.8 for government hospitals, and 0.7 and 1.4 for private hospitals.

Utilising a budget of SR100bn ($26.65bn) in 2013, the government is moving forward with the construction of 19 new hospitals and health care centres on top of the 102 already under way. Social projects will include the nationwide construction of 20 new sport club centres and 15 social and rehabilitation centres at a cost of SR29bn ($7.72bn).

Economic Resources

A key component of Saudi Arabia’s economic diversification strategy hinges on building up private sector industries and the necessary infrastructure. The government is targeting industrial clusters by focusing on selected areas. These include: activities that utilise the country’s advantages, such as petrochemicals and energy-intensive industries; high-tech and capital-intensive industries like mining and pharmaceuticals; capital goods industries, such as mineral products, machinery and electrical equipment; export-oriented manufacturing industries; tourism; and the latest agriculture technologies to increase efficiency for maximum natural resource utilisation.

The government is also investing heavily in its utilities network. The country’s desalination capacity is projected to nearly double under the NDP from 1.05bn cu metres of water per annum in 2009 to 2.07bn cu metres by 2014 along with a corresponding 50% increase in the reuse of treated wastewater, and electricity production capacity will grow by some 20.4 GW. Water, agriculture and related infrastructure spending was budgeted at SR57bn ($15.19bn) in 2013 for projects that include water networks to support industrial cities, and improvements in water quality and treatment networks. The state’s alternative energy arm, King Abdullah City for Atomic and Renewable Energy, is also moving forward with a $109bn plan to develop 41 GW of solar power capacity and 9 GW of wind capacity by 2032, while IBM and KACST are developing the first large-scale, solar-powered desalinisation plant, scheduled to start operations in 2013.

Trasport & Communication

The government is continuing to ensure that transport and communications networks are as efficient as possible. Priorities in the current plan include the continued expansion of King Abdulaziz International Airport in Jeddah and the Prince Mohamed bin Abdulaziz International Airport in Medina, the completion of the country’s various railways as well as the establishment of a port at Ras Al Zour. For 2013 the government has allocated SR65bn ($17.32bn), an increase of about 16% on the 2012 budget, to a number of priority project, such as finishing ongoing road construction for various industrial cities and Ras Al Khair as well as new seaports and railways. The NDP estimates railroad passengers to increase to 3.37m and freight to 15m tonnes by 2014.

The railway network also presents a number of investment opportunities. One such prospect is the Haramain High-Speed Rail Project to link the holy cities of Makkah and Medina and transport Hajj and Umrah visitors as well as connect to Jeddah and Rabigh. Other projects include Riyadh Light Railway project being built by the ArRiyadh Development Authority as well as a metro system for Jeddah, with the bid set to take place in mid-2013. Meanwhile, the Saudi Railway Company, is undertaking a 2750-km freight rail project with an estimated price tag of SR20bn ($5.33bn). Another major project is the SR26.6bn ($7.08bn) Saudi Land bridge scheme to link the port cities of Jeddah, Dammam and Jubail while passing through Riyadh.

Municipal & Housing Services

Faced with a substantial housing shortage, the NDP also calls for massive investment in municipal and housing services by 53% in order to construct at least 1m new residential units by 2014. The government increased its municipality budget by 23% in 2013 to SR36bn ($9.60bn) and has passed numerous regulations in the past few years designed to increase the availability of home loans, (see Real Estate & Construction chapters).