Saudi Arabia invests in transport infrastructure to improve connectivity

Saudi Arabia’s transport and logistics sector encompasses a broad range of active facilities and routes. Given the Kingdom’s position between Europe and Asia and its central role in the global energy market, as well as the current importance of imported goods for meeting basic consumer demand, transport and logistics are crucial to the economy. Plans for the sector’s future involve a transformative programme aimed at leveraging geographic advantages and providing key services to the global economy.

As the country’s leadership works to implement these steps, major projects at home – including an expansive new metro system for Riyadh, one of the most highly anticipated infrastructure projects – promise to transform the options available to residents.

With different documentation requirements at borders and delays in Customs clearance, trade within the GCC could benefit from streamlining. Saudi Arabia has the largest population and economy in the region, and improved logistics could help to smooth the flow of imports and exports. Embracing such logistics challenge could unlock regional and global opportunities.

Economic Importance 

Travel and transport comprise a larger share of Saudi Arabia’s export mix when compared to the wider region, underscoring the importance of development infrastructure to meet future demand. Transport accounts for 26% of the Kingdom’s service-related exports, compared to 24.8% regionally. Meanwhile, travel comprises 49.4% of service-related exports, compared to 27.5% regionally.

Transport, storage and communications as a combined sector accounted for about SR172.3bn ($45.9bn) of GDP in 2020, or 6.6% of the SR2.62trn ($698.5bn) total that year. This share is likely to rise with the ongoing implementation of Vision 2030 reforms and projects, which are outlined in the National Transformation Programme (NTP) and the National Industrial Development and Logistics Programme (NIDLP). Current plans indicate that the government will invest more than SR500bn ($133.3bn) to develop port, airport, rail and other infrastructure through to 2030.

For investors, these goals signal myriad reasons to partner with the government or propose long-term foreign direct investment (FDI) projects, including the privatisation of state assets and joint ventures to add major new infrastructure, mimicking financial structures like the subcontracting for Riyadh’s new metro.

This investor-centric approach helps explain Saudi Arabia’s high ranking in the “Agility Emerging Markets Logistics Index 2022 Survey”, which measures the business climate, digital readiness and investment opportunities in 50 emerging markets. In 2022 Saudi Arabia ranked 6th, a position it has maintained since 2020.

Structure & Oversight

The Ministry of Transport and Logistic Services is the head of multiple regulatory bodies. Transport providers can be state-owned under the ministry, independent, commercial or public-private joint ventures. Regulatory authorities under the ministry’s supervision include the General Authority of Civil Aviation (GACA), the Saudi Ports Authority (SPA) and the Public Transport Authority. State-owned services providers encompass airlines, railway operators and the National Shipping Company of Saudi Arabia, which is more commonly known as Bahri.

As of September 2022 the ministry was led by Saleh bin Nasser Al Jasser, who served as CEO of Bahri and director-general of Saudi Arabian Airlines – now known as Saudia – before being appointed minister in 2019. To achieve the goals laid out under Vision 2030, the ministry’s mandate is organised into five areas: strategy and planning, delivery and support, asset deployment and investment, innovation and new ventures, and logistics oversight. The latter includes acting as a one-stop shop for private sector interactions with the government.

As Vision 2030 reforms are executed, several bodies will see their roles change to facilitate private sector investment. The government expects privatisation to boost operational efficiency, creating financial rewards in the process. Under NIDLP, GACA will evolve into a regulatory body and spin off ownership of assets and operational capacity. Its assets will be shifted to GACAowned Saudi Civil Aviation Holding Company in preparation for privatisation. A merger between the two state-owned rail operators, Saudi Railway Company and Saudi Railways Organisation, was approved in 2021 – another precursor to the privatisation of some assets and functions. The merged entity operates under the name Saudi Arabia Railways (SAR).

Policy & Strategy

Vision 2030 has logistics at its core. The framework includes connecting people across the GCC with rail links that add to existing transport modes, cargo moving swiftly through its international airports and seaports, and bulk commodities passing more quickly through industrial ports. “Saudi Arabia has become an investment destination for global logistics providers, supported by a detailed strategy followed by all levels of government. Opportunities range from small operations to mega-projects – some of which are in free and special economic zones – that are drawing much attention,” Abulaziz Al Babtain, president of Himmah Holding, told OBG. Indeed, the sector is expected to boost its contribution to GDP to at least 10% by 2030.

In June 2021 Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud launched the National Transport and Logistics Strategy. Targets for air traffic include reaching 250 new destinations and boosting freight capacity above 4.5m tonnes. In the maritime transport realm, the aim is to surpass 40m containers of annual throughput and rank in the top 10 on global logistics performance indices. Meanwhile, on land, all GCC residents should be linked by rail service, according to the plan. The National Project Management, Operation and Maintenance Organisation (Mashroat) was created in 2017 to facilitate the process. It serves as a knowledge and expertise centre and facilitator specialising in delivering major infrastructure projects.

As in other sector development plans in the Kingdom, the strategy for improving transport and logistics will be supported by efforts to raise skill levels in the sector. “Logistics companies are working to have the right structure in place, the best products and services, and sufficient skills among employees – further developing local human capital in the process,” Adnan Ibrahim Al Mazrooa, acting CEO of supply chain solutions provider Naqel Express, told OBG. “There are qualified Saudi professionals working in the sector. All logistics stakeholders must work together to help them adapt to the future requirements of the industry.”

Sustainability is another common theme in Saudi Arabia’s transport policies. The Kingdom produces more CO per capita than its G20 peers, at 19.3 tonnes in 2018 compared to an average of 7.5 tonnes for the group. However, the country’s rate of decarbonisation is notably faster than the G20 average, at 3.7% per year versus 0.7% for the group, according to a 2021 report by Climate Transparency. Saudi Arabia’s three main policy interventions to boost sustainability in the country are shifting new car sales to electric vehicles (EVs), with a goal of making 30% of all vehicles in Riyadh EVs by 2030; electrification of public transport vehicles; and using incentive programmes to shift consumer behaviour away from cars to more sustainable alternatives.

In line with the aim of attracting more private investment, US-based Lucid Group has announced plans to set up an EV assembly facility in Saudi Arabia. The plans involve construction, beginning in 2022, and the eventual production of as many as 150,000 vehicles annually for domestic and import markets.

Roads

The ministry oversees a network of 71,500 km of paved roads, 5000 km of which are motorways and 49,000 km of which are single-lane roads. There are also 144,000 km of improved dirt roads. To improve road safety, the ministry has rolled out automated voice-warning signs on 58 km of roads, alerting drivers who veer outside lane markers, use mobile phones or are driving in inclement weather. Road fatalities fell 24.5% from 5754 in 2019 to 4618 in 2020, though movement restrictions during Covid-19 lockdowns likely contributed in part to the decline. The National Road Safety Centre, established in 2020 under the NTP, leverages data to reduce road deaths and injuries. Its Marsad platform monitors traffic flows, medical and accident reports, and identifies hotspots for accidents.

The road network is seen as crucial to regional cooperation and trade under Vision 2030. Achieving a common market for the GCC requires Customs, economic and legal policies, and building shared road networks alongside other members of the GCC. Public transport projects will reduce passenger traffic and decongest roads, making them more attractive to the commercial sector for transporting goods.

Rail

When Crown Prince Mohammed bin Salman announced the National Transport and Logistics Strategy in June 2021, it included a planned expansion of the rail network to 8080 km of track as well as a landbridge project spanning 1300 km to connect domestic seaports on the Gulf coast with those on the Red Sea. The expanded railway network envisioned by the plan would have the capacity to transport more than 3m passengers and some 50m tonnes of freight per year.

SAR currently oversees three lines, including the 2750-km network known as The North Railway, which includes a passenger line and a freight line with trains up to 3 km long and with capacities of up to 16,000 tonnes. The company’s East Train Network uses a railway of 1775 km, with separate tracks for passenger rail and freight. Some of the 2596 freight cars are dedicated to transporting grain, vehicles and rock. The third line is the Haramain High-Speed Rail, a 450-km route which opened in 2018 and connects the two holy cities of Makkah and Medina. Trains travel at 300 km per hour and stop at Jeddah’s King Abdulaziz International Airport and King Abdullah Economic City in Rabigh.

Expansion

The planned GCC railway, a $15.5bn project to link the six countries via a network of 2172 km of track, will handle up to 29m tonnes of the total 61m transported within the region annually across all modes of transport (see analysis). It is also expected to address the Kingdom’s sustainability challenges by curbing CO emissions by about 70% to 80% compared to trucking. Studies suggest the project could lower container and bulk freight costs by as much as 30% and create some 80,000 jobs. It could also decongest the shipping channel through the crowded Strait of Hormuz.

Foreign investment is crucial to rail expansion plans, and the Kingdom is open to partners from both the public and private sectors. In 2022 Al Jasser, as minister of transport and logistic services, signed two memoranda of understanding with Jean-Baptiste Djebbari, France’s minister of transport, to collaborate on rail and other upcoming logistics innovations.

In February 2020 US-based transportation technology company Virgin Hyperloop launched a partnership to conduct a pre-feasibility study on the use of hyperloop technology for passenger and cargo transport, with the potential to eventually build a network of routes across the Kingdom. This new technology uses pressurised trains travelling through tunnels at or over the speed of aeroplanes. As Saudi Arabia is the largest country in the region by area and is a leading destination in the GCC for FDI, it is serving as a test site.

Air

The Kingdom has four international and 21 domestic airports, two of which are among the five main entry points for imports: King Khalid International Airport, north of Riyadh, which had a 13% share of imports in 2021, and King Fahd International Airport in Dammam, with a 6.4% share. Passenger arrivals in 2019 reached 20.3m, up from 17.6m in 2018.

In 2021 Abdulaziz Al Duailej, president of GACA, stated that King Khalid International Airport and King Abdulaziz International Airport in Jeddah could be expanded to accommodate a combined 100m passengers annually. Saudi and regional airlines offer passengers a competitive marketplace. In 2007 stateowned Saudia was joined in the market by Flynas, a Riyadh-based low-cost carrier. Nesma, an Egypt-based carrier, launched domestic routes in the country in 2016. Furthermore, in 2017 Saudia launched its own low-cost airline, flyadeal, to compete domestically.

Competition is likely to continue to increase as the Kingdom plans a new national airline focused on international competition, in line with plans to make the Kingdom the world’s fifth-largest centre for air transit. The strategy, similar to those used by flag carriers Emirates Airlines in Dubai and Qatar Airways, would utilise sixth-freedom rights to carry passengers and cargo between international destinations with stopovers and connections through Saudi airports.

According to the International Air Transport Association’s metrics from 2018, passenger facilitation scores were low for passenger transport. Cost competitiveness scores, meanwhile, as measured by the World Economic Forum, were high in 2017, with its ranking set to increase with the uptake of tourist visas. For cargo, Saudi Arabia ranks 66th of 124 countries in the Air Trade Facilitation Index. The aviation sector accounted for 5.6% of GDP and 594,000 jobs as of 2018.

Maritime

The SPA oversees the country’s nine civilian ports, which have been commercial operations since a 1997 privatisation process handed over management, maintenance and operational responsibilities.

At the time of writing, the most recent year for which the SPA published statistics was 2019, when throughput was 262.3m metric tonnes, down slightly from 267m in 2018. In both years liquid bulk cargo accounted for the most volume, at slightly less than half the total, due to exports of oil, gas, petrochemicals and refined petroleum products. Container shipping was the second-most popular use of ports, at slightly more than one-quarter of all throughput. Passenger traffic totalled 1.4m in 2019, up from 1.3m in 2018.

Jeddah Islamic Port (JIP) is the main entry point for imports, accounting for 26.7% of the total as of February 2022. Its position on the Red Sea makes Saudi Arabia’s west coast the main entry point for containers, whereas its east coast ports are the primary loading spot for energy exports. While JIP is the busiest commercial port, the two King Fahad Industrial Ports – one at Yanbu on the Red Sea and the other in Jubail on the Gulf – remain the busiest industrial ports due to their importance to the petroleum industry.

King Abdullah Port (KAP), located 90 km north of Jeddah, is helping the Kingdom’s export market expand. The port ranked second globally in 2021 in terms of growth, according to an August 2022 report by maritime transport data solution provider Alphaliner. Between 2018 and 2020 its throughput rose by nearly 30%, from 2.2m twenty-foot equivalent units (TEUs) to 2.8m TEUs. In August 2022 KAP secured an agreement with global container shipping company MSC’s Indus 2 service that is expected to facilitate trade between Saudi Arabia, the Indian subcontinent and North America.

This underscores the port’s efforts to facilitate future expansion.“KAP’s development is expected to accelerate due to ongoing projects centred on Red Sea trade. One project is the landbridge, a railway network connecting the Red Sea to KAP and Damman, which will strengthen logistics and distribution capabilities of the port. Additionally, the Ministry of Investment is looking to develop special economic zones that will encourage manufacturing and services provisions within the Kingdom, allowing the port to boost its logistics services,” Jay New, CEO of KAP, told OBG.

In the future, container capacity is expected to receive extra attention in transport development strategies, given the centrality of this mode of shipping globally. JIP was the second-most-active container port in the region by throughput, behind Jebel Ali in Dubai. According to UK-based shipping journal Lloyd’s List’s “One Hundred Ports 2021” report, JIP ranked 37th worldwide, while KAP in King Abdullah Economic City came 84th, and Dammam placed 93rd.

Moving forwards, Jeddah will remain the focus largely due to FDI earmarked for JIP’s Jeddah South Container Terminal. The work, carried out by Dubai Port World (DP World), is scheduled for completion in 2024 and will boost capacity from 2.4m TEUs to 3.6m TEUs. In June 2022 DP World signed a 30-year concession agreement for the construction of a logistics park at JIP with an investment value of SR500m ($133.3m). The 415,000-sq-metre facility will have a container depot capacity of approximately 250,000 TEUs and warehousing storage space covering 100,000 sq metres.

Efficiency remains a priority area for improvement at all ports. Dwell times are relatively long in Saudi Arabia and across the GCC region compared to other shipping epicentres. This holds true even after accounting for larger-than-average vessel sizes in the GCC, a result of the region’s focus on trans-shipment.

Urban Transport

In an effort to fulfil the policy objectives of Vision 2030, the Kingdom’s designated public transport service provider, Saudi Public Transport Company (SAPTCO), which offers bus and rail services, is experimenting with a variety of smart mobility options. These include autonomous vehicles and a series of digital services offered through Rekab, a smartphone app designed to facilitate ride-sharing. The Rekab app was tested in a pilot project at King Abdullah University of Science and Technology in late 2019 before being rolled out nationwide in February 2020.

SAPTCO’s operating model also relies on partnerships with the private sector. In 2018 it formed a joint venture with Paris-based public transport company RATP Dev to operate two of the six lines in the Riyadh Metro for 12 years. The city’s 176-km metro system will cover 85 stations across the six lines. The plan will see renewable energy-based electricity supply for the metro stations, and was 92% complete as of December 2021. As of early September 2022 service was expected to begin on the first lines towards the end of 2022, with the rest of the lines to be fully operational before end-2023.

Outlook

As the Kingdom implements its Vision 2030 goals of global connectivity and passenger mobility, investment opportunities are anticipated to remain a key element of the development plans. Privatisation, joint ventures and other structures will be deployed as part of the broad multi-pronged strategy for building large-scale infrastructure, pursuing operational efficiencies and implementing digitalisation strategies.