PIF emerging as the domestic investor giant…

As the central gov’t narrows down the scope of its fiscal spending gradually to achieve a balanced budget over the coming two-three years, the burden of driving the country’s economic growth is being shifted rapidly to the Public Investment Fund (PIF). It is, therefore, increasingly important to keep track of the progress of PIF’s projects, in addition to following general project activity in the Kingdom to assess the country’s growth prospects. The importance of this is also accentuated further when considering the challenges that the private sector has been facing over the past few years, which means the public sector will have to be the initiator of economic recovery. Indeed, the PIF is planning to undertake some USD542bn worth of projects over the coming two decades, forming c60% of KSA’s total planned projects and led by its flagship, Neom City, which, by far, dominates that amount; excluding Neom, the projects are worth USD42bn, which centre around key themes in Vision 2030, namely: i) entertainment; ii) hospitality; iii) religious tourism; and iv) knowledge economy. 

 
…and has only pressed the start button in a long drive ahead

The progress of PIF’s project list has been, so far, quite gradual, which is unsurprising, in light of the size of these projects, which need significant preparation in the study and design phases. This is even more so, given that in nearly all cases, the fund is developing these projects directly, as opposed to relying on subsidiaries or government-related entities as is the case in other GCC countries and in addition to its key job as the investor of the country’s hydrocarbon wealth. This unique role of the PIF places some capacity constraints, given that the institution, in its new form, is a relatively recent establishment. The good news is that the PIF has finally entered the execution phase in a number of its flagship projects, including Neom, Red Sea Tourism Project and Qiddiyah; however, most progress is coming at very preliminary stages and involves, mostly, some very basic and early-stage infrastructure work (including preparing construction sites, building roads to facilitate construction or housing labour). On the other hand, the two key projects building on the religious tourism angle have been put on hold for a year now, and there is no visibility on when they will be executed.

 
So far, implementation pace points to a small uptick in credit growth in 2020 

 The pace of project implementation, so far, continues to feed into a very gradual uptick in credit growth and general economic activity in 2020; it could be at a slightly higher pace than it was in 2019, but, in all cases, it does not point to any sharp recovery. PIF has, indeed, started to award projects, but these are: i) relatively small in size (USD5.3bn); and ii) at quite preliminary stages in the construction phase of the projects. Moreover, 75% of the projects set to be awarded in the coming two years are still in the study and design phases, making it less likely that these projects will commence execution in the coming year. The fund has raised some significant capital recently (Aramco IPO and sales of SABIC), providing some decent resources to press ahead with construction, but the ability to attract foreign capital is still key to execute these projects, most notably Neom.

Mohamed Abu Basha

Mostafa El Bakly