The Saudi Arabian government has recently recognized the exceptional importance of infrastructure investment in partnership with the private sector, not as a spender in a welfare state. Last October witnessed the launch of the National Infrastructure Fund (NIF), one of the ten funds under the National Development Fund, a sovereign major fund created in 2017 and specializing in local development.
The new fund represents a shift in the Saudi infrastructure economic policies since the foundation of the Kingdom, i.e., allowing the private sector to participate in the development of ports, roads, airports, power plants, and hospitals, etc. NIF will be overseen by the world’s largest asset manager, BlackRock Inc.
What is the role of NIF and how is the new fund going to participate in the challenge of economic transformation for the post-oil era? Let’s explore the horizons of INF, which is positioned to inject up to USD 53 bn over a decade.
BENEFITING FROM FOREIGN EXPERIENCES
“NIF will be working under the supervision of BlackRock Inc. through its Financial Markets Advisory. The American asset manager holds assets worth around USD 9.5 tr, which means it has the experience to institutionalize the Saudi infrastructure market to attract both local and international investments. This means the Saudi government is not starting from the scratch in this new field. Infrastructure development involves heavy capital expenditure, so it is always better to benefit from institutional expertise in order to put yourself on the right track from the very beginning,” Fahad Sunaideh, an economic commentator, told Majalla.
“One of the biggest goals of NIF is to shift a bigger part of infrastructure spending outside the state budget by attracting investments and partnerships. The Kingdom offers huge opportunities for foreign capital in the infrastructure sector, and now, with the new framework and USD 53 bn, it is expected that the sector will be a good source of revenue. Both the infrastructure and construction sectors are linked together and can have a positive impact on the employment and industrial sectors due to the demand for labor and building materials such as steel, cement, machineries, etc.,” he added.
Insofar as the Saudi economy is opening up for foreign investment with an ambitious plan to attract USD 103.5 bn annually between 2021 and 2030, the infrastructure sector is one of the least risky investments. People will continue to use roads, airports, power plants and water facilities regardless of fluctuations in oil prices. Infrastructure assets are the backbone for all of the daily services required by people, organizations, and governments. Due to this essential nature, infrastructure assets have good returns and stable cash flows. This is what tempts foreign capital to land in the Kingdom.
Acceding to Goldman Sachs, USD 16 tr of investment is needed to limit global warming by 2 degrees Celsius by 2030. Saudi Arabia has committed to reach net zero emissions by 2060. Renewable energy production facilities will be a major tool for sustainability.
"The decarbonization efforts will require the Kingdom to gradually replace the existing fossil fuel based power plants. Investment in electricity generation from clean sources will be crucial over the coming decades," said expert Fahad Sunaideh.
The Saudi experts believe that water desalination using solar energy will be of great interest to investors. This does not mean that other sectors are less important as it is a matter of priorities.
The Saudi capital, Riyadh, plans to have 30% of all cars be electric vehicles by 2030. To achieve that goal, some of the energy investments should be channeled to build the infrastructure of charging stations. The ideal situation is to have the charging stations rely on renewable energy, especially with the abundance of sunlight throughout the year.
"NIF can play a big role in helping the government reach its zero carbon goal by 2060 by striking partnerships and financing renewable energy and EV charging stations projects," he added.
WHY PARTNER WITH NIF?
Saudi Arabia is the biggest Arab economy with a population of 35 million that grows by 2% annually. Megaprojects are being developed right now in different parts of the Kingdom.
"It is not a matter of replacing old infrastructure with a new one. The Kingdom is undertaking multi-billion mega projects such as NEOM, Red Sea, Qidiyah, THE RIG, and many more. The first phases are mostly funded by the Public Investment Fund, which is the Saudi sovereign fund. The newly established fund, NIF, will pave the way for more partnerships in the infrastructure sector in those mega-projects," said Fahad Sunaideh.
"The Kingdom is taking a leap to modernize and upgrade the infrastructure sector through NIF. The most important thing is to promote the infrastructure opportunities using detailed research and providing realistic figures to lure more companies to enter the market," he concluded.