Are Public-Private Partnerships The Future of Saudi Construction?

While Government support for Saudi Arabia’s megaprojects has remained encouragingly strong throughout 2020, it’s inevitable that the financial repercussions from the COVID-19 pandemic, combined with the volatile oil prices, will at some stage impact funding for at least some of the 5,000 projects currently underway as part of the Kingdom’s modernization program.

Traditionally, the majority of funding in Saudi Arabia, and the GCC in general, has come from the top-down, with governments acting as the primary investor in infrastructure and public projects.

Public-private partnerships (PPPs) have not been a particularly popular model, due to a lack of legal and institutional frameworks, a reluctance from governments to entrust state assets to private developers, and a perceived lack of value in state projects from private developers.

But the unprecedented events of 2020 are changing mindsets in both camps. The prospect of alternative finance sources for major projects is providing an intriguing prospect for regional governments, with PPPs allowing major development projects to continue without the need for increased state spending.

Currently, there are over 240 projects within the Middle East that are being developed through PPPs, with a value of over $220 billion. The model is proving particularly popular within Saudi Arabia, which has quickly established itself as the region’s leader in the burgeoning PPP market.

The latest example comes from the Red Sea Development Company, the body responsible for creating the 28,000 km² luxury tourism and lifestyle megaproject along Saudi’s Red Sea. A major utility package, the largest package awarded on the project to date, was awarded to ACWA as part of a PPP. The Kingdom has also awarded PPPs for water delivery and for the construction of residential houses.

The topic of PPPs was a major talking point at the recent Leaders in Construction KSA Summit. Key figures noted that Saudi Arabia is now the largest PPP market and that PPPs will become an increasingly important source of finance for the Kingdom’s construction projects in the coming years.

The key points required to ensure a successful future for PPPs in the region will be increased engagement and collaboration between both stakeholders, enhanced transparency, and a robust regulatory and legislative framework.

The region warming to PPPs is certainly an exciting development for the Saudi construction industry. The prospect of additional funding is more than welcome in the current climate, and it could signify a positive shift for the industry in the coming decades.

An interesting development to keep track of.