In trying to diversify away from oil, Saudi Arabia is focusing on other sectors. One of them is mining; Saudi Arabia aims to award more than 30 mining exploration licenses this year, and has established a $182 mineral exploration incentive program to encourage more investment in the sector.
Another focus area is transportation and logistics, as Saudi Arabia aims to become a leading logistics hub and international travel destination. The government is expected to invest around $100 billion in aviation, and another $100 billion or so in electric vehicles, logistics, and other sub-sectors.
How Saudi Arabia will pay for its $1 trillion investment plan
With oil prices remaining in the $80-$85 range and production down to 9 million barrels per day, Saudi Arabia is experiencing a modest rise in pressure on the government’s budget.
Goldman Sachs Research estimates that the country’s budget deficit will widen to 4.3% of GDP this year, up from 2% last year. Around 2.6 percentage points of the deficit is the result of increased spending, with the rest driven by lower oil revenues. It’s uncertain how a higher deficit will affect the pace of planned investments. “But we think the Capex Super-Cycle will likely remain an important theme in Saudi Arabia for the foreseeable future,” our analysts write.
Finding the money to invest in the super-cycle will bring its own challenges. Saudi Arabia has traditionally relied on bank loans to support growth. The latest Saudi banking system data for May 2024 shows that the liquidity situation in the country remains tight, with loan growth outpacing deposits. To bridge an estimated $25 billion-per-year funding gap for its capex projects, Saudi Arabia will have to tap alternative sources of financing, according to Goldman Sachs Research.
Source: goldmansachs.com
