From desert dreams to today’s reality

Vision 2030, the Kingdom of Saudi Arabia's strategic framework to reduce its dependence on fossil fuels, diversify its economy and develop its public services, was first announced in 2016 and the potential for significant project development has been in the works ever since. Now, the giga projects that are the "crown jewels" of the Vision are starting to make their impact felt in the global contracting market.

As the biggest economy in the Gulf Cooperation Council (GCC), Saudi Arabia has always been important. But in the export finance world, the regional focus has been mainly on Egypt and the UAE, rather than on the Kingdom. Now a number of factors are coming together that are bringing Saudi Arabia front-of-mind for investors and contractors.

For many years, Saudi Arabia’s domestic banking system has been characterised by ample liquidity that allowed it to become the dominant source of financing for projects in KSA. While ECAs and international banks have had a long track record of financing projects in KSA, their participation has tended to be on a more selective basis and mostly for large project finance deals.

This contrasts with the United Arab Emirates, where international financing has been a strong contributor to its development for some time. In 2017, for example, Britain’s ECA – UK Export Finance – provided over $600 million supporting UK construction firms to deliver three major infrastructure projects in Dubai¹. The ECA supported UK construction firms and suppliers of building materials with guarantees for the construction of the Dubai Arena, a 17,000-seater entertainment and sports venue and the latest phase of One Central, the Dubai World Trade Centre’s mixed-use development in Dubai’s central business district.

“If I were to drive down Sheikh Zayed Road in Dubai, I could point to left and right at projects that have been partially funded by ECAs – I would not be able to do the same in Saudi Arabia at the moment,” said Manav Futnani, Managing Director and Global Co-Head of Export Finance at HSBC.

“What’s changing at the moment is the scale of what is being developed and built in Saudi Arabia. It’s so enormous, I would argue unprecedented, that there is going to be an opportunity and a requirement for projects to look outside for alternate sources of financing.”

ECAs aren’t the only method of international debt financing that projects will be looking at. However, the scale of the giga projects of Vision 2030 will require so much finance that the opportunity is enormous for even smaller slices of the pie.

These projects cover tourism, residential, commercial and industrial projects with an emphasis on green and sustainable development. A number of them are directly owned by the country’s sovereign wealth fund, the Public Investment Fund (PIF), which has more than $600bn in assets, and others are owned and funded by the government through public entities.

Public financing is therefore expected to kickstart these projects, but the aim is to have them attract private financing as well and become less dependent on state funding over time.

Even if ECA financing is only required on a fraction of each project, the opportunity will be in the billions of dollars. There are projects like The Line, NEOM² , the blade-like vertical city running through the desert described as the world’s most ambitious project. But this headline-grabbing development is only one among many. Others include coastal resorts aimed at building up Saudi Arabia’s nascent tourism sector, including the $16bn Red Sea Project, Amaala, a $5.1bn luxury coastal resort, and Rua Al Madinah, a $10bn Islamic and cultural destination for pilgrims.

There are also funds set aside for entertainment and sports venues, including $5bn for entertainment complexes in multiple cities, an $8.8bn entertainment city called Qiddiya and $23bn for King Salman International Park, a sports centre. And there are funds for public sector projects, such as the $20bn Jeddah Central Urban Revival project and the $90bn Roshn project to build affordable residential housing for nationals.

Most of these projects have been well-known since the launch of Vision 2030, but many are now entering the point at which private sector international investment will have a strong role to play.

Qiddiya, for example, has been under development since 2018 and its theme parks, arenas, outdoor activities and motor sports, including the Kingdom’s first water park, will require a multitude of secondary contracts to reach completion.

Most of the new development is also aiming to be more sustainable, which means contracts for renewable energy development and other green projects. In 2022, Saudi Arabia launched a tender for 3.3GW of wind and solar energy projects as part of the National Renewable Energy Programme (NREP)³. Part of this tender is a 700MW wind farm in Yanbu on the Red Sea coast and another of 600MW in Al-Ghat in Riyadh Province.

Over a decade and many billions of dollars has gone into laying the groundwork to bring these giga projects online. But even if the ambition of some of these giga developments is scaled back, there will still be many more billions required and it would not be optimal for the local banks in the Kingdom to meet all the debt requirements. That’s why ECAs are looking to Saudi Arabia this year, and likely for many more years to come.

HSBC's origins in Saudi Arabia date back to 1950. It has had a continuous presence in the Kingdom since and, as the largest single investor in Saudi Alawwal Bank (SAB), HSBC has a unique strategic partnership with one of the country's biggest home-grown lenders. Together, they own HSBC Saudi Arabia – HSBC with a 51% shareholder, SAB with 49% – the country's only pure play international investment bank. SAB is one of the leading corporate and institutional international banks in the Kingdom with a strong performance in trade finance, digital service innovation, and sustainable financing. In fact, SAB acted as one of the mandated lead arrangers on the $3.76 billion financing raised to fund the Red Sea project, and HSBC served as the green loan coordinator on the transaction⁴. It was the first-ever Saudi riyal-denominated Loan Market Association (LMA) Green Loan Principles-compliant loan in the Kingdom.

“One of the key differentiators for HSBC is our ability to offer global expertise with strong local knowledge to our clients interested in capitalising on opportunities in KSA,” said Qadri. “HSBC is the only international investment bank with the largest team of investment banking and markets professionals based on the ground in Saudi Arabia.”

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