According to Goldman Sachs analysts, “The capex super-cycle will likely remain an important theme in Saudi Arabia for the foreseeable future,”
According to a Goldman Sachs report, Saudi Arabia is anticipated to invest over $1 trillion in crucial economic sectors by 2030, with less money going towards its oil and gas sector as the country’s priorities shift to supporting non-oil sectors that will help the kingdom achieve its sustainable development objectives.
The largest economy in the Arab world is expected to spend almost 73% of the funding into non-oil industries in what the US bank called a “capex-super cycle,” up from a prior projection of 66%, it said this week.
It said that expenditure in the oil industry, which is Riyadh’s largest source of income, is predicted to drop by $40 billion to roughly $280 billion in the upstream and downstream sectors.
Specifically, Goldman Sachs reduced its prior anticipated range of $230 billion to $260 billion for possible investments in the upstream oil and gas sector to between $190 billion and $220 billion.
But according to Faisal Al Azmeh, head of equity research at Goldman Sachs for Central and Eastern Europe, the Middle East, and Africa, natural gas will continue to be “a key contributor to the country’s decarbonization, economic development, and diversification plans.”
It claimed that funding for investments in the clean energy sectors – which include carbon capture, clean hydrogen, and renewable energy – is expected to reach roughly $235 billion, up over 60% from an earlier estimate of $148 billion.
Over the past year, Riyadh has increased its focus on renewable energy, and the US investment bank has identified approximately 11 gigawatts of solar photovoltaic capacity that are currently under construction, together with 16.7 GW of planned solar and wind capacity.
According to Goldman Sachs analysts, “The capex super-cycle will likely remain an important theme in Saudi Arabia for the foreseeable future,”
As part of its comprehensive transformation agenda, Saudi Arabia is diversifying its economy away from the oil industry and has implemented reforms to enhance business conditions and increase foreign investment in the kingdom.
As part of the Vision 2030 strategy, it is expanding its industrial base and hoping to attract more foreign direct investment to some of the giga-projects it is carrying out.
As the globe moves toward a lower-carbon future and concentrates on sustainable development goals, the energy sector of the kingdom – the largest exporter in Opec – is also fast shifting toward cleaner energy sources and ecologically friendly solutions.
In 2021, the kingdom declared its intention to achieve carbon neutrality by 2060. In that same year, the largest oil producing business in the world, Saudi Aramco, joined the initiative with a commitment to reach net-zero carbon emissions by 2050.
The Ministry of Investment passed an amended investment law last week, creating a framework that aims to level the playing field for both domestic and foreign investors by giving them more transparency, flexibility, and trust.
According to the Goldman Sachs research, investments in the transportation and logistics, digitalization, and metals and mining sectors – all crucial to the kingdom’s efforts to diversify its economy – are anticipated to reach $170 billion, $164 billion, and $200 billion by 2030, respectively.
In particular, mining is expected to rise significantly. According to Undersecretary Khalid Al Mudaifer of the Industry and Mineral Resources Ministry, Saudi Arabia intends to grant over thirty mining exploration licences this year. This announcement was made in January.
At the time, Riyadh also unveiled a $182 million mineral exploration incentive program, hoping to draw in more international investors and boost industry growth.
As it works to establish itself as a major international tourism destination and global logistics hub, Saudi Arabia is also concentrating on the areas of transportation and logistics. The objective outlines in the kingdom’s National Aviation Strategy is to draw in over $100 billion in investment for airports, airlines, ground services, air freight, and logistics.
Goldman Sachs predicted that Saudi Arabia’s spending binge would not be easy to understand. Goldman Sachs said that the kingdom may need to explore for other sources of finance for its capex super cycle due to its estimated $25 billion annual funding gap.
According to the article, the kingdom is facing “a modest rise in pressure on the government’s budget” as a result of oil prices remaining stagnant around $80 to $85 per barrel and production dropping to nine million barrels per day.
According to Goldman Sachs, the kingdom’s budget deficit would increase from 2% of GDP last year to 4.3% this year. It stated that decreasing oil revenue accounts for the remaining 2.6 percentage points of the deficit, with increased spending accounting for the remainder.
As per Goldman Sachs analysts, “It’s uncertain how a higher deficit will affect the pace of planned investments.”