Instability drives up defence budgets

22 February 2024

At the World Defence Show in Riyadh on 4-8 February, SR26bn ($6.9bn) of contracts were finalised, including SR20bn agreed by the Saudi Defence Ministry. 

Perhaps the most prominent feature was the number of localisation deals that were struck between Saudi government entities and international weapons manufacturers, including US firms Lockheed Martin and Raytheon, France’s Thales and South Korea’s Kia.

The Saudi authorities still have a way to go to meet their ambition – set out in the Vision 2030 economic diversification strategy – to allocate half of all defence equipment spending within the kingdom by the end of the decade, but it is clearly a goal they continue to prioritise. 

“There is definitely that focus on bolstering investment within defence budgets,” said Fenella McGerty, senior fellow for defence economics at the London-based think tank the International Institute for Strategic Studies (IISS).

“We are seeing a focus on R&D [research and development] particularly. It was far too low in this region. It needs to increase to about 4% of the defence budget – as it would be in Europe – and it was about 1%. Countries are moving towards implementing that change within defence spending.”

Increasing investment

McGerty was speaking at the launch of the latest IISS Military Balance report in mid-February. The report showed a further rise in Saudi defence spending in the past year. 

According to IISS data, Saudi Arabia’s defence outlay climbed 5.7% in 2023 to SR259bn ($69bn). This was lower than the 28% growth the year before, but is still among the fastest-growing military budgets in the wider region, and is far larger than the nearest competitors – the UAE, with an outlay of $20.7bn in 2023, and Israel with $19.2bn.

Overall, defence spending in the Middle East and North Africa region was up 9.5% in 2023, with Gulf countries accounting for just over 72% of the $183bn total – a figure that does not include Libya, the Palestinian territories, Sudan, Syria or Yemen, due to a lack of reliable information.

North African countries accounted for a 16.3% share of the total, with the Levant taking up the remaining 11.5%. 

One of the most significant aspects was a doubling of Algeria’s military budget to $18.3bn, from $9.2bn the year before. IISS attributed this to a recent procurement deal with Russia. In 2022, Russian media reported that a deal worth $12bn-$17bn was being negotiated, covering submarines, fighter jets and air defence systems. 

The sharp rise in military spending has pushed Algeria’s defence budget up to 8.2% of the country’s GDP – far higher than any other country in the region. The nearest rivals by that measure are Saudi Arabia at 6.5% and Oman at 6.0%.

Regional disputes

The one-off nature of the Russian deal means Algeria’s military spending is likely to fall back next year, but in other parts of the region, rising tensions are pushing governments to dedicate more funding to their armed forces. In early February, Israel’s parliament gave initial approval to an amended budget to help fund Prime Minister Benjamin Netanyahu’s war in Gaza, providing an additional $15bn.

With tensions rising in nearby Egypt, Jordan, Lebanon, Iraq and Yemen, other governments may feel the need to take similar action. However, they may also have to deal with a trend of weaker economic growth, with projections being downgraded for the region as a result of the negative impact of the Gaza war on trade, tourism and investment. 

Iraq – which has become an arena for fighting between Iran-backed militia and US forces in recent months – already posted a 47% increase in its defence budget for 2023, taking it to $10.3bn. 

As Baghdad attempts to catch up on procurement plans that were delayed by the Covid-19 pandemic, it plans to invest in improved air defence systems and is also in the market for new fighter jets, with France’s Rafale and China’s JF-17 Thunder both understood to be under consideration. At least some of the additional spending will be funded by loans from the US Defence Security Cooperation Agency and the South Korean government.

In some countries, spending is going in the opposite direction. Egypt’s defence outlay fell 34% in 2023 to $3.6bn. However, this was due to inflation and the falling value of the Egyptian pound; in local currency terms, the budget was up by 7% to £E92.4bn.

Iran has also been investing heavily in a manner that is unusual in the region in that it is now home to an extensive domestic weapons development and manufacturing base. This situation is due to international sanctions, which have made it difficult for Tehran to source advanced weaponry from abroad.

The advances Iran has made in missile and drone production have been seen on battlefields in Yemen and Ukraine, with Iran now a key supplier to Russia..

The home-grown strength that Tehran has developed is something that Saudi Arabia and the UAE would like to emulate and surpass. Both countries have faced some difficulty in securing modern armaments and equipment from western suppliers, due to disquiet about their actions in Yemen.

While most of those objections have now been dropped, some advanced weaponry remains out of reach, with the US still refusing to sell F-35 fighter jets to the UAE, for example. Such factors mean they will continue to invest heavily in their domestic defence industries in the coming years, while also procuring more equipment from non-western sources such as China.

Main image: Middle East and North Africa military expenditure. Souce: IISS Military Balance 2024

 

https://image.digitalinsightresearch.in/uploads/NewsArticle/11539659/main.gif
Dominic Dudley
Related Articles
  • SPPC moves Dawadmi wind bid deadline

    22 May 2025

     

    Saudi Arabia’s principal buyer, Saudi Power Procurement Company (SPPC), has extended the bid deadline for the contract to develop a wind independent power project (IPP) under the sixth round of Saudi Arabia’s National Renewable Energy Programme (NREP).

    MEED reported in March that the prequalified developers had formed consortiums and were preparing their proposals for the contract, the fifth wind IPP to be tendered under the NREP.

    SPPC initially expected to receive bids by 15 May, but the deadline has since been extended to 23 June, according to industry sources.

    The new deadline is likely to be extended again, however, one of the sources told MEED.

    The consortiums that have been formed and will likely bid for the contract include teams led separately by UAE-based Abu Dhabi Future Energy Company (Masdar) and French firms Engie and EDF Renewables, sources said.

    MEED understands that Beijing-based PowerChina and one of its subsidiaries are part of separate bidding consortiums. 

    Located in Riyadh, the Dawadmi wind IPP will have a capacity of 1,500MW. It is the only wind scheme and the fifth package under round six of the the NREP.

    Four solar photovoltaic (PV) schemes, with a total combined capacity of 3,000MW, comprise the rest of the round six projects. 

    In addition to the firms cited above, SPPC prequalified the following companies to bid as managing and technical members of consortiums bidding for the contract:

    • Marubeni Corporation (Japan)
    • Sembcorp Utilities (Singapore)
    • Sumitomo Corporation (Japan)
    • Total Energies Renewables (France)
    • Goldwind Science & Technology (China)
    • Alfanar Company
    • SPIC Huanghe Hydropower Development

    The following eight companies were prequalified to bid as managing members:

    • Al-Jomaih Energy & Water (local)
    • Jinko Power (Hong Kong)
    • Saudi Electricity Company (local)
    • China Power Engineering Consulting Group International Engineering Company (China)
    • Posco International Corporation (South Korea)
    • Korea Electric Power Corporation (Kepco, South Korea)
    • Nareva Holding (Morocco)
    • Jera (Japan)

    Another firm, the local Nesma Renewable Company, has been prequalified as a technical member.

    In addition to the Dawadmi wind IPP, the following schemes comprise round six of the NREP:

    • 1,400MW Najran solar PV IPP (Najran)
    • 600MW Samtah solar PV IPP (Jizan)
    • 600MW Al-Darb solar PV IPP (Jizan)
    • 400MW Al-Sufun solar PV IPP (Hail)

    These schemes take the total capacity of solar and wind projects publicly tendered by SPPC to almost 15,000MW.

    SPPC is responsible for the pre-development, tendering and subsequent offtaking of the energy from the projects.

    US/India-based Synergy Consulting is providing financial advisory services to SPPC for the NREP sixth-round tender. Germany’s Fichtner Consulting and US-headquartered CMS are providing technical and legal consultancy services, respectively.

    The previous wind farms that SPPC has tendered include the 400MW Dumat Al-Jandal wind IPP, which is operational.

    Last year, SPPC signed the power-purchase agreements with Japan’s Marubeni Corporation for the contracts to develop and operate the 600MW Al-Ghat and 500MW Waad Al-Shamal wind IPPs. The projects reached financial close in November.

    The third wind IPP, a 750MW scheme in Yanbu, is undergoing review.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/13931337/main.jpg
    Jennifer Aguinaldo
  • Local firm bids low for Kuwait grid contract

    22 May 2025

    Local contracting firm Power Grid Company has submitted a low bid of KD48.67m ($158.6m) for a contract to supply and install a 400-kilovolt (kV) overhead transmission line (OHTL) in Kuwait.

    The project will link a substation in Shagaya to a substation in Subiya.

    The two other bidders for the contract are the Kuwaiti branch of India-headquartered Larsen & Toubro, which offered KD65.9m, and Al-Khobar-based National Contracting Company, which offered KD57.7m.

    Kuwait’s Ministry of Electricity & Renewable Energy (MEWRE) tendered the contract in October last year.

    The planned OHTL network will link the solar energy transformer station at Shagaya to the Subiya power station, also known as SWPS-2.

    Kuwait plans to expand its renewable energy capacity through a multi-phased solar programme in Shagaya.

    MEWRE, through the Kuwait Authority for Partnership Projects (Kapp), prequalified six consortiums and companies to bid for the contract to develop the Al-Dibdibah power and Al-Shagaya renewable energy phase three, zone one project in August last year.

    The tender for the 1,100MW solar independent power project has yet to be issued.

    MEWRE, through Kapp, recently invited interested firms to prequalify for a contract to develop zone two of the renewable energy complex's third phase.

    The zone two solar photovoltaic project will have a net capacity of 500MW. Utility developers are expected to submit their statements of qualifications by 24 July.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/13931091/main0058.jpg
    Jennifer Aguinaldo
  • GE Vernova confirms $14.2bn Saudi initiatives

    22 May 2025

    US-based energy equipment manufacturer GE Vernova announced initiatives worth up to $14.2bn in Saudi Arabia, which coincided with US President Donald Trump’s state visit to the kingdom last week.

    The initiatives aim to “accelerate Saudi Arabia’s energy transition with US technology and expertise”, the firm said.

    The announcements include up to $2bn in backlog or on a reservation agreement as of the first quarter of 2025, with future contracts and memorandums of understanding (MoUs) for agreements spanning across the next four years.

    Among the collaborations and initiatives is a deal between Saudi Electricity Company (SEC) and GE Vernova for the supply of US-made gas turbines, synchronous condensers and balance of plant equipment.

    The equipment deal will support grid stability by providing voltage regulation, reactive power and system strength, supplying inertia to maintain reliable operations as more variable renewable energy is integrated into the system. The deal with SEC also includes capital parts, maintenance and repair services.

    Saudi Arabia's principal buyer, Saudi Power Procurement Company, and GE Vernova are understood to have entered into several MoUs for the supply of advanced power generation equipment and services for future projects; the commercialisation of carbon capture technologies; and training and investments in power sector research and development activities, manufacturing and repairs.

    Saudi utility developer Acwa Power and GE Vernova also signed framework agreements to collaborate on identifying and exploring potential opportunities to supply high-efficiency gas turbines and electrification equipment for future projects in Saudi Arabia. 

    State-backed Saudi Aramco and GE Vernova also announced collaborations to provide maintenance services, repairs and spare parts to support the operations of several power plants in the kingdom.

    Scott Strazik, chief executive of GE Vernova, said that deploying “world-class technology” will help deepen the relationship between the US and Saudi Arabia, advance energy security and strengthen both nations' economic prosperity and competitiveness.

    GE Vernova, or GE, is understood to have been operating in Saudi Arabia for 90 years, with a power generation installed capacity of about 50GW in the kingdom running on its gas turbines.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/13931061/main2152.jpg
    Jennifer Aguinaldo
  • Adnoc takes a leap forward in becoming a chemicals giant

    21 May 2025

    Commentary
    Indrajit Sen
    Oil & gas editor

    Abu Dhabi National Oil Company (Adnoc) has made a significant stride forward in its quest to build a burgeoning chemicals business following the European Union’s (EU) approval for the full acquisition of German chemicals producer Covestro.

    Adnoc International, the overseas business arm of Adnoc Group, signed an investment agreement with Covestro on 1 October, in which it made a takeover offer of €14.7bn ($16.3bn).

    On 13 May, the European Commission, the executive wing of the EU, gave unconditional antitrust approval for the acquisition, saying that the transaction does not raise competition concerns. It added that the companies mainly operate at different levels of the chemical and petrochemical supply chain and would not be able to restrict rivals’ access to inputs or customers.

    Having secured the green light for the Covestro takeover, Adnoc will now look to complete the transaction swiftly. In parallel, the Abu Dhabi energy giant is also likely to move quickly to conclude its deal with Austria’s OMV for a proposed combination of their shareholdings in Abu Dhabi’s Borouge and Austria-based chemicals producer Borealis.

    Adnoc and OMV agreed in March to the terms of a binding framework agreement for the merger of Borouge and Borealis. That, together with the contribution of the upcoming Borouge 4 petrochemicals project in Abu Dhabi, will create a major polyolefins producer valued at over $60bn that will be the world’s fourth-largest by nameplate production capacity.

    Separately, Adnoc also entered into a share purchase agreement in March with Canada-based Nova Chemicals Holdings, an indirectly wholly-owned company of Abu Dhabi’s sovereign wealth institution Mubadala Investment Company, for 100% of Nova Chemicals Corporation (Nova).

    With the takeover of Covestro likely to conclude in the next few months and the Borouge-Borealis merger, along with the acquisition of Nova, expected to be completed in the first quarter of 2026, Adnoc is set to morph into a behemoth in the global chemicals industry in less than a year.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/13923953/main3831.jpg
    Indrajit Sen
  • PIF and Acwa Power to develop 3GW wind projects

    21 May 2025

     

    Register for MEED’s 14-day trial access 

    Saudi Arabia's sovereign wealth vehicle the Public Investment Fund (PIF) and Saudi utility developer Acwa Power are preparing to sign the agreements for contracts to develop 3GW of wind farm projects in Saudi Arabia as part of the 2025 round of the kingdom's National Renewable Energy Programme (NREP).

    According to industry sources, this round comprises wind farm projects in two locations. The first wind farm will have a capacity of 2,000MW while the second will have a capacity of 1,000MW.

    These projects are being procured through direct negotiations between the PIF and Acwa Power, under the Price Discovery Scheme.

    Under this programme, the selected national champion, Acwa Power, is expected to match the tariffs resulting from the latest round of the publicly tendered schemes, the procurement process for which is managed by the principal buyer, Saudi Power Procurement Company (SPPC).

    These projects will correspond to the cluster of round-six NREP projects that are being publicly tendered by SPPC. 

    SPPC's round-six schemes comprise four solar photovoltaic (PV) independent power projects (IPPs) and one wind IPP.

    The bids for these schemes are expected in June, which implies that the PIF and Acwa Power are likely to announce the signing of the two wind farm agreements in Q3 or Q4, once the project's financing package has been agreed with banks.

    This round will precede the cluster of solar projects, with an estimated capacity of 13GW, which will likely be procured in 2026, roughly corresponding to round seven of the publicly tendered NREP projects being procured by SPPC.

    Previous PIF round

    Acwa Power and its partners reached financial close for three large-scale solar PV power plants with a total combined capacity of 5,500MW in September last year, three months after the contracts were signed.

    The solar PV projects and their capacities are:

    • Haden solar PV: 2,000MW
    • Muwayh: 2,000MW
    • Al-Khushaybi: 1,500MW

    The respective project companies that have been formed for the three schemes are Buraiq Renewable Energy Company, Moya Renewable Energy Company and Nabah Renewable Energy Company.

    Acwa Power’s shareholding in each of the three projects is 35.1%. The PIF-backed Water & Electricity Holding Company (Badeel) owns 34.9% and Saudi Aramco Power Company (Sapco), a subsidiary of state majority-owned oil giant Saudi Aramco, owns the remaining shares.

    The three solar PV facilities have a combined value of SR12.3bn ($3.3bn) and are expected to become operational in the first half of 2027.

    The project companies signed financing documents amounting to SR9.7bn ($2.6bn). The financing duration is 27.3 years.

    PIF solar PV projects

    The three, 5.5GW NREP round-four projects have taken the total capacity of solar PV projects being developed by Acwa Power and its partners under the PIF Price Discovery Scheme to about 19.1GW, involving an investment of over $12.3bn.

    The other projects include the 1.5GW Sudair solar PV, which is operational; and the 2.06GW Shuaibah 2, Al-Rass 2, Al-Kahfah and Saad 2, which are under construction.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/13923410/main1833.jpg
    Jennifer Aguinaldo