Events in January will shape Saudi market in 2024

1 February 2024

 

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January was a pivotal month for Saudi Arabia with a series of significant events that will shape how the market performs in 2024.

The month started well with major project deals signed that boosted confidence further after the market recorded its best-ever total value of contracts awarded. That optimism was tempered later in the month as fresh concerns over the outlook for project spending emerged after a high-profile corruption case and a government directive instructing Saudi Aramco to halt its plans to increase the kingdom’s oil production capacity.

Oil decision

In a statement on 30 January, Aramco said it had received a directive from the energy ministry to maintain its maximum sustainable capacity (MSC) at 12 million barrels a day (b/d). The state energy giant had previously been set a target of achieving an oil output spare capacity of 13 million b/d by 2027.

While some have interpreted the decision as a political move aimed at propping up the global oil price, others say it has been made to reduce capital expenditure commitments so Aramco can make larger dividend payments to its shareholders. The government holds a 90% share of the company, the PIF owns an 8% stake, and the remaining 2% of the shares are listed on the Saudi Stock Exchange (Tadawul).

Building boom

For construction, the largest contract award in January was the $4.7bn deal signed by Italy’s WeBuild to deliver three dams at the Trojena mountain resort in Neom that will host the 2029 Asian Winter Games. Other major deals included the SR1.8bn deal signed by Dubai-based Alec for constructing the Ilmi Centre at Misk, and the local MBL being selected for the contract to build the opera house at Jeddah Central.

Meanwhile at Al Ula, the kingdom’s Oversight & Anti-Corruption Authority (Nazaha) has suspended the CEO of the Royal Commission for Al Ula Governorate on the grounds of corruption and money-laundering charges. The charges against the executive, Amr Bin Saleh Abdul Rahman Al Madani, relate to his activities both before and during his role at the Royal Commission, involving the awards of contracts to a company named National Talents Company (TalentS).

Economic forecasts

These developments came amid a backdrop of mixed economic data. In mid-January, the Washington-based IMF revised the expected real GDP growth figure for Saudi Arabia in 2024 to 2.7%, down from the projection of 4% that it made three months earlier in October. The downgraded forecast reflects Saudi Arabia’s deepening oil production cuts.

Saudi Arabia’s additional voluntary cuts are by far the deepest by Opec+, with Riyadh agreeing to cut its oil production by a further 1 million barrels a day (b/d) through to the end of Q1 2024 – a cut double the size of the voluntary 500,000 b/d reduction by Russia – the next largest – for the same period.

Despite Western sanctions, Russia has also overtaken Saudi Arabia as China’s biggest source of oil imports in 2023. According to Chinese customs data released on 22 January, China – the largest oil importer in the world – purchased a record 107.2 million tonnes of crude oil from Russia last year, about 25% more than in 2022. Falling by 1.8%, China imported about 86 million tonnes of oil from Saudi Arabia.

A more positive indicator for Saudi Arabia is FDI. The kingdom’s foreign direct investment (FDI) inflows increased by 29.1% in the third quarter of 2023 compared to the previous three months, according to the Saudi Central Bank.

FDI inflows reached SR7.99bn ($2.13bn), rising from SR6.2bn recorded in the previous quarter. The announcement follows last year’s amendment of the country’s FDI calculation methodology by the government in Riyadh, showing that inflows doubled from 2015 to 2022.

Debt deals

As the economic outlook cools, Riyadh has tapped the debt markets. At the start of January, the Finance Ministry said it expects to borrow $23bn in 2024. The financing will be used to finance the deficit in the state budget and to pay existing debt that matures. The ministry added that by the end of 2024, it expects the kingdom’s total debt portfolio to reach SR1.115tn, which is about 29 per cent of GDP. That announcement was quickly followed by the issuance of $12bn of bonds under Saudi Arabia’s Global Medium-Term Note Issuance Programme (GMTN). Later in January, the Public Investment Fund (PIF) completed a $5bn bond issuance.

Both the government and the PIF could receive a cash boost from selling more shares in Saudi Aramco on the Tadawul. On 31 January, Bloomberg reported that the kingdom is working with a group of advisers and is seeking to potentially raise at least $10bn.

These developments are important for the projects sector. According to regional projects tracker MEED Projects, there are contracts valued at $181bn at the tender stage in the kingdom. The prospects for many of these pending deals will be shaped by what happened in January.

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Colin Foreman
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