Middle East defence spending accelerates

7 May 2023

 

Global military spending reached a record high of $2.24tn in 2022, up 3.7 per cent year-on-year, according to newly compiled data from the Stockholm International Peace Research Institute (SIPRI), as the Ukraine war and tensions in East Asia prompted governments to ramp up their investment in equipment.

It marks the eighth consecutive year of growth in global defence expenditure. The sharpest rise was in Europe, where there was a 13 per cent increase in spending, but the Middle East and North Africa (Mena) region was not far behind, with an 11.2 per cent rise on the previous year.

“The continuous rise in global military expenditure in recent years is a sign that we are living in an increasingly insecure world,” said Nan Tian, a senior researcher with SIPRI’s military expenditure and arms production programme.

“States are bolstering military strength in response to a deteriorating security environment, which they do not foresee improving in the near future.”

Rising regional outlay

The rise in the Mena region’s total to $168bn was mostly due to an increase in spending by Saudi Arabia and Qatar and, to a lesser extent, Lebanon and Iran.

As has long been the case, Saudi Arabia dominated the picture, with a defence outlay of $75bn in 2022 – up 16 per cent on the year before and its first increase since 2018.

Military spending data for the Middle East is often opaque. Other large spenders, according to SIPRI’s database, include Israel ($23.4bn), Qatar ($15.4bn), Algeria ($9.1bn), Kuwait ($8.2bn), Iran ($6.8bn) and Oman ($5.8bn).

However, the institute has no estimates for a number of other countries, most notably the UAE. Its most recent figure for the UAE is for 2014, at which point the defence budget was an estimated $22.8bn, the region’s second-biggest after Saudi Arabia that year.

There are also no current estimates for defence spending by the countries suffering the greatest instability, including Libya, Sudan, Syria and Yemen.

Others have drawn up figures for the UAE, though. The London-based International Institute for Strategic Studies (IISS) estimated the UAE’s defence spend was $20.4bn last year in its recently published Military Balance 2023 report. That marked a 6 per cent rise on the previous year’s estimate.

While the UAE may not have the largest budget in the region, IISS says its armed forces are “arguably the best trained and most capable of all GCC states”.

Unclear Iranian picture

The outlay by Iran is also a matter of some debate, given the questions over the value of the rial and the country’s high inflation rate of around 40 per cent.

SIPRI says that, in local currency terms, Iran’s defence spending grew by 38 per cent to IR1,988tn in 2022. That is equivalent to some $46.9bn at the government’s official exchange rate, but far less at the open market rate used by SIPRI.

Inflationary pressures have become a common concern for countries around the world, even if few are having to cope with price rises as rapid as in Iran. Many Western countries are also dealing with an energy supply crisis due to the war in Ukraine, which has led to prices spiking upwards and sanctions being imposed on Moscow.

The Middle East’s oil exporters have benefitted from elevated oil prices, making it easier to afford the rise in defence spending.

However, the most notable direct consequence of the conflict in Ukraine for the Middle East has been the surge in military cooperation that has followed between Russia and Iran. Moscow’s failure to quickly take control of Ukraine has led to a drawn-out conflict and, as its weapons inventory has become depleted, it has imported drones from Iran to fill in some of the gaps.

That cooperation may yet extend in the other direction, with Iranian media reporting in March a potential deal for Tehran to receive Russian Sukhoi Su-35 fighter jets. Iran will also have gained useful information about the performance of its Shahed 131, Shahed 136 and Mohajer-6 drones in the war.

Lingering Gulf concerns

Such developments will likely concern other Gulf governments, even if regional tensions have eased somewhat due to the rapprochement between Saudi Arabia and Iran, announced via a China-brokered agreement in March.

That fits into a broader regional trend for de-escalation and diplomatic advances. Recent talks between Saudi officials and Yemen’s Houthi rebels in Sanaa could yet pave the way to resolving that conflict – further discussions between the two sides are due to take place in May, possibly in Muscat.

The levels of violence in Libya and Syria have also been on a downward trajectory over the past year, but both remain susceptible to further outbreaks of fighting, as does Iraq.

Elsewhere, though, relations between Algeria and Morocco remain problematic, and the prospects of any peace deal between the Israelis and Palestinians look as distant as ever with the hardline government of Israel’s Prime Minister Benjamin Netanyahu in office.

Any reduction in regional tensions will be a welcome development given the high burden of defence spending on local economies. As IISS points out, many Mena countries’ defence budgets are very large relative to the size of their economies.

As has long been the case, Oman spends more as a proportion of its GDP than any other country in the region, with its 2022 outlay equivalent to 5.9 per cent of GDP, according to IISS calculations.

It is followed by Kuwait at 5 per cent and Saudi Arabia at 4.5 per cent.

The average for the region is 3.8 per cent of GDP, more than double the global average of 1.7 per cent. The overall trend for rising budgets means that the economic burden is unlikely to fall away any time soon.

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Dominic Dudley
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  • Mergers soar in global mining sector

    23 February 2024

     

    This month's Agenda also includesSaudi Arabia transforms mining sector


    There was a surge in mergers and acquisition (M&A) activity in the global mining sector in 2023, extending a period of consolidation in the industry that began in the previous decade.

    The total value of M&A deals in the industry increased by 75% compared to the previous year, to reach $121bn, according to a report by GlobalData. The number of M&A transactions grew 5% year-on-year to 1,526, while the number of mega deals – which are defined as deals with a transaction value of $1bn or more – stood at 16.

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    Major deals

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    In November, Swiss commodities giant Glencore announced it will acquire a majority 77% stake in Elk Valley Resources, the steelmaking coal business of Canadian miner Teck Resources. The transaction is valued at $6.93bn, making it the second-biggest deal of 2023.

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    Within months of being established, Saudi Arabia’s Manara Minerals entered into a transaction in July with Brazilian mining major Vale to become a 10% shareholder in its $26bn subsidiary, Vale Base Metals. 

    Manara Minerals teamed up with investment firm Engine No 1, which took a 3% stake in Vale Base Metals. The $3.4bn transaction was the third-biggest M&A deal in 2023.

    Manara Minerals was formed in January 2023, when Saudi Arabian Mining Company (Maaden) signed a joint-venture agreement with the kingdom’s Public Investment Fund (PIF) to establish a firm that would invest in mining assets globally. Maaden owns a 51% stake and the PIF holds the other 49% in the company.

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    Prominent themes

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    The estimated $17bn-worth of energy transition-themed M&A transactions last year demonstrates this commitment to a cleaner, greener future by mining companies globally.

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    It is also expected that mining companies will continue to prioritise projects that can increase their exposure to critical minerals, including copper, nickel, cobalt and lithium deposits – all of which are an integral part of the global electrification transition that is under way.

    Saudi Arabia transforms mining sector

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  • Saudi Arabia transforms mining sector

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    This month's Agenda also includes: Mergers soar in global mining sector


    Saudi Arabia’s metals and mining industry is playing a pivotal role in the country’s non-oil growth trajectory. 

    Commercial exploitation of the kingdom’s massive mineral resource base, most of which lies untapped, is a key component of Riyadh’s Vision 2030 socioeconomic transformation strategy.

    The kingdom took the first step towards realising the commercial potential of its mineral resources when it enacted a new mining investment law in 2021. Since the law came into effect, the Ministry of Industry & Mineral Resources (MIMR) has awarded more than 2,000 mining permits to local and foreign firms under its accelerated exploration initiative.

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    Mineral exploration drive

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    “This programme will de-risk investments in our exploration, to enable new commodities, greenfield projects and junior miners,” Alkhorayef told the FMF.

    To tap into overseas mining experience, the ministry signed four memorandums of understanding at the FMF.

    Deals involving cooperation in the field of mineral wealth were signed with Egypt’s Petroleum & Mineral Resources Ministry, Morocco’s Energy Transition & Sustainable Development Ministry and Congo’s Mines of the Democratic Republic Ministry. A separate agreement inked with Russia involves geology. 

    Alkhorayef also announced the MIMR’s fifth and sixth mining concession licensing rounds at the conference in Riyadh. The rounds will offer local and international miners access to 33 exploration sites this year.

    The ministry launched its last concession licensing round in August 2023, offering eight mining sites in the kingdom. Six of the sites are located in the Eastern Province – in Ghounan, Al Misnah, Al Samman, Ras Al Qaryah and the eastern and western zones of Salwa – and are understood to contain limestone ore, sand and other minerals.

    The other two sites are in Riyadh Province, in Al Armah and Hofayrat Nesaah. These sites are estimated to hold gravel and sand deposits, among other minerals.

    Prior to the August licensing round, the ministry announced in April that it had shortlisted 13 local and international companies for the exploration phase at the Muhaddad and Al Ridaniyah mining sites.

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    A consortium of UK-headquartered Royal Road and local entity MSB Holding Company has been picked as the preferred bidder for the Jabal Sahabiyah exploration site. 

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    A consortium of Saudi Arabia-based Sumou Holding and Canada’s Kuya Silver has been selected for the Umm Hadid site and will invest more than $22m in exploration activities and about $800,000 in community development. Umm Hadid is located in the Afif region in central Saudi Arabia. Covering an area of 246 sq km, the site contains mineral deposits of silver, lead, copper and zinc.

    The near-doubling of its deposits of natural resources is set to act as a stimulus to the nascent mining industry

    Maaden steps up

    Saudi Arabian Mining Company (Maaden) is at the forefront of Riyadh’s campaign to develop and expand the kingdom’s metals and mining sector. By 2040, the company, which is majority owned by the Public Investment Fund (PIF), aims to build its upstream mining capabilities, gain exposure to future minerals and form partnerships with global mining companies.

    Last January, Maaden signed a joint-venture agreement with the PIF to establish a new company to invest in mining assets globally. Maaden owns a 51% stake and the PIF holds the other 49% in the company, known as Manara Minerals, which will have a capital allocation of $50m.

    Manara Minerals aims to invest in iron ore, copper, nickel and lithium projects as a non-operating partner, taking minority equity positions. The firm’s first overseas investment was a deal in July to become a 10% shareholder in Brazilian mining major Vale’s $26bn subsidiary, Vale Base Metals.

    In terms of metals production, Maaden announced in mid-January that its subsidiary Maaden Gold & Base Metals Company (MGBM) had started commercial production of gold from the first phase of the Mansourah-Massarah gold project.

    MGBM operates six gold mines, with the Mansourah-Massarah mine being one of its concession areas. In June 2021, the Maaden subsidiary awarded an estimated $880m contract for the first phase of the Mansourah-Massarah gold mine to a consortium of India’s Larsen & Toubro and Finland-based Metso Outotec. The award of that engineering, procurement and construction (EPC) contract represents the biggest investment in gold mining in Saudi Arabia to date.

    In August last year, MGBM also awarded an EPC contract for the second phase of the Mansourah-Massarah gold mine project, worth $28m, to a consortium of Riyadh-based Darkstone and Australia-headquartered ATC Williams. The contract involves installing tailings storage facilities and wastewater management systems.

    Maaden exploration push

    On the mineral exploration front, Maaden signed an agreement with US-based Ivanhoe Electric in July 2023 to undertake exploration for high-demand minerals in the Arabian Shield zone in Saudi Arabia. As part of the $130m deal, the partners are to survey an area of 48,500 sq km in the Arabian Shield, starting in September.

    About the size of Switzerland, the Arabian Shield region is understood to be rich in reserves of minerals such as copper, nickel, gold, silver and possibly lithium.

    Maaden has had success in its exploration drive. In late December, it announced the discovery of significant gold resource potential extending along a 100km strike from its Mansourah-Massarah gold mine. This is the first find from the company’s exploration programme, which was launched in 2022 with the aim of building Maaden’s production pipeline.

    Exploration around Mansourah-Massarah has focused on identifying potential deposits of a similar scale and with similar geology. Encouraging drill results from several sites on Uruq South, along a 100km stretch south of Mansourah-Massarah, uncovered similar geological characteristics and chemistry to the gold deposit. These results include high-grade drill intercepts found 400 metres away from and under Mansourah-Massarah, with several high-grade intercepts.

    In addition, Maaden has continued the expansion of its exploration footprint at the Jabal Ghadarah and Bir Tawilah prospects located 25km north of Mansourah-Massarah, where the company is converting an inferred resource of 1.5 million ounces to indicated and measured status.

    In combination, these positive drilling results have identified a 125km strike with significant potential to become a major gold belt in Saudi Arabia. The near-mine drilling results around Mansourah-Massarah indicate that the resource is open both at depth and along the strike, offering significant potential to expand resources at the mine and possibly to extend the mine life with underground development.

    Mansourah-Massarah had stated gold resources of almost 7 million ounces as of the end of 2023, and a nameplate production capacity of 250,000 ounces a year.

    Positive drilling results have identified a 125km strike with the potential to become a major gold belt in Saudi Arabia  

    Maaden technology investments

    To extend the role of technology in Saudi Arabia’s mining sector, Maaden signed a master agreement with Germany’s Thyssenkrupp Uhde at the FMF. The deal covers the development of engineering and licensing of a calcination plant for phosphogypsum processing.

    The purpose of the proposed plant, which is to be located at Maaden’s Ras Al Khair site, is to recycle phosphogypsum and enable the capture of carbon dioxide (CO2) emissions. The joint research and development will be carried out together with Thyssenkrupp Polysius and Metso Outotec.

    Also at the FMF, Maaden and US firm GlassPoint announced plans to develop a solar steam technology. The first stage of project development will have the capacity to supply 9 tonnes of steam an hour to begin the decarbonisation of Maaden’s aluminium supply chain, in what is expected to be the world’s largest industrial solar thermal project.

    The technology will combine the direct generation of heat and storage to provide a continuous base load of steam to Maaden’s alumina refinery at Ras Al Khair. The initial capacity will be about 1% of the larger project, which is slated to save more than 12 million British thermal units of energy annually and reduce CO2 emissions by 600,000 tonnes a year.

    Maaden and digital reality firm Hexagon also partnered at the FMF to launch a "digital mine".

    “Hexagon’s life-of-mine technology solutions are being successfully deployed at the Mansourah-Massarah mine, combining sensor, software and autonomous technologies to enhance efficiency, productivity, quality and safety across the mine’s operations,” the companies said.

    Mergers soar in global mining sector


    MEED's October 2023 special report on Saudi Arabia includes: 

    > COMMENT: Riyadh reshapes its global role
    > POLITICS: Saudi Arabia looks both east and west
    > SPORTSaudi Arabia’s football vision goes global
    > ECONOMY: Riyadh prioritises stability over headline growth
    BANKSSaudi banks track more modest growth path
    > UPSTREAMAramco focuses on upstream capacity building

    > DOWNSTREAMSaudi chemical and downstream projects in motion
    > POWERRiyadh rides power projects surge
    > WATERSaudi water projects momentum holds steady
    > GIGAPROJECTSGigaproject activity enters full swing
    > TRANSPORTInfrastructure projects support Riyadh’s logistics ambitions
    > JEDDAH TOWERJeddah developer restarts world’s tallest tower

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    Indrajit Sen
  • Data centre activity soars in Saudi Arabia

    23 February 2024

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    Data sovereignty regulations as well as the widespread use of electronic commerce and social media particularly by young Saudis are driving the data centre construction boom, notes a Riyadh-based expert.

    Government agencies, banks, and family-owned conglomerates, in addition to local and international data centre developers and operators, have either started constructing or are planning to start the construction of data centre facilities across Saudi Arabia. 

    The value of known data centre projects pipeline in the kingdom falls under $1bn, according to regional projects tracking service MEED Projects. While this value corresponds to just one utility-scale renewable energy plant or a minor upgrade of an oil production facility in Saudi Arabia, future plans point to a major expansion of such facilities, which underpin the kingdom's digital hub and artificial intelligence (AI) strategies.

    For instance, the government announced in 2021 a plan to build a network of large-scale data centres that will require investments of up to $18bn by 2030.  At the time, the kingdom's Communications & Information Technology Ministry (MCIT) tapped local firms Gulf Data Hub, Al-Moammar Information Systems and Saudi FAS Holding as its initial partners for the scheme. 

    The following year, Saudi-headquartered Quantum Switch Tamasuk (QST)  unveiled plans to design and operate data centre projects with a cumulative total capacity of 300MW for the MCIT  by 2026. The project will comprise six locations across Riyadh, Dammam, Jeddah and Neom, with a reported budget of at least $2bn.

    Foreign investments have started pouring in to accommodate the rising capacity demand as well as the kingdom's ambition to become a digital hub.

    Dubai developer Damac Properties-owned Edgnex is constructing a data centre, which will have a minimum capacity of 20MW, at Industrial City 2. 

    In October last year, South Korea’s second-largest telecoms company, KT, in collaboration with Hyundai Engineering & Construction (Hyundai E&C) and the local telecoms group STC, signed a memorandum of understanding (MoU) to construct internet data centres (IDC) and smart cities in the kingdom. 

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    Digital hub

    A growth in the number of subsea cable landing sites in the kingdom is occurring in parallel with the substantial growth in data centre facilities and capacity.

    A 45,000-kilometre subsea cable network connecting Africa, Asia and Europe, 2Africa, reached two of its four landing sites in Saudi Arabia in May 2023. The landing sites are in Jeddah and Yanbu.  The cable is expected to reach the third landing site in Duba late last year and the fourth site in Al-Khobar in 2024.

    Once completed, 2Africa will connect Saudi Arabia to 33 countries, bringing the kingdom closer to its goal of becoming a digital hub.

    The stakes are high for the kingdom, which has simultaneously launched plans to industrialise its economy, decarbonise its industries, increase localisation and reach net-zero carbon emissions by 2060.

    While constructing energy-intensive data centres – which globally account for 1% of energy-related greenhouse gas emissions –  may seem counter-intuitive to these objectives, the rapid advancements in cooling and other data centre components, as well as the potential deployment of clean energy to power them, are expected to ease these assets' environmental impact.

     

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    Jennifer Aguinaldo
  • US firm wins Al Kahfah solar tracker package

    23 February 2024

    Riyadh-headquartered Acwa Power and India's Larsen & Toubro (L&T) have selected the US-headquartered Nextracker to provide solar trackers for the Al Kahfah solar photovoltaic (PV) power plant in Saudi Arabia.

    The project is one of three utility-scale solar projects being jointly developed by Acwa Power and its partner, Water & Electricity Holding Company (Badeel). as part of the kingdom's National Renewable Energy Programme (NREP).

    The US solar tracking manufacturer will supply its all-terrain NX Horizon-XTR product for the project located in the kingdom's Central Province.  

    The area the solar plant will occupy underpinned the choice to deploy Nextracker's smart solar tracker systems for the Al Kahfah project.

    The location is dominated by a hilly, hard-soil land surface that would otherwise typically require a combination of explosives and grading machines to flatten.

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    The project is understood to be the largest deployment of Nextracker's NX Horizon-XTR solar tracking technology in a single order.

    Nextracker founder and chief executive Dan Shugar said the project bolsters the Saudi government's leadership in energy transition and the dominance of solar technology in driving the transition to renewables in the region.

    L&T is understood to be the project's engineering, procurement and construction contractor.

    PIF solar projects

    Acwa Power and Badeel signed the power-purchase agreements with Saudi Power Procurement Company to develop and operate the three projects in May last year.

    In addition to the Al Kahfah solar project, the developer team will also develop the 2,000MW Al Rass and 1,125MMW Saad 2 solar PV projects.

    The projects are estimated to cost a combined SR12.8bn ($3.4bn).

    The projects are expected to reach financial close after they have satisfied the conditions precedent for senior loans drawdown, as a recent Acwa Power bourse filing has indicated.

    The banks that agreed to provide senior debt financing of SR8.6bn ($2.3bn) for the three projects include:

    • Banque Saudi Fransi (local)
    • HSBC (UK)
    • Mizuho Bank (Japan)
    • Riyad Bank (local)
    • Saudi Awwal Bank (local)
    • Saudi National Bank (local)
    • Standard Chartered Bank (UK)

    The financing duration is 27.75 years. The project debt financing amount is non-recourse to Acwa Power, which owns a 50.1% equity in the three projects.

    Its partner, the Public Investment Fund (PIF) subsidiary Badeel, owns the remaining 49.9% equity in the projects.

    The three projects take the number of solar PV contracts awarded by the PIF under the kingdom’s NREP to five.

    It awarded contracts for the development of the 1,500MW Sudair solar PV in 2021 and the 2,060MW Shuaibah 2 solar PV in 2022.

    Badeel is a wholly owned subsidiary of the PIF, which is mandated to develop 70% of the NREP’s target capacity through the kingdom's Price Discovery Scheme.

    The PIF also owns a 44% stake in Acwa Power.

    Neither SPPC nor Acwa Power has disclosed the levelised electricity cost for the latest three schemes.

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    Jennifer Aguinaldo