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Sovereign funds to help deliver regional rail dreams

2 March 2023

Commentary

Eva Levesque

Correspondent

Mubadala’s announcement that it will invest $3bn in Oman-Etihad Rail shows how rail projects could be delivered using the region’s sovereign wealth funds. 

Over the past two years, following the signing of the Al-Ula declaration in 2021, all six GCC states have taken steps to implement sections of the railway that will combine into an intranational network. 

As these plans move towards delivery, a key question that needs to be answered is how these projects will be financed. One option could be direct government funding, and with oil prices sitting above $80 a barrel, this may be a viable choice. The problem is that in the past, when oil prices have dipped, infrastructure spending has been reined in, to the detriment of rail projects in 2015 and 2016. 

The cross-border nature of the regional rail project adds another layer of complexity as the ability to fund projects varies across the GCC. One solution could be deploying the region’s sovereign wealth vehicles. These funds typically look to invest domestically and internationally in assets that give steady long-term returns and, in the case of funds such as the UAE's Mubadala and Saudi Arabia’s Public Investment Fund (PIF), these investments are often linked to a direct economic benefit for their home countries. 

Rail projects tick that box. Such schemes are costly but, once finished, they bring significant economic returns.

On 23 February, the UAE inaugurated freight train operations across the country. This is an important milestone both for the country and for the larger GCC railway network.

It is estimated that the UAE's railway network will contribute to the national economy at a value of AED200bn ($54bn) and will save AED8bn ($2.18bn) in the total cost of road maintenance.

The benefits will be even more significant with the implementation of the eagerly awaited passenger services.

A passenger link between Abu Dhabi, Dubai and the northern emirates will allow business travel time savings and will contribute to the tourism sector.

The UAE network’s tourism gains are estimated at AED23bn already. Linking the network with those of neighbouring countries will add even more.

In addition to transport benefits, the rail network will open up opportunities for real estate developers, as the new rail stations will increase land prices and add value to properties developed around them, while also stimulating economic activities in general.

The network will also contribute to achieving the UAE's Net Zero by 2050 goal by reducing carbon emissions in the road transport sector by 21 per cent and reducing road transport emissions per capita by 40 per cent by 2050.

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Eva Levesque

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