Saudi Arabia’s diversification strategy rests heavily on Giga projects

Oil has dominated the narrative for GCC economies for many decades. Saudi Arabia, being the largest among GCC, is embarking on a major initiative to diversify away from oil with economic sustainability as the aim. While other countries are taking baby steps to get there, Saudi Arabia is betting big with Giga projects (technically defined as projects above $10 billion). The sheer scale suggests that such experiments can be done only by the government and not the private sector, though private sector will be the biggest beneficiary of this experiment.  

With more money, time and skill concentrated into a single project, the giga-projects naturally assume concentration risk, yet the benefits are expected to be risk-worthy. The common benefits of such giga-projects include improving the economies of scale, generating employment opportunities, diversifying the economy, and imparting newer technologies etc., The two most critical issues on a giga-project are usually the cost and schedule. Some projects are forced to discontinue without reaping any economic benefits because of time and cost overruns. Globally, given their scale, only few giga-projects are completed in a year with hundreds of giga-project announcements happening every year over the past decade.

Infrastructure Giga-Projects Pipeline

Source: Refinitiv

The Public Investment Fund (PIF), the official Sovereign Wealth Fund (SWF) of Saudi Arabia is sphere heading this initiative since 2016. PIF is constantly strengthened in terms of its accumulated deal, recent being transfer of 4% share of Aramco into its kitty.. With the committed investment of USD 150 billion annually ^[1], giga-projects are expected to create new ecosystems and unlock new sectors in the Kingdom thereby expanding its economy, where PIF is committed to fund half of its capital requirements. The capital intensive and visionary infrastructure projects have already started expanding the sectors of the economy and attracting FDI. In 2020, the share of PIF assets in new sectors was at 15% and this is set to increase to 21% with 1.8 million job creation by 2025 ^[2]. With more than USD 900 billion of investment outlay till 2030, the giga projects are the heart of PIF programs’ diversification strategy.