On June 30, Saudi Crown Prince Mohammed bin Salman, the country’s de facto ruler, announced a comprehensive national transport and logistics strategy. Presented as a “key pillar” of Riyadh’s vast development plan known as Vision 2030, the calls for 147 billion dollars in investments over nine years, including plans for a second national airline and new logistics areas. The operator of Saudi Arabia’s Red Sea Gateway Terminal has also plans to spend $ 1.7 billion expand its main port to Jeddah and invest in at least three international ports – each totaling some $ 500 million – over the next five years.
Maintaining such international partnerships will be essential if Riyadh hopes to meet its ambitious growth targets, especially in sectors like transport and logistics, as it diversifies its economy by avoiding dependence on fossil fuels. However, these are areas where other Gulf Arab powers, such as Qatar and the United Arab Emirates, already have a substantial presence. So Saudi Arabia’s current development trajectory and long-term ambition to become a global logistics hub could strain its relations with neighboring states, a risk Saudi officials seem willing to take.
The growth of the transport and logistics sectors in Saudi Arabia will be primarily financed by the Public Investment Fund, the country’s sovereign wealth fund. With approximately $ 400 billion in national and international assets under management, the FRP is an integral part of the Vision 2030 plan. “The Public Investment Fund motivates the Saudi economy more than the budget and it will continue,” Mohammed bin Salman , popularly known as MBS, remarked in an interview in April. In November, MBS announced that the fund will invest $ 40 billion—More than 5% of Saudi GDP – each year in the national economy in 2021 and 2022, illustrating its importance as an engine of growth.
Local investment opportunities abound. For example, the PIF would finance Saudi Arabia’s plans for a new national airline, and earlier this year it acquired a 20% stake in Red Sea Gateway Terminal, as did Chinese multinational Cosco Shipping Ports. The PIF also continues to launch new development initiatives, such as multi-billion dollar tourism projects and a program
cruise line, and increasingly supports other Saudi Arabian private companies.
However, the domestic and international growth trajectories of Saudi Arabia-based companies are closely linked. Indeed, the long-term commercial viability of a new national airline depends on a constant supply of international tourists and businessmen traveling to and through Saudi Arabia, and Saudi authorities hope to connect the country to 250 international destinations. Additional plans are in place to expand rapidly Saudi Air Freight and Sea Container Capacity with the aim of increasing the contribution of the transport and logistics sector to GDP from the current 6% to 10% by 2030.
Neighboring governments are keeping a close watch on Saudi growth ambitions, which means the region could face increased trade competition.
Riyadh is also considering an opportunity to derive greater economic benefits from regional trade passing through the shipping platforms of neighboring countries. Essentially, Saudi Arabia aims not only to be a trade destination, but also the focal point of regional trade. This will require substantial infrastructure improvements at airports and ports, such as the planned expansion of the Red Sea Gateway Terminal at the Jeddah Port Facility. Along with expanding its assets in Saudi Arabia, Red Sea Gateway Terminal is focusing on investment opportunities in Sudan and Egypt. If goods pass through a Red Sea port, Saudi companies want to join in the action.
Neighboring governments are keeping a close watch on Saudi growth ambitions, which means the region could face increased trade competition. The new Saudi airline will be forced to compete with established giants like Emirates and Qatar Airways, while expansion plans by Saudi port operators boost competitive dynamics with neighboring port operators and multinational logistics companies, such as DP World de Dubai. Last month, Reuters reported that DP World plans to sell minority stake in Jebel Ali Free Zone, its flagship business park, to reduce debt to the port operator and potentially free up cash for its investment projects.
Free zones – zones with looser rules and regulations for businesses and where goods can be stored and transferred duty-free – are poised to be at the forefront of the Saudi push to improve its transport and logistics industries. In January, Saudi Investment Minister Khalid Al-Falih announced his intention to 20 new special economic zones with investor-friendly regulatory environments as part of Riyadh’s efforts to boost stagnant levels of foreign direct investment. This follows on from a previous one royal warrant issued in 2019, which expanded the jurisdiction of Saudi Arabia’s Economic Cities and Special Zones Authority to include economic zones. In 2018, Saudi Arabia quietly launched the Integrated logistics bonded zone as part of its efforts to promote the logistics sector. Here again, competition with neighboring states is likely to be intense. Given its status as the Gulf’s premier trade and investment hub, the UAE alone has more than 40 operational free zones, which are a crucial part of the country’s economy, especially outside the United Arab Emirates. he oil-rich emirate of Abu Dhabi, the capital.
Saudi Arabia maintains a close diplomatic and strategic partnership with the United Arab Emirates, but competition is intensifying in the economic field. Earlier this month, Riyadh raised eyebrows among salespeople in the UAE by announcing a a series of clarifications and changes to its import rules, which stipulated that goods produced in free zones would be excluded from preferential tariff agreements of the Gulf Cooperation Council. Days after the announcement, the trading arm of state-owned oil giant Saudi Aramco, ATC, began asking sellers to declare whether the cargoes originate from a regional free zone. These measures could give the Saudi government coffers a slight boost while reorienting some regional supply chains, but some companies in the free zones of the emirates of Dubai and Fujairah will not be satisfied.
The UAE is unlikely to give up its hard-earned status as the region’s trade hub without a fight, and the country has economic muscles to flex. An unusually bitter feud that unfolded recently between Saudi Arabia and the United Arab Emirates as part of the OPEC + group’s deliberations on future oil production levels suggests that Saudi Arabia is not the only Gulf country ready to fiercely defend its economic interests. One thereafter agreement announced to end stalemate within OPEC + will probably ease the tension for now. Yet Saudi growth ambitions may result in a high regional price tag in the future.
Robert Mogielnicki is a senior resident researcher at the Arab Gulf States Institute in Washington, and an adjunct assistant professor at the Walsh School of Foreign Service at Georgetown University.