Saudi Arabia’s rich history has been born out of trade. For centuries, camel caravans travelled the Arabian Peninsula carrying with them resins like frankincense and myrrh, exotic spices, precious stones and silks. The routes they carved out brought not just goods, but prosperity. Today, the Kingdom’s mode of transport and their offerings may have changed but the importance of large-scale movement of people and products hasn’t – making it a fundamental sector of the country’s economy.
Occupying four fifths of the Arabia Peninsula, Saudi Arabia is bound by the Red Sea in the west and the Persian Gulf in the east. It consists of an area of two million square kilometres and has a population of approximately 35 million people, making it the largest country in the Middle East.
Since King Abdulaziz Al Saud established the modern Kingdom of Saudi Arabia in 1932, its transformation has been steady, turning itself from a desert nation to a sophisticated state, and now a major international player.
It has one of the largest economies in the Middle East with the oil industry accounting for most of the country’s GDP and exports, which means the government is heavily invested in infrastructure, ensuring cities grow and transport routes keep up.
Saudi Arabia hasn’t always been considered an easy place to do business, but since the launch of a strategic plan to diversify the kingdom’s economy away from a reliance on oil, the government has introduced a number of inclusive legal and regulatory amendments, such as allowing 100 per cent foreign ownership of companies.
In 2016, Crown Prince Mohammed bin Salman announced Vision 2030 as a way to create a society more in line with modern global trends. The strategy relied on three main pillars – a vibrant society, a thriving economy and an ambitious nation. The thriving economy goal aims to diversify the economy by increasing private sector participation, attract foreign investment and develop non-oil industries such as technology and renewable energy. Meanwhile, under the umbrella of an ambitious nation, leaders are hoping to see citizens promote a culture of innovation and entrepreneurship.
Vision 2030 includes a wide range of initiatives including the creation of a sovereign wealth fund, the establishment of new economic cities, the development of the tourism sector and the expansion of education and training opportunities.
It has especially revitalised the transportation construction industry with strong initiatives to invest in major construction plans driving the sector. Projects such as the Red Sea International Airport and Railway Tunnel have been instrumental in growing the economy, creating a huge demand for transportation construction companies.
Under the plan, the government is also keen on issuing licenses for full-fledged foreign transportation infrastructure construction businesses. The Saudi market is fiercely competitive and fragmented, with many international and domestic companies. International companies are now partnering with local players to form joint ventures, providing an opportunity for local businesses to exploit the global network of international companies.
At the time, the plan was considered bold and ambitious, but experts say the overall success of Vision 2030 will depend on the ability of the Saudi government to continue to implement the necessary reforms and navigate the social and economic challenges.
Current financial position
In its latest Global Economic Prospects report, the World Bank affirmed its expectations for Saudi Arabia’s real Gross Domestic Product (GDP) growth at 3.7 per cent for 2023 and expects the economy to grow by 2.3 per cent in 2024. This is despite the fact that growth rates are slowing amid high inflation and interest rates the turmoil arising from the Russian invasion of Ukraine.
Saudi Arabia has also jumped 17 ranks in the World Bank’s Logistics Performance Index for 2023. The LPI measures the logistical suitability of 155 countries. The Minister of Transport and Logistic Services, Saleh Al-Jasser, announced the LPI success in April to much fanfare. He said success was achieved less than two years from the launch of the national strategy for transportation and logistics services, which aimed to consolidate the kingdom’s position as a global logistic hub.
New market research, looking at the Kingdom’s freight and logistics market, shows it is expected to progress at a compound annual growth rate of 6.53 per cent. The next five years look promising, according to experts, with economic diversification, tax regimes and foreign direct investment policies shifting in favour of an open economy.
Saudi Arabian roads, overtime, have become the defining feature of the kingdom’s transport system. This is in part due to the scattered locations of its population centres and because of its unique geography – deserts, valleys and mountains proving to be challenging obstacles. It is also the largest country in the world without a river, an often-useful transportation mode. As Saudi Arabia grew and prospered over the last century, a reliable network of roads became essential.
According to a geography paper by the kingdom’s Qassim University, the development of a road network can be divided into two major phases. The first between 1938 and 1970 when it was slowly developing as a result of its 1932 royal decree, unifying the regions into a kingdom. The second, after 1970, was considered to be post national planning, when the kingdom became the largest oil producer in the world and high investment was necessary. The oil crisis in 1973 brought in even more money, with one estimate suggesting that the economy grew from $15 billion USD in 1973 to US $184 billion by 1981.
Today Saudi Arabia has a road network covering more than 200,000 kilometres, including 66,000 kilometres of roadways connecting major cities, and providing access to railways, ports and airports. There are several international airports including in Jeddah and Medina, while the ports of Jeddah, Dammam and Jubail are important hubs for the transportation of goods both domestically and internationally to transit points between Asia, Europe and Africa.
Substantial investment in the development and upkeep of infrastructure, especially heavily used roads and bridges, is a priority. Plans are currently underway to build more than 3,500 kilometres of new roads, including 284 highways as a way to link the country’s main urban centres. There are also ambitious plans to create an eight-lane bridge over the Obhur Creek outside of Jeddah.
A recent capacity assessment of the road network predicts freight transportation is forecast to rise due to increasing industrial activity and the expansion of e-commerce throughout the region.
Global transport cooperation
In 2018, Saudi Arabia became part of TIR (Transports Internationaux Routiers, International Road Transport), an important step in spreading its global wings.
The TIR is a multilateral treaty that allows for the movement of good across international borders without the need for extensive customs checks at each border crossing. It provides a number of benefits to shippers, including reduced transit times, lower costs and it reduces administrative burdens. For Saudi Arabia, it helps facilitate international trade and promote economic growth.
The rapid growth of continuing urbanisation is another major driver of transportation infrastructure investment. The kingdom’s urban population accounts for 84 per cent of the total number of people, with that percentage expected to reach 92 per cent by 2035. As the share of the urban population grow, the growth of transport infrastructure is required to connect them.
Case in point is the Saudi Land Bridge Project, aimed at creating rail links between the Red Sea Port of Jeddah and the Persian Gulf Port of Dammam. The plan is to create a direct rail link between Europe and Asia, bypassing the need for ships to pass through the Strait of Hormuz. The project is expected to improve the efficiency of freight transportation in Saudi Arabia, as well as reduce transportation costs and congestion on its roads.
Led by a Chinese company in collaboration with a number of other private sector investors, the Saudi Land Bridge is expected to cost $7 billion.
Reporting on the project’s planning progress in January, Transport and Logistics Minister, Saleh Al-Jasser, said the transport and logistics services sector was ready for privatisation, and Saudi Arabia was making great strides, citing Prince Muhammad International Airport in Madinah as the best example. The airport was established entirely by the private sector and was a “qualitative leap for the city in terms of services, capacity and quality,” the Minister said.
Another sector that is flourishing, due in part to outside investors, is logistics, with the government unveiling only last year a sweeping plan to transform the kingdom into a global logistics centre.
So far, it has kept its promise offering up land near Jeddah for a modern warehousing complex as part of a concession agreement. Kuwaiti supply chain services company, Agility, will, as a result, invest €166.9 million into building a vast new logistics park for storage and distribution. Under terms of its agreement, Agility will have the right to operate the park for 25 years.
The hope is that this state-of-art warehouse, which is anticipated to be finished by 2025, will offer a competitive advantage, accelerate Saudi economic growth and make it easier for companies to expand in the kingdom. The Governor of the State Properties General Administration, Ihsan Bafakih, said initiatives like this one offer an opportunity to enhance the contribution of the country’s real estate assets, while increasing the value of the government-held property.
Saudi Arabia has recently launched several initiatives aimed at making the country one of the most technologically advanced in the world. It’s starting by regenerating the country’s digital infrastructure and has committed to an annual investment of 2.5 per cent of GDP into the research, development and innovation sector by 2040.
Some of the projects the government are working on include the Saudi Vision Cable, a high-capacity submarine cable in the Red Sea, spanning more than 1,000 kilometres, which will provide the latest communication technologies and meet the needs of markets across Asia, Europe and Africa. It is also working on the Alibaba Cloud in Riyadh which will help deliver high-capacity cloud services.
Other areas that are garnering new investment are artificial intelligence and data-driven economics. Keen to partner with leading global companies in the field of AI, the government recently signed a series of partnership agreements with international tech companies.