Saudi Arabia Shifts $1 Trillion Investment Focus: Clean Energy And Diversification Over Oil, Says Report

Saudi Arabia is embarking on an ambitious “capex super-cycle,” planning to invest $1 trillion across six strategic sectors by 2030, according to Goldman Sachs Research. This substantial investment marks a shift in focus, with a smaller portion allocated to the oil industry than previously anticipated.

Goldman Sachs’ report reveals that approximately 73% of this capital expenditure will be directed towards non-oil sectors, a significant increase from the earlier forecast of 66%. The clean energy sector is poised to benefit greatly, with funding expected to rise to $235 billion from an earlier estimate of $148 billion. This increase is driven by an ambitious expansion in renewable energy capacity, with Saudi Arabia more than doubling its 2030 target for solar power.

Despite this, the oil sector will see a reduction in capital expenditure. Under a directive from the Saudi energy ministry, investment in oil is projected to decrease by $40 billion between 2024 and 2028. Goldman Sachs estimates that investments in upstream oil and gas will now range between $190-220 billion, down from the previous forecast of $230-260 billion. However, natural gas remains a key component of the country’s decarbonization and economic diversification strategies.

Progress in renewable energy has accelerated over the past year. As of June 2024, Saudi Arabia has approximately 11 GW of solar photovoltaic capacity under development and 16.7 GW of solar and wind capacity in planning stages. The government has revised its 2030 solar energy target from 58.7 GW to a new range of 100-130 GW.

Saudi Arabia is also focusing on other sectors to reduce its reliance on oil. The mining sector is a priority, with plans to award more than 30 exploration licenses this year and a $182 million mineral exploration incentive program to attract investment. Additionally, the country aims to enhance its transportation and logistics infrastructure, with around $100 billion allocated to aviation and another $100 billion for electric vehicles and logistics.

To finance this expansive investment plan amidst tighter liquidity and rising budget deficits, Saudi Arabia faces significant challenges. The country’s budget deficit is projected to widen to 4.3% of GDP this year, up from 2% last year, primarily due to increased spending and lower oil revenues. To bridge an estimated $25 billion annual funding gap, Saudi Arabia will need to explore alternative financing options beyond traditional bank loans.

Efforts to develop equity and debt capital markets are underway, with the Public Investment Fund actively issuing bonds. So far in 2024, the PIF has issued bonds worth $7.8 billion. These measures aim to alleviate pressure on the banking sector and support the ambitious investment plans.

As Saudi Arabia navigates these financial and strategic adjustments, the focus remains on leveraging investments to drive economic diversification and sustainable growth for the future.