Saudi Arabia, the largest country in the GCC and the second-largest in the MENA region, boasts extensive and increasingly sophisticated transport and logistics infrastructure and services. Significant public funding has been crucial to the improvement seen in the sector’s overall performance, and it is expected to play a pivotal role in the Kingdom’s pursuit of its various economic and strategic goals. An increasing amount of private investment is also starting to be seen in the transport space thanks to privatisation efforts and public-private partnerships (PPPs). The Kingdom has a number of ambitious logistics-related projects underway that, if sufficiently funded and executed, could see it assume global prominence in the sector.
Other major projects to enhance passenger transport, and reduce traffic congestion and pollution are in progress or, in some cases, close to completion. Sustainability is a central pillar of Vision 2030, the Kingdom’s overarching blueprint for diversifying the economy, and the country is seeking to harness its transport sector to enhance its reputation as a modern, advanced economy and profitable investment destination.
Structure & Oversight
The Ministry of Transport and Logistic Services (MTLS) is responsible for regulating and overseeing the Kingdom’s transport sector. Multiple authorities work under the umbrella of the MTLS to manage the sector’s various segments and components, such as the General Authority of Civil Aviation (GACA), the Saudi Ports Authority (SPA) and the Transport General Authority. In recognition of the need to expand the country’s road networks to achieve its transport and logistics-related goals, in August 2022 the government established the General Authority for Roads, a dedicated entity tasked with overseeing road-related projects. In addition, there are various government-owned enterprises within the sector, such as Bahri, Saudi Arabia’s national shipping carrier.
Vision 2030’s wide-ranging goals make clear that significant additional finance is required in each area of the economy, with the government recognising the necessity of reshuffling ministerial and government authority frameworks, as well as privatising some transport-related public assets. In April 2021 that reorganisation resulted in the Saudi Railway Company taking over the operations of the Saudi Railways Organisation, with the merger creating a unified company called Saudi Arabia Railways (SAR). The new entity, which owns the country’s entire rail network, is responsible for driving its partial privatisation.
Saudi Arabia has two primary airlines, its flagship carrier Saudia and the newly founded Riyadh Air. The former is the legacy national airline, the headquarters of which are located in Jeddah, while the latter was established in March 2023 but is not expected to begin operating flights until 2025. The Public Investment Fund (PIF), the country’s sovereign wealth fund, wholly owns Riyadh Air, and the new airline is expected to contribute an estimated $20bn to non-oil GDP growth once running. Sections of the Kingdom’s aviation infrastructure are being made available for privatisation.
Mergers
A change to the ministerial framework relevant to the transport sector was the February 2021 approval of a merger between the National Project Management, Operation and Maintenance Organisation, and the Centre of Spending Efficiency to form the Expenditure and Project Efficiency Authority. Meanwhile, the National Center for Privatization & PPP (NCP) is responsible for managing and overseeing the government’s Privatisation Programme, which the Council of Economic and Development Affairs launched in April 2018 to help reach the goals of Vision 2030.
The government is keen to enter into PPPs to develop infrastructure projects, given their viability as a means to draw large sums of private financing into the economy. While PPPs have been used for a number of years, in July 2021 the first dedicated law on the matter – the Private Sector Participation Law – came into effect, the full text of which is available on the NCP website.
Strategy
Economic diversification is at the heart of Vision 2030, and the proven efficacy of modern transport infrastructure in propelling broader economic growth means that the Kingdom expects the sector to play a central role in fulfilling its development agenda. Under Vision 2030, the government is carrying out 11 different Vision Realisation Programmes, each of which is centred around a priority area of the economy. The cross-sectoral importance of transport positions it is as an integral component of the National Industrial Development and Logistics Programme. This programme, which launched at the beginning of 2019, aims to enhance transport infrastructure and services, and ensure that the Kingdom becomes a global logistics centre and leading industrial nation.
In June 2021 Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud announced the launch of the National Transport and Logistics Strategy, which seeks, among other goals, to harness Saudi Arabia’s strategically advantageous proximity to markets on three continents. Public transport services are set to be upgraded to boost economic growth and help the country reach its environmental sustainability targets. The strategy is also oriented around enhancing fiscal sustainability and improving the performance of public entities. Furthermore, boosting the capabilities of domestic human capital and stimulating job creation are fundamentals of the new strategy.
In October 2022 Saudi Arabia launched the Global Supply Chain Resilience Initiative, which is expected to complement other transport and logistics sector initiatives, as well as demonstrate the government’s ambition to maximise the impact of cross-sectoral development. The aim is to attract SR40bn ($10.7bn) in investment from international manufacturers during the first two years of the initiative, with the Kingdom’s advanced logistics infrastructure one of several factors being leveraged to attract funding.
Size & Performance
The General Authority for Statistics records transport sector growth in the category of transport, storage and communications. The sector demonstrated robust growth in 2022, expanding 5.9% in real terms in the first quarter and 7.8%, 9% and 13.1% in the second, third and fourth quarters, respectively. This amounted to a total growth of 9.1% for the year, the highest rate seen in any sector during that period. The sector contributed 4.7% to real GDP in 2022. The robust expansion continued into the first quarter of 2023, as the sector recorded a 9.3% year-onyear (y-o-y) growth and accounted for 5.3% of real GDP during that period. As of May 2023 the transport and logistics sectors combined accounted for 6% of GDP, and the share of these sectors in the overall economy is expected to reach 10% by 2030.
Expenditure & Investment
In July 2021 the government announced it was planning to invest $147bn in the transport and logistics sector by 2030, with government finances set to account for 35% of that sum and private investment to cover the rest. Various initiatives related to the transport and logistics sector have since been unveiled, and international investors have displayed a significant appetite for involvement in what promises to be a high-growth area of the Saudi economy. Meanwhile, emphasis has been placed on the development and implementation of technology and smart transport solutions to make the country’s transport and logistics services more efficient.
Saudi Arabia plans to build 59 logistics zones and increase the capacity of its ports to 40m containers by 2030 in order to establish itself as a global centre for logistics services. In December 2022 the MTLS announced it was moving ahead with the construction of 19 logistics zones worth an estimated $7.7bn in total. In 2022 the MTLS issued 1500 licences to new local and foreign logistics-related businesses.
The ongoing initiative to build various logistics zones in the Kingdom is just one of the transport and logistics-related investment opportunities detailed on the website of Invest Saudi, the investment promotion agency that is part of the Ministry of Investment in Saudi Arabia (MISA). According to Invest Saudi, in 2022 MISA issued 51 foreign transport and storage licences, nearly doubling the 31 licences issued in 2021.
Roads
According to the MTLS, the Kingdom’s road network spans over 73,000 km, with single-lane roads accounting for 49,000 km – Saudi Arabia is planning to expand them to two-lane roads – and motorways accounting for 5000 km. The country is also home to 144,000 km of functional dirt roads.
This network is being harnessed not only to drive growth in logistics, but also to improve passenger transport options. In February 2023 the government announced that investment contracts had been signed to develop a nationwide bus network that would connect over 200 locations across 76 separate routes. The intercity services are designed to transport up to 6m passengers annually, as well as contribute to national sustainability goals by reducing the number of car journeys. This initiative is expected to contribute around SR3.2bn ($853m) to annual GDP.
In April 2023 the government announced that the Jeddah-Makkah (64 km), Yanbu-Jubail (447 km), AsirJazan (136 km) and Jeddah-Jazan (570 km) motorway projects were all being tendered as part of the NCP’s privatisation and PPP efforts. The MTLS has assumed responsibility for overseeing the tenders, and the projects are expected to significantly reinforce the Kingdom’s high-capacity, high-speed road transport capabilities once construction is complete.
Aviation
Expanding Saudi aviation services and networks is a core component of the country’s various transport and logistics strategies. The targets established under the National Transport and Logistics Strategy in June 2021 included increasing the number of international destinations served by the Kingdom to over 250, doubling freight capacities to 4.5m tonnes annually and ranking in the top-five passenger transit centres globally by the end of the decade. “Saudi Arabia’s efforts to upgrade aviation infrastructure, and invest in new and existing carriers is making it an international airline centre,” Oussama Mezni, country manager for Saudi Arabia at Gulf Air, told OBG. “Other regional airlines are preparing themselves for the opportunities and competition created by its activities.”
In June 2022 the government announced that it was offering financial incentives to airlines to connect lower-tier Saudi cities with global destinations as part of the country’s efforts to reach 100m visitors per year by 2030. According to the General Authority for Statistics, domestic and international flights transported 88m passengers in Saudi Arabia in 2022, with King Abdulaziz International Airport in Jeddah accounting for 32m visitors. The authority also noted that the number of countries with which Saudi airports are connected reached 56 in 2022, up from 46 in 2021.
Among the most anticipated projects in the country’s aviation segment is the masterplan for Riyadh’s new King Salman International Airport that was unveiled in November 2022. The project is set to span six parallel runways and be capable of handling as many as 120m passengers per year by 2030 and 185m passengers by 2050. Once completed, the airport is projected to contribute $7bn annually to non-oil GDP and create over 100,000 direct and indirect jobs.
Another significant development in the aviation segment has been the new airline Riyadh Air, the establishment of which is expected to support the Kingdom’s goal of welcoming 330m visitors annually by 2030. The airline’s global network is expected to eventually comprise more than 100 destinations, compared to Saudia’s current global network of over 90.
Significant opportunities for international investors exist elsewhere in the aviation segment. In January 2023 the Saudi Press Agency, the official government press portal, published details of the government’s intention to privatise four of the country’s airports. The offering is part of a broader sector strategy announced in May 2022 to invest $100bn into the aviation segment over a 10-year period. In December 2022 the GACA granted SAL Saudi Logistics Services, which handles 95% of the country’s inbound and outbound air cargo, a licence to provide ground services at domestic airports.
Ports
The total throughput for Saudi ports was up by 13% in 2022. Across the full year, ports under the jurisdiction of SPA processed 10.3m twenty-foot-equivalent units (TEUs), a 3.2% increase compared to the previous year. The King Abdulaziz Port in Dammam, which is operated by Saudi Global Ports, recorded the highest container throughput of all SPA ports in 2022, processing over 2m TEUs in 2022. The King Abdullah Port on the Red Sea, the region’s first port to be owned, developed and operated by the private sector, handled over 2.9m TEUs in 2022, compared to the roughly 2.8m TEUs that the port processed in 2021.
Saudi Arabia’s ports are integral to the Kingdom’s goal of increasing the contribution of non-oil exports to annual non-oil GDP from 16% to 50% by 2030, as they handle 90% of the country’s exports. The government is planning to create separate entities to handle the regulation and operation of ports to increase efficiency and improve communication with stakeholders. In March 2022 the SPA signed agreements with telecommunications providers stc, Ericsson and Huawei; Saudi Global Ports; Red Sea Gateway Terminal; and DP World as part of its Smart Ports initiative. Under this initiative, the companies will work to implement 5G technologies to help automate port operations and provide ICT services.
In 2022 the Kingdom accounted for 32% of regional trans-shipment, and the goal under Vision 2030 is to increase this figure to 50% and total national port capacity to 40m TEUs by 2030. Investment in the aforementioned logistics zones is designed to increase value-added services for customers at SPA ports. Other investment in Saudi ports includes the 225,000-sq-metre, $350m integrated logistics zone being built by Danish shipping company Maersk at Jeddah Islamic Port. Ground broke on this project in February 2023, and it is projected to handle 200,000 TEUs annually once done.
Metro
The Riyadh Metro project carries a total investment value of around $22.5bn and is set for a full operational launch by the end of 2023 or the first quarter of 2024. The metro system is reportedly the largest single-phase transport project ever developed. Its six lines will comprise 84 stations and feature electric, driverless trains, forming the foundation of a broader transport network that will include extensive bus services.
In addition, 40% of the new metro network will be underground to minimise disruptions to traffic in the city. Once in operation, the Metro is expected to eliminate up to 250,000 car journeys per day, a significant reduction considering that 90% of all journeys in Riyadh are made by private vehicle. Such a reduction would result in an estimated 400,000 fewer litres of fuel used per day in the capital, further driving the Kingdom’s environmental sustainability drive.
Railways
The Haramain High-Speed Rail (HRH), which connects Makkah and Medina via Jeddah, carried 750,000 passengers on 3627 trips during the 2023 Hajj pilgrimage period, an increase of 96% over the same period in 2022. During the first quarter of 2023 the national rail network transported 2.2m passengers and 5.8m tonnes of freight, representing y-o-y increases of 104% and 7%, respectively, compared to the first quarter of 2022. The intention of transforming the country’s land freight and passenger transport capacities also involves increasing intra-GCC cooperation, with the bloc’s governments keen to establish the much discussed GCC rail network. To this end, in December 2021 the regional governments approved the establishment of the Gulf Railways Authority, with a mandate to formulate general policy and coordinate actions among member states on the implementation and operation of a regional rail network.
In March 2023 SAR and Italian hospitality company Arsenale Group agreed to co-develop the Kingdom’s luxury Dream of the Desert rail cruising service, with Arsenale Group set to invest around $75m in the project. The service will run along a 770-mile stretch of rail between Riyadh and Al Qurayat near the Jordanian border. Inspired by the Orient Express, Dream of the Desert is expected to propel Saudi rail services beyond functional transport and into the leisure, hospitality and tourism industries. Around two-thirds of the Italian company’s $75m investment is slated for developing engines and carriages, while the rest is set aside for establishing headquarters in the Kingdom.
The MTLS is working with a Chinese-led consortium of 11 international companies to implement the Saudi Landbridge Project, a rail line that is designed to connect the country’s ports on the Red Sea with its counterparts on the Gulf. As of January 2023, when the partnership was announced, the project design and route planning had already been completed, and the relevant entities were working to ratify the overall cost and financing frameworks for the project.
In addition, in August 2022 MISA and French railways company Alstom signed a memorandum of understanding to identify investment opportunities within the rail segment, as well as to improve sustainability and smart transport systems. Reducing carbon emissions is a key tenet of the agreement, as is localising rail-related industries in the Kingdom. Alstom is also planning to establish a regional headquarters in the country.
Outlook
Saudi Arabia’s transport sector is set to play a crucial role in the country’s plans for economic expansion and diversification. The government’s continuing efforts to attract private investment into the sector’s various segments appear to be bearing fruit, with the Kingdom’s natural and financial resources being leveraged to incentivise private sector participation in its transport-related investment initiatives.
The streamlining of governmental structures is also making processes more efficient for those investors who are looking to enter the Saudi transport market. Meanwhile, bilateral transport partnerships are being strengthened throughout the GCC, which should generate complementary economic benefits and add to Saudi Arabia’s viability as an investment destination. Projects such as the Riyadh Metro and HRH can also help attract funding for future endeavours in the sector.
