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Mon 27 Nov 2017 03:38 PM

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Saudi Arabia turns to public private partnerships for investment

Government plans for percentage of private sector investment in GDP to be 65 percent in 2030

Saudi Arabia turns to public private partnerships for investment

Public Private Partnerships (PPPs) are increasingly being used to attract private investment into Saudi Arabia’s economy and particularly its real estate market, according to a new report from JLL and DLA Piper.

The report – entitled ‘Public private partnerships: a new approach to financing real estate development in KSA’ – notes that a main driver of the current interest in Saudi PPPs has been lower oil prices and a drop in government revenue.

PPPs form a vital part of Saudi Arabia’s National Transformation Plan, which is aimed at increasing the percentage of private sector investment in the kingdom’s GDP from 40 percent in 2016 to 65 percent in 2030. Additionally, the plan calls for partnerships to increase the contribution of real estate from its current level of 5 percent to 10 percent by 2020.

In the real estate sector, PPPs provide an opportunity for investors to access parts of the market that were once only available in the public. The report notes that PPPs will also be increasingly used in the aviation, housing, education and healthcare sectors over the next five years.

 “There is an increased demand for reforming infrastructure across Saudi Arabia, which then provides a great incentive to attract more private sector involvement and in turn investment,” said Ibrahim Albuloushi, national director and country head, JLL, KSA.

“With the government now striving to move away from oil dependency and introducing the NTP and the Saudi Vision 2030, the PPP model provides an important framework for both international and regional investors and developers to source a wide range of opportunities in the housing, education and healthcare sectors of the Saudi market,” he added.

According to the report, Saudi Arabia has the highest value of PPPs in the region, with 18 projects announced to date, with cumulative investments of $42.9 billion.

"The legal and regulatory frameworks in Saudi Arabia continue to evolve and undergo development to provide an environment that will encourage and facilitate the use of the PPP model," said Basma Khashoggi, senior legal consultant, DLA Piper.

"While there are still challenges to overcome, progress has been made over the past 18 months in this regard and there is significant continued interest in PPPs from both the public and private sectors,” she added. “As the report highlights, the developing nature of the legislative structure has not deterred investors and developers from entering the PPP market early to explore the potential opportunities in this space but some concrete steps will be needed in the near future to maintain this momentum.”