Public-Private Partnerships (PPPs) in Saudi Arabia: A path to Vision 2030’s success
A public-private partnership (PPP) is a strategic, long-term alliance between governments and private entities aimed at developing, managing and sustaining public infrastructure and services. In these partnerships, the private sector often takes on the responsibility of financing and overseeing projects, recouping their investment through user fees or contractual payments from the government.
Governments turn to PPPs to overcome funding challenges by tapping into private capital and specialised expertise. These collaborations enhance financial efficiency by distributing risks - such as cost overruns and delays - to private partners, ensuring projects are delivered more swiftly. Additionally, PPPs drive innovation, improve service quality and stimulate economic growth through job creation and upgraded infrastructure. By leveraging the private sector’s expertise in management and operations, governments can advance critical projects without immediately increasing public debt.
In the face of rapid economic transformation, Saudi Arabia is leveraging PPPs as a strategic solution to meet the growing demand for infrastructure development. Saudi Arabia’s Vision 2030 seeks to transform its economy by reducing dependence on oil revenues and embracing diversification, with PPPs serving as a cornerstone of this ambitious plan. By merging government objectives with the agility and efficiency of the private sector, PPPs pave the way for sustainable infrastructure development, fostering innovation and driving economic growth across a wide range of industries.
The Saudi government is making remarkable progress in transforming its economy, guided by the Vision 2030 framework. With a focus on reducing reliance on oil and boosting investment in non-oil sectors like healthcare, education and transportation, this shift creates a prime opportunity for PPPs. These partnerships offer innovative solutions to finance and execute large-scale infrastructure projects, accelerating the Kingdom's ambitious development goals.
The National Centre for Privatisation & PPP (NCP) has been at the forefront of efforts to expand the private sector's role in Saudi Arabia’s economy, aiming to boost its GDP contribution from 40% to 65%1. Vision 2030 sets bold objectives, including increasing non-oil revenues to SAR 1 trillion2, privatising key sectors and establishing the Public Investment Fund (PIF) as a global investment powerhouse with targeted assets exceeding SAR 7 trillion2. These initiatives underscore the critical role of PPPs in driving infrastructure development, offering governments a sustainable way to advance vital projects without straining public budgets.
The Saudi government is prioritising job creation and human capital development, with a strong focus on boosting women's participation in the workforce. PPPs play a vital role in this effort by generating employment in emerging industries, promoting entrepreneurship and empowering the growth of small and medium-sized enterprises (SMEs). Through strategic investments in areas like renewable energy and digital technologies, Saudi Arabia is building a diversified, resilient economy that reduces its dependence on oil and adapts to global economic shifts.
While PPPs hold great promise for supporting growth and innovation in Saudi Arabia, their implementation faces notable challenges. A key hurdle lies in the country’s evolving regulatory and legal framework. The 2021 introduction of the Private Sector Participation (PSP) Law was a major milestone in regulating PPPs, yet uncertainties around its interpretation and enforcement continue to deter potential investors. For instance, the privatisation of water assets of the Saline Water Conversion Corporation (SWCC) was delayed due to ambiguities in the legal framework, particularly regarding ownership rights and tariff setting3.
Another challenge hindering the successful implementation of PPPs in Saudi Arabia is the limited technical capacity of certain government entities to design, negotiate and manage such key projects. This has led to delays in critical projects, such as the Riyadh Metro’s PPP operational contracts, which were initially stalled due to inadequate coordination and expertise among local agencies. Additionally, fragmented responsibilities across ministries and agencies often create inefficiencies, as exemplified in the privatisation of the education sector, where overlapping roles and a lack of clear accountability delayed execution and implementation4.
Financing and investment risks present another significant challenge for PPPs. Projects can struggle to attract investors if they lack well-defined revenue models, undermining their bankability and overall appeal. Without clear and predictable financial structures, potential stakeholders may hesitate to commit, delaying or derailing critical infrastructure and development initiatives. For example, the privatisation of healthcare facilities in Saudi Arabia struggled to attract sufficient private sector interest due to uncertainties in revenue streams under an insurance-based model5.
The allocation of risks between the public and private sectors is another key challenge in PPPs. In some cases, private operators are required to shoulder substantial demand risks without sufficient guarantees or safeguards. This imbalance can deter potential investors or lead to project delays, as private entities hesitate to commit to agreements perceived as overly risky. The Taif International Airport PPP faced challenges in balancing risk allocation, and similar issues have arisen in other sectors6.
Public resistance to privatisation poses another significant challenge for the successful implementation of PPPs. Many citizens worry about rising costs, reduced accessibility or potential job losses resulting from privatisation efforts, fuelling scepticism about the benefits of PPPs. This resistance can impede the progress of Vision 2030’s transformative goals, as evidenced by the pushback during the privatisation of public utilities, such as water distribution, where public concerns slowed the momentum of reforms.
To overcome these challenges, Saudi Arabia needs to strengthen its regulatory framework by introducing standardised contract templates and clear, comprehensive guidelines for PPP implementation. Such measures would boost investor confidence and facilitate smoother project execution. Additionally, enhancing institutional capacity through targeted training programmes for government officials is essential to equip agencies with the skills and expertise required to design, negotiate and oversee PPPs effectively.
Financial incentives, such as government guarantees or viability gap funding, should also be introduced to encourage investment in high-risk projects. Additionally, fostering local participation in PPPs by implementing capacity-building programmes for Saudi companies would enable them to take on more significant roles in large-scale projects. Promoting joint ventures between local and international firms would further enhance local expertise while leveraging foreign knowledge and best practices, creating a robust foundation for sustainable development and innovation.
Finally, improving public awareness through campaigns that highlight the benefits of PPPs will help address concerns about privatisation. Highlighting success stories and demonstrating how PPPs improve services and infrastructure can encourage public support. Additionally, ensuring transparency and actively engaging stakeholders throughout the process will build trust and create a collaborative environment, paving the way for smoother and more effective project implementation.
Despite the challenges, the outlook for PPPs in Saudi Arabia is highly optimistic. The Kingdom’s steadfast commitment to Vision 2030, with its focus on economic diversification, social advancement and infrastructure expansion, ensures a strong demand for PPPs. The increasing involvement of PPPs in pivotal sectors such as healthcare, education, renewable energy and tourism presents extensive opportunities for both local and international investors, positioning Saudi Arabia as a hub for transformative partnerships and sustainable growth.
With the NCP actively refining the PPP framework, enhancing institutional capacity and introducing financial incentives, Saudi Arabia is well-equipped to tackle existing challenges. PPPs will continue to serve as a fundamental pillar of the Kingdom’s development strategy, fuelling economic transformation, creating jobs and modernising infrastructure. These efforts align seamlessly with Vision 2030’s ambitious objectives, leading to sustainable growth and long-term success.
Ultimately, PPPs will enable Saudi Arabia to achieve sustainable growth, enhance public services and establish the Kingdom as a regional leader in infrastructure development and innovation.
As Saudi Arabia’s PPP ecosystem evolves, there is immense potential to drive innovation through technology-focused partnerships. Initiatives like integrating smart city technologies and artificial intelligence into infrastructure projects can revolutionise efficiency, sustainability and service delivery. By embracing these advancements, the Kingdom can attract cutting edge solutions and position itself as a global leader in technological innovation within the infrastructure sector, laying a robust groundwork for sustained economic growth and development.
How BDO can help
BDO’s deal advisory experts apply the practical experience and knowledge gained from working with clients locally and worldwide.
Please reach out to the relevant partner in your local BDO firm for further information.
Author: Muhammad Assad Butt
Head of Deal Advisory Services, BDO Saudi Arabia
Contributors: Abdur Sharjeel
Head of Advisory Services, BDO Saudi Arabia
Maula Raza
Senior Manager, Deal Advisory, BDO Saudi Arabia.
Sources
A public-private partnership (PPP) is a strategic, long-term alliance between governments and private entities aimed at developing, managing and sustaining public infrastructure and services. In these partnerships, the private sector often takes on the responsibility of financing and overseeing projects, recouping their investment through user fees or contractual payments from the government.
Governments turn to PPPs to overcome funding challenges by tapping into private capital and specialised expertise. These collaborations enhance financial efficiency by distributing risks - such as cost overruns and delays - to private partners, ensuring projects are delivered more swiftly. Additionally, PPPs drive innovation, improve service quality and stimulate economic growth through job creation and upgraded infrastructure. By leveraging the private sector’s expertise in management and operations, governments can advance critical projects without immediately increasing public debt.
In the face of rapid economic transformation, Saudi Arabia is leveraging PPPs as a strategic solution to meet the growing demand for infrastructure development. Saudi Arabia’s Vision 2030 seeks to transform its economy by reducing dependence on oil revenues and embracing diversification, with PPPs serving as a cornerstone of this ambitious plan. By merging government objectives with the agility and efficiency of the private sector, PPPs pave the way for sustainable infrastructure development, fostering innovation and driving economic growth across a wide range of industries.
The Saudi government is making remarkable progress in transforming its economy, guided by the Vision 2030 framework. With a focus on reducing reliance on oil and boosting investment in non-oil sectors like healthcare, education and transportation, this shift creates a prime opportunity for PPPs. These partnerships offer innovative solutions to finance and execute large-scale infrastructure projects, accelerating the Kingdom's ambitious development goals.
The National Centre for Privatisation & PPP (NCP) has been at the forefront of efforts to expand the private sector's role in Saudi Arabia’s economy, aiming to boost its GDP contribution from 40% to 65%1. Vision 2030 sets bold objectives, including increasing non-oil revenues to SAR 1 trillion2, privatising key sectors and establishing the Public Investment Fund (PIF) as a global investment powerhouse with targeted assets exceeding SAR 7 trillion2. These initiatives underscore the critical role of PPPs in driving infrastructure development, offering governments a sustainable way to advance vital projects without straining public budgets.
The Saudi government is prioritising job creation and human capital development, with a strong focus on boosting women's participation in the workforce. PPPs play a vital role in this effort by generating employment in emerging industries, promoting entrepreneurship and empowering the growth of small and medium-sized enterprises (SMEs). Through strategic investments in areas like renewable energy and digital technologies, Saudi Arabia is building a diversified, resilient economy that reduces its dependence on oil and adapts to global economic shifts.
While PPPs hold great promise for supporting growth and innovation in Saudi Arabia, their implementation faces notable challenges. A key hurdle lies in the country’s evolving regulatory and legal framework. The 2021 introduction of the Private Sector Participation (PSP) Law was a major milestone in regulating PPPs, yet uncertainties around its interpretation and enforcement continue to deter potential investors. For instance, the privatisation of water assets of the Saline Water Conversion Corporation (SWCC) was delayed due to ambiguities in the legal framework, particularly regarding ownership rights and tariff setting3.
Another challenge hindering the successful implementation of PPPs in Saudi Arabia is the limited technical capacity of certain government entities to design, negotiate and manage such key projects. This has led to delays in critical projects, such as the Riyadh Metro’s PPP operational contracts, which were initially stalled due to inadequate coordination and expertise among local agencies. Additionally, fragmented responsibilities across ministries and agencies often create inefficiencies, as exemplified in the privatisation of the education sector, where overlapping roles and a lack of clear accountability delayed execution and implementation4.
Financing and investment risks present another significant challenge for PPPs. Projects can struggle to attract investors if they lack well-defined revenue models, undermining their bankability and overall appeal. Without clear and predictable financial structures, potential stakeholders may hesitate to commit, delaying or derailing critical infrastructure and development initiatives. For example, the privatisation of healthcare facilities in Saudi Arabia struggled to attract sufficient private sector interest due to uncertainties in revenue streams under an insurance-based model5.
The allocation of risks between the public and private sectors is another key challenge in PPPs. In some cases, private operators are required to shoulder substantial demand risks without sufficient guarantees or safeguards. This imbalance can deter potential investors or lead to project delays, as private entities hesitate to commit to agreements perceived as overly risky. The Taif International Airport PPP faced challenges in balancing risk allocation, and similar issues have arisen in other sectors6.
Public resistance to privatisation poses another significant challenge for the successful implementation of PPPs. Many citizens worry about rising costs, reduced accessibility or potential job losses resulting from privatisation efforts, fuelling scepticism about the benefits of PPPs. This resistance can impede the progress of Vision 2030’s transformative goals, as evidenced by the pushback during the privatisation of public utilities, such as water distribution, where public concerns slowed the momentum of reforms.
To overcome these challenges, Saudi Arabia needs to strengthen its regulatory framework by introducing standardised contract templates and clear, comprehensive guidelines for PPP implementation. Such measures would boost investor confidence and facilitate smoother project execution. Additionally, enhancing institutional capacity through targeted training programmes for government officials is essential to equip agencies with the skills and expertise required to design, negotiate and oversee PPPs effectively.
Financial incentives, such as government guarantees or viability gap funding, should also be introduced to encourage investment in high-risk projects. Additionally, fostering local participation in PPPs by implementing capacity-building programmes for Saudi companies would enable them to take on more significant roles in large-scale projects. Promoting joint ventures between local and international firms would further enhance local expertise while leveraging foreign knowledge and best practices, creating a robust foundation for sustainable development and innovation.
Finally, improving public awareness through campaigns that highlight the benefits of PPPs will help address concerns about privatisation. Highlighting success stories and demonstrating how PPPs improve services and infrastructure can encourage public support. Additionally, ensuring transparency and actively engaging stakeholders throughout the process will build trust and create a collaborative environment, paving the way for smoother and more effective project implementation.
Despite the challenges, the outlook for PPPs in Saudi Arabia is highly optimistic. The Kingdom’s steadfast commitment to Vision 2030, with its focus on economic diversification, social advancement and infrastructure expansion, ensures a strong demand for PPPs. The increasing involvement of PPPs in pivotal sectors such as healthcare, education, renewable energy and tourism presents extensive opportunities for both local and international investors, positioning Saudi Arabia as a hub for transformative partnerships and sustainable growth.
With the NCP actively refining the PPP framework, enhancing institutional capacity and introducing financial incentives, Saudi Arabia is well-equipped to tackle existing challenges. PPPs will continue to serve as a fundamental pillar of the Kingdom’s development strategy, fuelling economic transformation, creating jobs and modernising infrastructure. These efforts align seamlessly with Vision 2030’s ambitious objectives, leading to sustainable growth and long-term success.
Ultimately, PPPs will enable Saudi Arabia to achieve sustainable growth, enhance public services and establish the Kingdom as a regional leader in infrastructure development and innovation.
As Saudi Arabia’s PPP ecosystem evolves, there is immense potential to drive innovation through technology-focused partnerships. Initiatives like integrating smart city technologies and artificial intelligence into infrastructure projects can revolutionise efficiency, sustainability and service delivery. By embracing these advancements, the Kingdom can attract cutting edge solutions and position itself as a global leader in technological innovation within the infrastructure sector, laying a robust groundwork for sustained economic growth and development.
How BDO can help
BDO’s deal advisory experts apply the practical experience and knowledge gained from working with clients locally and worldwide.
Please reach out to the relevant partner in your local BDO firm for further information.
Author: Muhammad Assad Butt
Head of Deal Advisory Services, BDO Saudi Arabia
Contributors: Abdur Sharjeel
Head of Advisory Services, BDO Saudi Arabia
Maula Raza
Senior Manager, Deal Advisory, BDO Saudi Arabia.
Sources
- https://www.ncp.gov.sa/en/MediaCenter/News/Pages/CEO-of-the-National-Center-for-Privatization-Privatization-will-contribute-in-the-Saudi-economic-development.aspx
- https://www.vision2030.gov.sa/media/rc0b5oy1/saudi_vision203.pdf
- https://www.meed.com/riyadh-turns-to-private-sector/ , https://www.zawya.com/en/markets/saudi-swcc-seeks-proposals-for-advisory-role-on-sale-of-assets-sources-jlifpek1 , https://www.reuters.com/world/middle-east/saudi-arabia-suspends-privatisation-desalination-power-plant-2021-07-26/ & https://smartwatermagazine.com/news/smart-water-magazine/saudi-arabia-stops-privatization-swcc
- https://www.argaam.com/en/article/articledetail/id/432371 & https://www.meed.com/exclusive-riyadh-delays-metro-package-award/
- https://pmc.ncbi.nlm.nih.gov/articles/PMC6074349/ & https://pmc.ncbi.nlm.nih.gov/articles/PMC9445529/
- https://www.meed.com/taif-airport-conveys-challenges-faced-in-regions-privatisation-drive/