Latest news with #Al-Shaikh
Zawya
20-05-2025
- Business
- Zawya
Saudi Arabia's rising debt and spending create fiscal pressure
Saudi Arabia's rising public debt and continued dependence on oil revenues are raising concerns among economists who urge the Kingdom to enforce tighter fiscal discipline to safeguard long-term sustainability. After accumulating more than $900 billion in overseas SWF assets, the largest Arab economy has stuck to borrowing to keep those assets intact so it will maintain its strong global credit rating while ensuring funds for mega projects, these experts believe. Over the past 10 years, the price of Saudi crude has averaged around $70 a barrel but the breakeven price needed to balance the Gulf Kingdom's budget has remained above $90 a barrel, which is almost impossible to achieve in the present situation. 'This year for example, the breakeven price is around $94.5, nearly $20 above the current price of Brent crude…this means that maintaining a fiscal balance requires oil prices at that high level or opting for strict fiscal discipline…there is a pressing need to purse structural reforms to lessen the risks of persistent budget deficits,' said Saeed Al-Shaikh, a former Shura (appointed parliament) member and ex-chief economist at the National Commercial Bank, now Saudi National Bank (SNB). Big challenge In an Arabic language article published in local newspapers this week, Al-Shaikh said the deficit poses a big challenge to Saudi Arabia's fiscal sustainability. He said the government has become heavily reliant on borrowing instead of withdrawal from its foreign assets to fund mega projects and other sectors. 'The government believes this will preserve its strong global rating…this underscores the need for increasing non-oil revenues and improving spending efficiency…although this strategy protects the Kingdom's foreign assets and investments, it will increase its debt servicing burden and this should prompt the government to continuously revise and manage the debt ceiling,' Al-Shaikh said. Saudi Arabia's public debt has nearly doubled over the past seven years to reach around 1.3 trillion Saudi riyals ($347 billion) at the end of March from SAR560 billion ($149 billion) at the end of 2018, the Finance Ministry said in a recent report. Debt surge The debt is forecast to surge in the next two years due to a projected budget deficit, boosting its ratio to GDP to one of its highest levels of around 33.5 percent at the end of 2026 from 17.6 percent at the end of 2018, the Saudi Jadwa advisory firm said last week, citing government data. Saudi Arabia is heavily dependent on oil revenues, which account for more than two thirds of its national income. Given its inability to stem current expenditures, including wages and military spending, which accounts for over 30 percent of the current expenditure, Riyadh has suffered from fiscal gaps in most years. The strong reliance on oil sales has played havoc with the country's fiscal system. When crude prices dived to as low as $42 a barrel in 2020, its budget deficit climbed to one of its highest levels of $78 billion. It turned into a surplus of about $27.7 billion in 2022, when oil prices rocketed above its breakeven price to nearly $104 a barrel. During the first quarter of 2025, the Kingdom's shortfall leaped fourfold due to lower oil export earnings. It stood at around SAR59 billion ($16 billion) in the quarter ended March 2025 against $3.3 billion a year before. Total revenues fell 10 percent to SAR264 billion ($70 billion) while spending swelled by around five percent to SAR322 billion ($86 billion), the Finance Ministry said. Strong rating 'Saudi Arabia possesses a strong credit rating given its massive assets and can move within a comfortable fiscal space that enables it to borrow from the international market at some of the most competitive rates,' said Ihsan Buhlaiga, a former Shura member. He said two thirds of Saudi Arabia's public debt is domestic and that is projected to rise as the Kingdom expects the deficit to stay until 2027. The debt has remained below 30 percent of GDP in the past years but it is expected to break that ceiling to reach 32.3 percent at the end of 2026 and around 33.3 percent at the end of 2027, Buhlaiga said. 'Saudi Arabia needs to continue its efforts to achieve fiscal sustainability by developing a stable income and increasing revenues from its investments…for now, I believe the Kingdom's public debt is still relatively low considering the fact that the average debt-to-GDP ratio in the OECD is nearly 120 percent,' he said. In March, S&P Global Ratings upgraded Saudi Arabia's rating to 'A+' from 'A' with a stable outlook, citing socioeconomic and capital market reforms. Strong non-oil growth and rising oil volumes from 2025 will support medium-term growth prospects, the agency said. Saudi Arabia's National Debt Management Centre welcomed the decision, saying it would allow Riyadh to issue global bonds and sukuk at a more favourable rate. (Reporting by Nadim Kawach; Editing by Anoop Menon) (
Zawya
17-02-2025
- Business
- Zawya
Saudi company exports locally made HVAC products to the US
RIYADH — Johnson Controls Arabia has begun exporting Saudi-made HVAC products to the United States, with nearly 100 chillers recently shipped for use in American public schools. The company's manufacturing facility in King Abdullah Economic City (KAEC) has significantly expanded production, with 80–90% of its products now made locally, up from 30% three years ago. 'We have been able to expand and cater to 26 different countries, and this past year we celebrated shipping our scroll chiller technology to the US market,' Mohanad Al-Shaikh, CEO of Johnson Controls Arabia told Saudi Gazette. The company, which employs around 3,000 people in Saudi Arabia, has become a key supplier of HVAC solutions in the region. It has provided cooling systems for major projects, including Cleveland Clinic Abu Dhabi, airports, medical cities, and universities, with all units manufactured in Saudi Arabia. Al-Shaikh noted that exports are increasing, with the company expecting 25–30% of its production in 2025 to go to international markets, including China, Egypt, and the UAE. Manufacturing output is also projected to grow by 35–40% next year to meet rising demand. Johnson Controls Arabia has strengthened its partnership with Saudi Arabia's Public Investment Fund (PIF), with upcoming agreements to supply efficient HVAC products to PIF-owned real estate companies. Al-Shaikh highlighted that Saudi-made products are meeting global standards, allowing them to compete in international markets without significant modifications. The company is also expanding its offerings in high-growth sectors such as data centers, where cooling solutions are in high demand. Additionally, it is supporting Saudi Arabia's food security initiatives by providing industrial refrigeration systems for food storage. Beyond traditional HVAC solutions, Johnson Controls Arabia is integrating digital technologies through its OpenBlue platform, which helps businesses optimize energy use and achieve sustainability targets. The company's Net Zero Center in KAEC is focused on advancing these solutions. © Copyright 2022 The Saudi Gazette. All Rights Reserved. Provided by SyndiGate Media Inc. (
Arab News
13-02-2025
- Business
- Arab News
PIF's ROSHN, Johnson Controls Arabia ink deal to propel energy efficiency in Saudi Arabia
RIYADH: Saudi developer ROSHN has signed a deal with Johnson Controls Arabia to introduce advanced cooling technology, strengthening the Kingdom's push for energy efficiency, said a senior executive. In an interview with Arab News on the sidelines of the first day of the Public Investment Fund Private Sector Forum taking place from Feb. 12-13 in Riyadh, Johnson Controls Arabia CEO Mohanad Al-Shaikh explained that the new deal signed with the PIF firm seeks to supply a specialized type of engineered variable refrigerant flow technology that is new to the region to encourage local manufacturing. This falls in line with Saudi Arabia's efforts to localize technologies and develop national capabilities in the energy sector, supporting the goals outlined in the Kingdom's Vision 2030. It also aligns well with Saudi Arabia's commitment to have 50 percent of its electricity capacity from renewable sources by 2030. 'It's (VRF) a technology that allows for a higher level of efficiency of systems to be included in buildings. It targets actually a couple of things. The main thing is the energy efficiency. The energy efficiency ratio of the VRF technology is much better than the traditional on-off technologies that we've always used in our houses,' Al-Shaikh said. 'It's a technology that allows for higher level of efficiencies and it also allows building owners to use less number of machines. So, even for the look and feel of buildings, using this technology would be much better than what we're used to in our region,' he added. The CEO emphasized that this step aims to promote localization and local manufacturing, boosting the private sector's contribution to gross domestic product and increasing the share of industrialization within it, which is in line with Vision 2030. During the interview, Al-Shaikh highlighted the heating, ventilation, and air conditioning market from a macro level. 'HVAC as an industry, you're talking about a total market size of $120 billion in the world. In Saudi, we're talking about SR18 billion ($4.79 billion), the annual sales of HVAC systems. This is growing, actually, in 2025 versus 2024, we're expecting about 8 percent increase year over year,' he said. The CEO also underlined how ROSHN has been expanding, saying: 'I mean, we're seeing the projects all across the Kingdom, and this is for us, hopefully, is the first of many, to come and we have signed, this with ROSHN, but we also have other signatures coming up with other PIF companies for mega and giga-projects.' Al-Shaikh then tackled Johnson Controls Arabia's operations in the Kingdom. 'We are a company that was established long, long ago. So, our first project was in Jeddah about 75 years ago, under the brand name York. We have about 26 different brands under the Johnson Controls Arabia umbrella. Our flagship, when it comes to HVAC, is the York brand name. Our manufacturing facility in Jeddah is the largest in the Middle Eastern and Africa region in terms of the production capacity and also the footprint of the facility. We have about 11 production lines,' he said. The CEO added: 'We do manufacture products that range from what we use for small to the large to big mega and giga jobs like airports, medical facilities, and cities. And we also have within the facility, we have full-fledged research and development center, labs, testing labs for small residential units and also up to 600-tonne units, and I'm talking about large testing facility.' Al-Shaikh emphasized that this came as a result of collaboration as well as Saudi Arabia's vision to localize. He also disclosed that products manufactured in Saudi today actually comply with products sold in the North American market and Europe. 'This VRF technology, same technology with no modification, has the same level of certification. We're able to supply it to other places globally. And as I said, the manufacturing facility has allowed us to sell to about 26 different countries in the region. Of course, in the Middle East, but also we've reached the North American market by supplying scroll chillers technologies to the US this past year,' the CEO said. Al-Shaikh mentioned the company's production capacity, noting that until two years ago, it only manufactured 30 percent of the products it sold in the Kingdom. 'We closed 2024, whereby we are manufacturing 90 percent of what we sell in Saudi the total capacity of the factory,' he said. 'We do have a target in 2025 to have almost 25 to 30 percent of that production capacity going for the North American market because, I mean, our technology, the certifications we have, the type of transfer of technology is allowing us actually not only to serve the Saudi market, but the regional and the global market,' the CEO added. Moving on to suppliers, Al-Shaikh justified the long-term plan that will potentially see them residing in the Kingdom. 'We are dealing with almost 400 suppliers in our manufacturing facilities. We use about 40,000 different parts to manufacture our finished products. Unfortunately, many of the suppliers are not residing in the Kingdom, and it's actually a challenge for local manufacturers because when it comes to supply chain resilience, you've seen during Corona time, it was an issue. So, while you're manufacturing the finished goods in Saudi, if your supply chain is not also surrounding you, then it becomes an issue,' he said. 'What we're trying to do now in collaborations with different partners like the PIF and other companies is to localize and increase our localization targets year over year, whereby and attracting manufacturers of parts to be also near our facility or at least be in the Kingdom. So, the perfect condition is where you're creating that integrated supply chain similar to the automotive industry where everyone is actually residing in one cluster,' the CEO added. Al-Shaikh also tackled the outlook on the future of the building technologies and export market in Saudi Arabia. 'Now, with the development of AI and the machine learnings, the focus is shifting not only on the HVAC, on the hardware, but also shifting to on the IT and how you bridge the gap between the IT and the OT, the operational technologies and the information technologies. Because when we talk about net zero and the aim and the aspiration of countries and companies to reach that level, working on the hardware by itself will not allow you to achieve that net zero,' he said. 'So there has to be a linkage between the OT and the IT, and that's what we're trying to do in our manufacturing facility,' the CEO added.
