Saudi Arabia’s Public Investment Fund is forming two real estate development firms to boost the capacity of Mecca and Medina to receive pilgrims, in projects expected to create billions of dollars of business, it said on Monday.
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The plans are part of an array of commitments which the PIF, the country’s main sovereign wealth fund, is taking on under economic reforms designed to reduce Saudi Arabia’s dependence on oil exports.
The government is mobilizing the fund, believed to have about $180 billion of assets, to lead urban development and industrial projects around the country, even as the PIF manages stakes in top Saudi companies and makes foreign investments such as last year’s purchase of a $3.5 billion stake in Uber.
The scope of the PIF’s activities has caused concern among some private Saudi businessmen. The reforms aim to stimulate the private sector but with so many huge projects going to the PIF, some businessmen fear they could be crowded out by the deep-pocketed fund.
The PIF said the first phase of its development of an area near the Grand Mosque in Mecca would cover 854,000 square meters (9.1 million square feet) and deliver 115 buildings. It is to include 70,000 new hotel rooms and 9,000 housing units.
Construction will start this year with the first phase expected to open in 2024. By 2030, the area will contribute $2.1 billion annually to gross domestic product, the fund said. It also plans to develop 1.3 million square metres near the Prophet’s Mosque in Medina, adding 500 housing units and 80,000 hotel rooms.
Expanding Islamic tourism is a top goal of Saudi reforms, which seek to develop non-oil income to offset a plunge in oil export receipts due to low crude prices. The PIF did not reveal how much money it would invest, how it would award contracts, or the extent to which private investors would be brought in.
Riyadh has said it wants to involve private capital in major projects to reduce pressure on state finances, but in many cases a legal framework for such ventures has not yet been created.
Most Saudi real estate developers are small, so state bodies often have to be used to jump-start large projects, especially when the government wants to move quickly. Among other PIF projects, the fund said last week that it would lead the $4.8 billion redevelopment of Jeddah’s waterfront corniche.
In August, the government said it would develop resorts on about 50 Red Sea islands in a PIF-backed project. The fund will be the main investor in a 334 square kilometer (129 square mile) “entertainment city” near Riyadh featuring cultural and recreational facilities.