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RIYADH: Government entities are playing a pivotal role in shaping project finance across the Gulf region as countries pursue economic diversification, drawing private investment into sectors like green energy, utilities, and transportation, according to a report by S&P Global Ratings.

The report emphasizes that governments within the Gulf Cooperation Council, particularly Saudi Arabia and the UAE, are central to these initiatives. They often leverage government-related entities to secure funding and ensure the successful implementation of projects.

This approach aligns with broader efforts to reduce dependency on hydrocarbons and foster sustainable economic growth.

In both Saudi Arabia and Abu Dhabi, a common model sees government-affiliated entities, such as the Public Investment Fund and Abu Dhabi Developmental Holding Co., holding a 60 percent stake in power projects—either directly or indirectly. The remaining 40 percent is usually owned by international energy or construction companies, as noted by Fitch Ratings.

Since the mid-2010s, large-scale infrastructure initiatives and energy transition goals have significantly driven project activity across the GCC. “Project finance has become a preferred model because it allows developers to secure long-term funding aligned with project lifecycles, while keeping debt off balance sheet. This financing approach aims to manage risks throughout project phases, from construction to operation,” the S&P report said. 

The report also notes that governments are increasingly turning to project finance to fund large-scale infrastructure initiatives, relying on private sector involvement through joint ventures while ensuring fiscal discipline.

These transactions are typically structured as public-private partnerships, allowing for government oversight and long-term sustainability goals, while minimizing the impact on public budgets.

It highlights that solar and wind farms, along with hydrogen production plants, play a crucial role in national strategies such as Saudi Arabia’s Vision 2030 and the UAE’s Net Zero 2050.

Additionally, investments in digital infrastructure, including data centers and AI systems, are growing rapidly. Sovereign wealth funds are channeling capital into these sectors to further support economic diversification.

“We believe the rising demand for project finance is a direct result of global sustainability goals, regional economic diversification strategies, and developers’ preference for financing models that match long-term concessions with long-term debt,” it added.  

The S&P data further reveals that the PPP frameworks established by GCC governments have facilitated increased private sector involvement.

These frameworks allow governments to structure deals as joint ventures, where they take on roles such as landowners, off-takers, or co-shareholders.

Moreover, government participation in infrastructure projects continues to be a defining feature of the region’s project finance landscape.

“Governments, primarily through GREs, are deeply integrated into the lifecycle of these projects, from procurement stage to operations. GREs oversee tendering processes, inviting local and international developers to bid for projects structured under PPP frameworks,” the report said. 

Entities such as the Emirates Water and Electricity Co. and the Dubai Electricity and Water Authority lead power and water procurement in the UAE, while the Saudi Power Procurement Co. and the Saudi Water Partnership Co. play a similar role in Saudi Arabia. Both countries have strong PPP frameworks, making project finance the preferred method for large-scale development, the report underlined. 

  “S&P Global Ratings believes the government's commitment to solid concessions and strong risk mitigation mechanisms — including protections against regulatory and political risks — enhances the bankability of GCC projects and makes them more attractive to both regional and international investors,” the report stated.

RIYADH: Kuwait and Egypt’s non-oil private sectors maintained growth in February as business activity increased in both countries, according to S&P Global. 

In its latest report, the financial services firm revealed that Kuwait’s Purchasing Managers’ Index stood at 51.6 in February, down from 53.4 in the previous month.

A PMI reading above 50 indicates expansion in private business conditions, while a reading below 50 signifies contraction. 

The steady momentum of non-oil business activity across Middle Eastern economies highlights progress in economic diversification efforts. In February, Saudi Arabia recorded a PMI of 58.4, slightly down from a decade-high 60.5 in January. 

“Although we continued to see a generally positive performance of the non-oil private sector in Kuwait during February, there were some elements of the latest PMI survey which sound a note of caution,” said Andrew Harker, economics director at S&P Global Market Intelligence. 

He added: “Primary among these was the fact that firms lowered their staffing levels, perhaps a sign of worries that the slowdown in new order growth has further to run.” 

Despite this, overall business conditions in Kuwait’s non-oil private sector continued to improve, driven by rising output and new orders. Respondents in the survey attributed this growth to marketing campaigns across multiple channels as well as price cuts.

“Alongside successful advertising, growth was again predicated on the offer of discounts to customers, and it remains to be seen how sustainable this will be for firms in the face of sharply rising input costs,” added Harker. 

Apart from job cuts in February, which could lead to backlogs of work, companies also reduced purchasing activity. 

Looking ahead, non-oil private sector firms in Kuwait said price discounting, marketing, new product development, and strong customer service could support output growth over the coming year. 

Egypt’s PMI stays above neutral 

In a separate report, S&P Global revealed that Egypt’s PMI stood at 50.1 in February, down from 50.7 in January. 

This marked the first time since late 2020 that the country’s rating remained above the 50 neutral threshold for two consecutive months, signaling a sustained improvement in business conditions. 

Companies participating in the survey indicated that an ongoing recovery in client demand led to the first back-to-back improvement in business conditions in over four years. 

The increase in order book volumes resulted in a solid rise in purchasing activity, though output remained stable and employment declined. 

David Owen, senior economist at S&P Global Market Intelligence, said the Egypt figure showed the country’s non-oil economy started 2025 in “better health.”

He added: “Coupled with January’s upturn, the data reflects the best opening two months of the year in the survey’s history.”  

In January, the International Monetary Fund reached an agreement with Egyptian authorities allowing the country to access about $1.2 billion to strengthen its finances. 

According to S&P Global, Egypt’s non-oil private sector growth in February was further supported by another month of subdued price pressures, with inflation of average cost burdens rising from January but remaining historically mild. 

New work volumes increased for the second consecutive month after having risen only once in the previous 40 months of data collection. 

In February, stronger demand prompted firms to boost purchases for the third straight month, marking the sharpest increase in three and a half years. 

“Stronger customer spending seems to have revitalized markets, driving higher sales volumes and supporting improved operating conditions. This positive momentum has led to increased spending among firms,” said Owen. 

He added: “Additionally, price pressures are relatively low compared to those experienced in 2024, indicating that inflation is likely to continue its downward trend, in the near-term at least.” 

Despite the positive developments, businesses that participated in the survey reported challenges in retaining staff and hiring new workers, leading to a third employment decline in four months. 

Selling prices also increased modestly in February, as companies sought to limit the impact of higher costs on customers. 

Regarding future expectations, firms remained cautious about the economic outlook. Business confidence for the next 12 months fell to its lowest level since November, with only 5 percent of firms expressing optimism about future output growth. 

“The employment market remains mixed at best, and the manufacturing sector is struggling to secure new orders. Economic and geopolitical risks continue to loom large, contributing to another month of subdued expectations for the year ahead,” concluded Owen.