Compared with some other Arab economies hard hit by the global financial downturn, there is a mood of quiet optimism in Saudi Arabia and consumer confidence indexes reveal that Saudi citizens believe they will not be as badly affected as other countries worldwide.

This sense of self-confidence seems sustained by bolder strategic economic and social reforms implemented by King Abdullah, whether in the judiciary, educational or economic fabric of society.

Buoyed by several years of budget surpluses, the Kingdom has embarked on structural economic reforms in both capital infrastructure and human capital development and the planned mega economic cities are but one manifestation of this mood of self-confidence.

Unlike earlier large infrastructure developments, a key element of this strategy has been reinvigorated regional economic diversification and more equitable wealth creation for Saudi citizens. This has been translated into the launching of special economic zones, seemingly alike, but in reality each planned to specialize in certain niche core activities to leverage on each area’s location advantages. As of 2009, four economic cities have been launched with two more economic cities expected in Tabuk and Dammam. The planned infrastructure expenditures on these mega cities are enormous, totalling some $140 billion in the first phase. The largest is the King Abdullah Economic City at Rabigh on the Red Sea coast, with a planned area of 168 million sq meters and $ 80 billion in basic infrastructure cost. It will be the largest government and private sector integrated development project since the 1980’s when the Kingdom embarked on creating the Jubail and Yanbu industrial cities. Unlike the capital intensive projects of the earlier period, Saudi Arabia is now focussing on job creation and private sector participation from the start, and the King Abdullah Economic City, upon its completion in 2020, will aim to generate 1 million new jobs, promote energy and transportation related industries, and establish a new sea port of 13.8 million sq. m. and handling some 300,000 pilgrims.

The other planned mega economic cities are also just as ambitious with some $ 23 billion planned expenditure for Prince Abdul-Aziz bin Musaed Economic City in Hail, supporting agro industrial and mineral exploitation projects in that region, and a $30 billion planned expenditure in Jizan Economic City, the southern region of the Kingdom, concentrating on heavy industries (aluminium, refinery, steel, power) as well as secondary industries such as fisheries, and pharmaceuticals and generating 500,000 new jobs. Phase 2 of the project is expected to be completed by 2013 and the final phase by 2037. The fourth planned mega economic city is in Madinah and will focus on knowledge-based industries, create 20,000 new job in this high value sector, attract 150,000 new residents and complete by 2020 at a cost of $ 7 billion.

By 2020, it is expected that the major phases of the economic cities will have been completed and the forecasted impact on the Saudi economy are far reaching. According to the Saudi Arabia General Investment Authority (SAGIA) some 1.7 million new jobs will be created, with the economic cities adding $150 billion to the Saudi GDP. They will attract over $100 billion of new investments domestically and from abroad, and their population will be three times that of Dubai, with an area four times that of Hong Kong.

The government of Saudi Arabia is forecasting that from both the private and public sectors, a staggering $800 billion will be invested in these economic zones and other mega projects including those being planned by Saudi Aramco and SABIC in these mega cities.

No other country in the Middle East can match such grand project expenditures, which upon completion, will unleash Saudi Arabia as one of the major economic power houses of the world in league with India, China and Brazil as the undisputed leaders of the developing world. What is of more significance for Saudi Arabia, is the potential for the direct and indirect multiplier effect of these mega projects on secondary local industries and job creation in the wider Saudi economy.

The real test of success will be the level and scope of private sector participation in the grand projects, whether from Saudi investors or from abroad. Given international economic and financial uncertainties, Saudi investors and others from the Gulf, seem to have been encouraged at the opportunity to share in local risk as the Saudi government has spent political capital into ensuring that the second phase of its economic diversification strategy succeeds. It is not a coincidence that one of King Abdullah’s favorite project- the King Abdullah University of Science and Technology (KAUST), with an independent endowment fund of over $15 billion, is also taking shape at Rabigh near the King Abdullah Economic City. The hope is that an infusion of knowledge, technology, new skills and job creation unleashes a new dawn of prosperity for the Kingdom. Dr. Mohamed A Ramady is a former banker and visiting associate professor, finance and economics at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia.