JEDDAH, 24 September 2007 — Saudi Arabia’s economy is booming and along with any boom comes development plans for the future. There are many ways in which countries can develop. According to SABB’s Q4-2007 report, for Saudi Arabia to continue its integration with the world economy, it must continue to expand its non-oil export options. As Saudi Arabia is trying to diversify its economy away from oil, it has embarked on a major plan to build economic cities which has generated a lot of foreign interest.
The Kingdom’s oil revenues continue to remain high, estimated at SR618.7 billion ($165 billion) in 2007 and foreign assets currently at SR942 billion ($251 billion) and Saudi Arabia is giving much consideration to its future direction. The economic cities offer opportunities to investors by capitalizing on the Kingdom’s comparative advantage: Low-cost energy.
The first boom of the 1970s saw the building of the industrial cities of Jubail and Yanbu while the current boom has brought to the fore six new economic cities.
Dr. John Sfakianakis, chief economist of SABB, said “Jubail and Yanbu developed as a result of the industrial attractiveness of these two areas.
The industrial rise of these two zones gave helped build the real estate component, mainly housing, of Jubail and Yanbu. The growth of Jubail and Yanbu is noteworthy with sizeable capacity remaining to be tapped.
The port of Yanbu, for instance, can increase its current capacity three folds. Unlike Jubail and Yanbu, the six economic cities are all-inclusive, trying to incorporate industries, real estate development, education and sea port and dry port development.”
According to the Saudi Arabian General Investment Authority (SAGIA), the new cities will contribute $150 billion to the country’s GDP by the year 2020.
The cities are also expected to provide job opportunities for 1.3 million people and an increase in per capital GDP to SR125,625 for those living in the cities.
It is envisioned that the economic cities along will have three times the population of Dubai, a GDP equivalent to that of Singapore and an area four times the size of Hong Kong. In developing the cities, the government will play the role of regulator, facilitator and promoter with the private sector providing the capital, the land owners and the developers.
The SABB report said at the core of economic cities projects is the question of job creation for Saudis. Employment generation is a must in order to achieve sustainable development as the private sector is highly dependent on foreign labor.
The King Abdullah Economic City (KAEC) is located mid-way between Makkah and Madinah and the commercial hub of Jeddah. It encompasses some 168 square kilometers, equivalent to around 65 percent of the total area of the emirate of Ajman in the UAE or about the size of the Principality of Liechtenstein. KAEC is being developed by Emaar the Economic City, a Saudi listed company.
The Knowledge Economic City (KEC), situated in Madinah, seeks to develop the Kingdom’s technology base.
The investment cost of the city will amount to around SR25 billion, creating some 20,000 job opportunities. An IT studies institute is planned, as well as a center for Islamic studies.
Prince Abdulaziz bin Mousaed Economic City (PABMEC) is in Hail, 720 kilometers north of Riyadh, and is slightly smaller in land size than KAEC, covering an area of 156 square kilometers. PABMEC estimates that the cost of the city will reach SR30 billion by its completion date in 2016. The city will be developed by the private sector, headed by Rakisa Holding Company.
Jizan Economic City (JEC) is intended to become another all-inclusive city similar to KAEC. JEC is some 725 kms south of Jeddah and will have its own desalination plant and a power plant generating 4,000 MW of electricity.
It will cover an area of 100 square kilometers or two-thirds of the entire city. Heavy industry will be a key sector for investment in JEC with plans in hand for a privately owned oil refinery, a 500,000 tons per annum steel rebar and DRI factory; a copper smelter and an aluminum complex.
Employment generation in Jizan is one of the biggest challenges for that region, as it has a population of more than 1.2 million people. Greater employment opportunities would also bring about a rise in per capita income.
The biggest challenge for JEC, and for the rest of the economic cities, is enticing enough investors to establish sufficient business presence to provide the projected number of jobs.
Sfakianakis said: “Regional development is paramount to the Kingdom’s growth and KAEC, together with the rest of the economic cities, is conceptually at the heart of an effort to bridge regional disparities.”
Economic opportunities in the main cities have helped perpetuate internal migration over the past three decades, with the result that Riyadh, Makkah and the Eastern Province now contain 64.5 percent (2004 census) of the Kingdom’s population. According to the Ministry of Economy and Planning, about 74 percent of the total number of operating businesses (570,000 firms in 2003) were located in these regions (Riyadh (30 percent), Makkah (28 percent) and Eastern Province (16 percent), as are a majority of industrial estates.
There are no industrial estates in Najran or Al Jawf, just one in Tabuk and three in Hail. The average number of industrial jobs per 10,000 people ranges from 237 in the Riyadh region to only 7 in the Northern Border region; and the Riyadh region accounts for about 75 percent of total milk production, whilst Qassim and Makkah regions account for 40 percent and 24 percent respectively of total poultry production.
