P.K. Abdul Ghafour
SAUDI ARABIA launched four mega economic cities in Rabigh, Hail, Madinah and Jazan about 10 years ago as part of a major diversification drive to attract domestic and foreign investment, boost economic growth and create thousands of new jobs for its growing number of young graduates.
The pristine new cities were devoted to setting up specialized industries through joint efforts of public and private sectors with government serving as regulator, facilitator and promoter while private industries providing capital, technology transfer, land ownership and development.
King Abdullah inaugurated the prestigious economic city project in 2006 under the government’s 10 x 10 development program to bring about reforms and promote targeted investments to position Saudi Arabia among the world’s 10 most favored investment destinations within 10 years.
Owing to global economic slowdown, private investment has been slow in reaching anticipated goals. However, development continued at King Abdullah Economic City in Rabigh with government support. Lack of funds, vast areas and bureaucratic hurdles affected takeoff of other cities.
The ‘Vision 2030’, which was announced recently by Deputy Crown Prince Muhammad Bin Salman, second deputy premier and minister of defense, has set out a plan to salvage the four economic cities.
“We are aware that the economic cities of the last decade did not realize their potential. Work has halted in several cities, and others face challenges that threaten their viability,” Prince Muhammad said in his vision statement.
“We have worked in cooperation with Aramco to restructure Jazan Economic City. We will strive to salvage other economic cities, especially those with comparative advantages. To achieve this, we will work with the companies owning those cities to revamp them and transfer vital facilities,” the prince said.
However, he pointed out that this effort would depend on the readiness of these companies to work with the government. “Our aim is for these cities to contribute in the development of the economy and to attract quality investments as well as local and international talent, all kept in line with our national priorities,” the deputy crown prince said.
The vision also disclosed the government’s intent to create special zones in exceptional and competitive locations. “We shall take into account the comparative advantages of the Kingdom’s different regions, assess their feasibility for promising sectors, and then establish special zones, such as logistic, tourist, industrial and financial ones,” the prince said.
Restructuring of King Abdullah Financial District in Riyadh is another important goal as work on the district started in the last decade without considering its economic feasibility. “We will seek to transform the district into a special zone that has competitive regulations and procedures, with visa exemptions, and directly connected to the King Khaled International Airport,” the prince said.
“We will also seek to repurpose some of the built-up areas and change the real estate mix, increasing the allocation for residential accommodation, services and hospitality areas. We will seek to build and create an integrated and attractive living and working environment,” the prince said.
The district will be the headquarters of the Public Investment Fund, the largest sovereign wealth fund, which will contribute to creating an environment attractive to financial, investment and other corporations.
Prince Muhammad plans to build up the fund in the reform drive to hold SR7 trillion ($1.9 trillion) of assets compared to SR600 billion at present.
The Saudi Arabian General Investment Authority (SAGIA), which was formed in April 2000, was given the task of attracting and processing foreign direct investment in the new economic cities whose management was placed recently in the hands of the Economic Cities Authority (ECA).
The projects in new economic cities were intended to bring in modern technology, management skills, corporate governance and advanced industries so that the Kingdom is no longer dependent on oil and gas.
King Abdullah Economic City (KAEC) is divided into six main components: industrial zone, seaport, residential areas, sea resort, educational zone and central business district. Located along the Red Sea coast, it will have a total development area of more than 106 sq. km.
The industrial zone is expected to cover 11,000 acres and will consist of industrial and light manufacturing facilities; research and development; business and office space; services; hospitality; and education and community services. Its seaport will be the largest in the region, covering 13.8 sq. km.
The residential areas are expected to include apartments and villas — eventual homes for a half million residents and 10,000 tourists, along with parks and green spaces and many public amenities. The sea resort will become a major tourist destination, accommodating tourists with an 18-hole golf course, equestrian club, yacht club and a range of water sports. The educational zone is planned to consist of a multi-university campus flanked by two research and development parks.
Prince Abdulaziz Bin Mousaed Economic City in Hail, covering 156 million square meters, is designed to become a transport and logistics hub in the Middle East. Its focus will be on petrochemicals, logistics, agribusiness, minerals and construction materials. It is expected to have a population of 80,000.
Knowledge Economic City in Madinah, covering 4.8 million square meters, is located near the Prophet’s Mosque. It focuses on knowledge-based industries with an Islamic theme and Islamic civilization studies, as well as a park themed around the prophetic heritage.
It will also house a complex of technological and administrative colleges as well as one for medical studies, biological sciences and health services. Besides being the home of a multi-nodal transportation center and business district, it will contain a major retail establishment and hotel complex. It is expected to create many new jobs and attract a population of 200,000.
Jazan Economic City is located in the southwestern region of the country on the Red Sea and occupies 100 million sq. m. Its focus will be on energy, agriculture and labor-intensive industries. Besides agriculture repackaging and distribution and power and water desalination plants, an industrial park will occupy two-thirds of the city. Fisheries will play a dominant role. Saudi Aramco is building a refinery and marine terminal in the city.
The refinery will cover an area of 12 sq. km and will process 400,000 barrels per day of Arabian Heavy and Arabian Medium crudes to produce 80 million bpd of gasoline, 250 million bpd of diesel and more than one million tons per annum of benzene and paraxylene petrochemical products.
Officials and business leaders have given different reasons for the failure of economic cities and pin great hope that the new vision would quick-start the cities to serve as engines of growth in their respective regions.
Hail Governor Prince Saud Bin Abdul Mohsen blamed lack of finance and bureaucratic obstacles for the slow development of Prince Abdulaziz Bin Mousaed Economic City. “The global economic crisis affected a number of companies including the Kuwait Finance & Investment Company that was given the task of developing the city,” the governor said.
Prince Saud expressed his hope that SAGIA under the leadership of Abdullatif Al-Othman would play significant role in activating the Hail economic city in order to attract new investment projects and put an end to the country’s unemployment problem. The contract with the Kuwaiti company has been canceled and the government has taken over the project with the General Organization for Social Insurance and Pension Fund investing in the city.
The area of Hail economic city has been slashed from 156 million sq. m. to 30 million sq. m. while the size of some projects has been reduced to make them more realistic. However, it will have an international airport and a dry port, said Mazen Zaki Al-Saleh of the Economic Cities Authority.
The Shoura Council had previously called for an assessment of the progress of economic cities by an independent agency to find out the reasons for their failure and disruption of projects. The Shoura members have asked ECA to explain the reason for the Knowledge Economic City’s diversion from its set objective of attracting knowledge-based projects.
SAGIA Governor Al-Othman is still optimistic about economic cities and their ability to create a competitive atmosphere to woo investment, drive economic growth and create more jobs for Saudis. He disclosed plans to review the economic condition of each city in order to set out detailed plans for their future development, offering incentives to foreign investors.
Dr. Abdul Rahman Al-Zamil, chairman of the Council of Saudi Chambers, commended the progress achieved by KAEC in Rabigh and said it would play a big role in strengthening the national economy in the coming years. “The King Abdullah Port has achieved huge development and within a few years it will receive container ships from different parts of the world.”
Faisal Al-Quraishi, chairman of the industrial committee at Asharqia Chamber, was forthright when he said all economic cities, except KAEC, were a failure because they were not established on a sound basis. He also blamed financial and administrative reasons for the failure.
“It is very difficult for a private company to develop huge areas. The state should have developed the cities by constructing necessary infrastructure and then sold them to private industries and companies,” he said. He also pointed out that the government had given SR5 billion to Emaar to develop KAEC, which has so far attracted projects worth SR26 billion.
With a new vision in place, the economic cities will be repositioned to achieve its targeted objectives, offering unprecedented opportunities for Saudi and foreign investors to start hi-tech projects and realizing the hopes and aspirations of young Saudi men and women. But it requires softening of trade, investment and visa regulations to woo investors who look for state-of-the-art infrastructure, world-class services and easy access to finance.