| 16 Feb 2009 |
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The economic impact of rapid population growth in Saudi Arabia
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LONDON: The demographics of Saudi Arabia is rapidly changing but its impact on the economy, urban planning, transport, housing and employment could be mixed if the wrong or even partial solutions are implemented.
The conclusion of a recent report by private transport company that the Kingdom's population density has increased by more than 120 percent during the six years from 2002 to 2008 and has surpassed its rate of population growth, which is among the highest in the world, by fivefold, should be a reality check for the Saudi government, municipalities, agencies and the private sector.
According to the report, which was conducted for the Land Transport Committee at the Jeddah Chamber of Commerce and IndustryJeddah Chamber of Commerce and Industry
, Jeddah's population density is increasing annually by 20-28 percent, followed by the holy city of Makkah with an increase of 20-25 percent and Riyadh with an increase of 18-20 percent.
Population growth can be a double-edged sword. Countries may wish to have larger populations for political and security reasons. The business and financial sectors see in large populations a captive consumer market. And the younger the demographic profile the better for the marketing men who can plan ahead for the longer term. But the other side of the population density equation is pressure on housing, healthcare, education, transport and the environment.
However, population density is not the only worry for the Kingdom's fast-growing cities. According to Michael Essex, director, MENA region, International Finance Corporation (IFC)International Finance Corporation (IFC)
, the private sector funding arm of the World Bank Group, Saudi Arabia also has one of the highest housing densities (persons per household) in the world which in early 2008 was 6.4 percent compared to India at 5.5 percent. The Kingdoms' annual population growth of 2.9 percent was second only to Yemen's 3 percent. Similarly, Saudi Arabia's urban population is very high. In early 2008, a staggering 88 percent of people in the Kingdom lived in urban areas.
The IFCIFC
, who in 2007 set up an Islamic housing finance joint venture in the Kingdom with local partners, Saudi Home Loans CompanySaudi Home Loans Company, warns that "there is a strong pent-up demand for entry-level housing in Saudi Arabia that will only grow in the future." The IFCIFC estimates that there will be consumer demand for an additional 4.5 million housing units in the Kingdom over the next 15 years. This means that there will also be an increase in demand for housing finance and huge pressure on local financial institutions to offer such funding. But the absence of a mortgage law has delayed the development of a mortgage market in the Kingdom. The Shoura Council has approved a draft mortgage law, but it has yet to be adopted into law. In 2008, housing finance demand totaled $13 billion, but only $1.5 billion of this demand was met by specialist housing finance providers usually companies owned by developers.
A key factor that affects the dynamics of population, housing, employment, etc is the fact that the country's demographic profile is very young with over 60 percent under the age of 30.
Rapid population and housing demand growth especially impact Jeddah, whose municipality has launched an ambitious SR30 billion urban regeneration plan. Abdulgader Amir, vice mayor for planning and urban development, Jeddah Municipality, in a recent interview with Arab News confirmed that the population of Jeddah "used to be 50,000 in 1950. Today the population is about 3.4 million. If we include the transient population especially for Umrah and the Haj, then the population at a given time can swell to between six and seven million people. Many of the one million or so overstayers together with Saudis migrating from rural areas live in makeshift areas on the edge of the city and they work in the informal sector. This represents major urban development challenges for the Municipality."
Ali Hassan Nagoor, chairman of the Land Transport Committee, who supervised the population density report, warns of the severe traffic congestion and overcrowding in Saudi cities -- problems which would be exacerbated if short-term partial solutions are implemented.
Jeddah's creaking sewage system has been deteriorating for the last three decades because successive plans to modernize the system were frozen by successive past administrations whose priorities lay elsewhere. In the last three years things have dramatically changed. A $3.5 billion sewage master plan for the city was approved and is in the process of being implemented. Similarly, a huge desalination plant is being built in Shuaiba which would meet greater Jeddah's water requirements for the next few decades.
The Saudi government will have to bear the brunt of the financing requirements to meet the population, housing and employment demand. Saudi municipalities, unlike their counterparts elsewhere in the world, do not have revenue and tax raising powers. They depend on stipends from the central government.
Alternatively, they have to seek other innovative financing solutions. Jeddah, for instance, is turning to Public Private Partnerships (PPP) or Public Finance Initiatives (PFI) to finance its urban regeneration projects over the next few decades.
By Mushtak Parker
© Arab News 2009
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