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Futuristic city

January 2006
The $26 billion King Abdullah Economic City in Saudi Arabia is expected to act as a catalyst for foreign investment as the country strives to meet the challenges arising out of the Kingdom joining the World Trade Organisation. Gopal Bhattacharya travelled to Riyadh for the launch of the millennium city.

The announcement of the $26 billion King Abdullah Economic City is seen as the first in a series of many big projects in the Kingdom as it opens up its economy after joining the World Trade Organisation (WTO). The new city, an initiative of the Dubai-based Emaar Properties and Saudi Arabian investors, is to date the biggest private sector foreign investment in the country.

"In what is considered the single largest private sector investment in Saudi Arabia, the announcement...is a signal of the dawn of a new era of economic prosperity for the citizens of the Kingdom," the promoters of the project said at the launch. The project will closely integrate itself into the Kingdom's ongoing drive to expand the economy, create jobs for its young population and function as a catalyst to attract foreign investment, global trade, commerce and industry.

Headed by Emaar, a group of giant Saudi and UAE companies has been formed to facilitate investments for the project. The group includes Aseer Company for Trade, Tourism, Industry, Agriculture, Real Estate and Construction; and the Saudi Binladen Group . Work has already started on the project situated at Rabegh, which will be financed by an initial public offering (IPO) comprising 30 per cent of the equity of the new company.

In 2005, Saudi Arabia slowly opened its economy to the outside world. In the first half of 2005, it received a record $17.3 billion in foreign investments, a 17-fold increase over the same period last year, but the authorities claim the country offers investment opportunities worth over $500 billion in areas ranging from energy and transportation to knowledge-based industry sectors.

The project was officially launched by King Abdullah bin Abdulaziz Al Saud in the presence of HH Prince Sultan bin Abdulaziz Al Saud, Saudi Crown Prince and HH General Sheikh Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and UAE Defence Minister. HH General Sheikh Mohammed said: "I am certain that what will be achieved through this project will create its own chapter in the annals of the GCC."

"The King Abdullah Economic City will be another jewel in the crown for Saudi Arabia. It is a shining example of what can be achieved for the common good when two nations get together for ever closer cooperation," he said after launching the project. Saudi Arabian officials were equally upbeat about the new cooperation. Amr Al-Dabbagh, the governor of Saudi Arabian General Investment Authority (Sagia), the facilitator for the new development, said: "The City is one of the most impressive projects Saudi Arabia has attempted in the new millennium."

"The announcement is no coincidence as Saudi Arabia has now become a part of the World Trade Organisation. The fast-track approval of the project is a sign that Saudi Arabia is moving ahead with confidence to transform the economy and build more sustainable prosperity for its citizens," he added.

Doing Away with Red Tape
Stressing that the project will have a major role in attracting the Saudi and foreign investment, he assured all licensing procedures will be done within one week of application in coordination with other concerned government departments. The project will fulfil Sagia's plans to promote Saudi Arabia as an international investment destination while pushing forward the Saudi economy into a new phase of adapting to international standards.

But the private sector-led project will create huge job opportunities, with no additional cost on the Saudi government except for the services and facilities, which will be provided by Sagia and other government departments. "The City brings closer Saudi Arabia, the UAE and the Emirate of Dubai to work towards a common endeavour," Al-Dabbagh said.

Mohamed Ali Alabbar, chairman of Emaar Properties, said this City is a shining example for Saudi Arabia's transformation into a global economic powerhouse and further consolidate its position as the Middle East's largest economy. He said the project would bring in more local investment, regional and international foreign direct investment into the Kingdom and thus more job opportunities for the Saudi youth.

The six components of the City - seaport, industrial district, education zone, financial island, resorts and the residential area - will work seamlessly to make it an important global destination and a focus area for the development of both heavy and light industry.

Vision to Reality
Alabaar said that, in the past decade, Emaar Properties had built experience and knowledge on transforming the power of ideas into reality.

"The King Abdullah Economic City will add tremendous value to the ongoing economic reform process driven by the Saudi Government and bring a host of opportunities aimed at the prosperity of Saudi citizen," he said.

The project and its components are expected to create up to 500,000 jobs in the various industries and service-oriented companies that will open in the City.

The project will be a mixed-use development located north of the commercial hub of Jeddah to ensure easy access from the Holy Cities of Makkah and Madina. A massive 55 million square metres of greenfield land with a 35 km shoreline close to the industrial city of Rabegh has been earmarked for the master development.

Pivotal Private Sector
Saudi Arabia has carried out a number of structural reforms over the past several years in its drive for economic diversification and private sector-led growth, creating the basis for increasing employment opportunities for Saudi nationals and enhancing the economy's resilience to oil price shocks. The country's economy, supported by record oil revenues and prudent macroeconomic management, has grown by 5.25 per cent due to strong growth in both oil and non-oil output.

In a recent report, the International Monetary Fund (IMF) said that increased domestic growth and the oil-related terms-of-trade gains in the last three years have helped boost per capita income by 50 per cent and strengthened medium-term prospects. The IMF has highlighted the need to absorb the rapidly growing Saudi labour force into the private sector by sustaining the implementation of structural reforms.

"The current favourable economic situation is offering an important opportunity for carrying forward the reform momentum while harnessing resources for future generations," the IMF said.

Strong growth in oil revenues generated substantial fiscal and current account surpluses and resulted in the accumulation of a large reserve. The policy of Saudiisation, aimed at creating private sector employment for Saudi nationals - through training programmes, wage subsidies, and sector-specific employment quotas - continued to be applied in a flexible manner.

The central government's fiscal position strengthened further on account of record oil revenues and a relatively limited increase in outlays. The fiscal surplus, at 9.5 per cent of GDP in 2004 - up from 1.25 per cent in 2003 - is expected to have risen even further in 2005.

Driven by the favourable developments in the oil market, the external current account surplus increased by 7.5 percentage points to 20.5 per cent of GDP. The Saudi Arabian Monetary Agency's (SAMA) gross foreign assets increased to an equivalent of around 15 months of imports of goods and services.

Real GDP growth for 2005 is projected to accelerate to more than 6 per cent, supported by strong growth in oil and non-oil private sectors (6.75 percent and 6.25 per cent, respectively). The IMF has lauded the Saudi government's decision to utilise a part of the higher oil revenues to increase social expenditure and improve the much-needed physical infrastructure, and at the same time strengthen the fiscal position through debt reduction.

"The use of fiscal surpluses for further reducing government debt would enhance private sector confidence and create fiscal space for sustaining a significantly higher social spending in health and education and the infrastructural development programme."

The City
King Abdullah Economic City will be a New Age City being built today for tomorrow's generation of Saudi citizens. With a total development area of 55 million square metres, the City will extend along a 35-kilometre shoreline and is strategically located between the two Holy Cities of Makkah and Madina and the commercial hub of Jeddah.

The City will have six distinct components - a modern world-class Seaport, Industrial District, Financial Island, Education Zone, Resorts and The Residential Area. Work has already started on the project. Completion of the overall project will be done in stages with the first batch of businesses and residents moving into the City in a period of 24 to 36 months.

Rotterdam-like port: Central to the mega project is the creation of a 2.6 million square metre new Millennium Seaport similar in size to the world's top 10 ports, such as Rotterdam, that would allow even the world's largest super vessels to drop anchor. With its strategic location on the Red Sea and the instant access to key cities within Saudi Arabia, the port will have a designated area for light industry and logistics and be a natural platform for onward movement of goods to Europe, Africa, Asia and beyond.

The port will have an integrated transport system with seamless high-speed transitions from sea to rail, road and air, making the City the main gateway to the central and eastern provinces as well as the entire Kingdom. The port, with its close proximity to the two Holy Cities of Makkah and Madina, will have a dedicated Haj terminal that can receive over 500,000 pilgrims every season. To cater to the pilgrims' every need, there will be adjoining hotels, medical centres and other world-class amenities.

Industrial District: The Industrial District will cover 8 million square metres, and is exclusive to the requirements of a range of manufacturers small, medium and large scale industry. They will represent sectors such as downstream petrochemicals, pharmaceuticals, research and development activities as well as a host of educational institutions that will prepare young Saudis for the jobs that the City will bring in. A sizeable area has also been set aside to develop accommodation for employees and their families.

Waterside Resort: The waterside Resort will serve up a most compelling mix of waterfront hotels and boutique residences. The master plan envisages 3,500 well-appointed hotel and residential bedrooms and suites, premium villas, plus an extensive retail element and an international-class signature 18-hole golf course and an equestrian club.

Financial Island: Conceived to be a 'city within a city' for financial institutions, the island will offer 500,000 square metres of office space for the leading international and regional financial entities, business hotels and a new exhibition and convention centre. Up to 60,000 professionals are to operate from the Financial Island on a daily. It will be topped by two towers reaching up to 100 and 60 storeys that offer compelling views of the surrounding city skyline.

Residential district: Three residential districts form the fifth component of the new City. The first district wraps itself around a town centre, which will be a blend of the traditional and the modern. The second district will have a corniche as its main theme. It is in keeping with this concept that the district will 'curve' around a top-of-its-class marina and yacht club with 450 boat moorings. The souq and retail elements will contribute 350,000 square meters of prime space. Around 75,000 residents are expected to live here. The third district will be a secluded residential community set on an island on a choice water location.

Education Zone: The sixth component is the Education Zone, which comprises of universities, schools and research & development centres.

SAGIA: Facilitating Investment
(Saudi Arabian General Investment Authority (Sagia) has identified five regions in the Kingdom for mega projects that will be identified on the basis of the strength of the each region. Amr Al-Dabbagh, the governor of Sagia, which is in charge of attracting foreign investment to the Kingdom, said so far no decision has been taken on the promoters of the projects. Prior to the launch phase, Sagia had taken a number of steps to ensure a successful launch of the biggest economic city in the Middle East, including a case study of similar examples such as Yanbu, Al-Jubail, Dubai, Ireland and Malaysia.

Constructing a private sector-financed economic city is one of the successful strategies to achieve a balanced and sustainable regional development. Cities have already been identified within a number of regions in Saudi Arabia to establish international, export-oriented industries including Hakkel (in the North West), Jazan (in the South), Ras Elzor (in the East), Rabegh (to the West), and Hayel (in Mid North).

A committee of international consultants was entrusted to study the economic feasibility of the project. With positive results, Rabegh city has been chosen because it already has major ongoing projects, a strategic location on the Red Sea close to international maritime routes, and instant access to key cities within Saudi Arabia (Makkah, Al Madina, Yanbu and Jeddah).

The development of these areas comes as one of the six main strategic roles for Sagia, which include the realisation of balanced economic development for regions. This is hoped through the promotion of investments in sectors with a competitive advantage to help accelerate growth within the respective regions and in order to curb migration to larger cities.

The Government of Saudi Arabia created Sagia in April 2000, when it announced a new Foreign Investment Law. Sagia is a service entity aiming to provide services and facilities to promote investment and economic development in the Kingdom. It also aims to contribute to economic policy-making substantiated by research and strategic criteria. Sagia's role is complementary and supportive to the bodies directly concerned with the various investment sectors and working to finalize the investors' procedures.

Foreign and joint investment applications continued to pour in the Saudi market. Sagia licensed 136 projects in the third quarter of 2005 with total investments of $973 million. Comparing the results of the third quarter of 2005 with the corresponding period of 2004, there was an increase of 223 per cent, as the total project finance of that period of the previous year was $436 million.

Among the projects licensed in the third quarter of 2005 are 30 industrial projects worth $800 million, and 106 service sector projects worth $17.33 billion. Among the largest projects licensed during the period are: Najma Chemical Fertilisers Factory at Al Jubail Industrial for Saudi and Korean investors, at a total finance of $364 million; Mining Union Factory Carbon Products at Ras Al Zoor for the Mining Union Co. Ltd at a total finance of $260 million; and Al Ameenat Al Arabia Co. at Jubail Industrial for Saudi and US investors, at a total inance of $112 million.

EMAAR: Sky is the Limit
Emaar Properties, with a market capitalisation of $40 billion, has gone to several countries worldwide with its projects, but the Saudi project is its largest to date. Mohamed Ali Alabbar, chairman of Emaar Properties, says the joint ventures are in line with the expansion strategy of pursuing collaborations with partners and targeting opportunities in Saudi Arabia, Egypt, Jordan and Morocco as well as other international markets. "Emaar has been a pioneer in driving growth in the regional real estate market, introducing the concept of gated communities, property purchase on freehold as well as innovative marketing and financing initiatives," he says. The company has joint ventures and projects across the region covering Egypt, Syria, Morocco, India and Pakistan. In the past few months, Emaar has announced several projects across the region worth billion of dollars.

In October, Emaar signed an MoU with the Egyptian government to start work on a new development in Cairo - an integrated community based in Egypt's new Smart Village. It is Emaar's second move into Egypt, following its August announcement of the $4 billion Cairo Heights development in the Egyptian capital.

Also in October, Emaar unveiled a landmark development valued at $500 million in the Syrian capital Damascus. The development known as Eighth Gate will include mixed use residential, commercial and retail units.

In November, Emaar and ONA Group, the leading Moroccan industrial and financial group, unveiled its second international venture in Morocco - Bahia Bay. The $1.2 billion project will see the joint venture develop a large-scale residential golfing community along the picturesque Moroccan coast.

In December, Emaar-MGF Land Private Limited announced India's largest FDI in real estate amounting to over half a billion dollars for projects with a capital outlay of $4 billion. The projects are planned for Delhi, Andhra Pradesh, Karnataka, Tamil Nadu and Maharashtra.

© Gulf Business 2006