Concern mounts over Saudi Arabian economic cities

20 June 2008
Prioritisation of King Abdullah Economic City raises fears that five other megaprojects may be delayed.

Riyadh is struggling with plans to concurrently build six economic cities and may have to delay some of the mega developments to prioritise others, say sources close to the projects.

Sources in the kingdom tell MEED that Riyadh is focusing on King Abdullah Economic City (KAEC) at Rabigh on the Red Sea coast at the expense of the five other economic cities.

“They are concentrating on KAEC as a priority, paying it all the attention and the rest are suffering,” says one source, who is involved with work on all six cities. “They realise they have problems and so the other cities are just going to have to take a step backwards.”

He says that the scale of work required to develop all six cities is proving to be a challenge for the Saudi Arabian General Investment Authority (Sagia), the government body overseeing the development of the economic cities.

“We are talking about cities which total more than 500 square-kilometres, which is huge, and for a single authority to handle it is very difficult,” he says.

“For all successful cities, the government should be directly involved and be proactive. It does not work just to invite the private sector.”

Another source, who is involved in Knowledge Economic City (KEC) near Medina and Prince Abdulaziz bin Mosaed Economic City in Hail, also voices concerns over the future of the cities.

“It would not surprise me if some of them fall by the wayside and are never heard from again,” he says. “I don’t see all of them going in the way that it is currently envisaged.”

Both sources say KAEC is being prioritised by Riyadh, and receiving the most support.

“KAEC has the port and it bears the king’s name, so they won’t let it fail,” says the second source. “If they didn’t think it was important, they would never have brought on Fahd al-Rasheed, from Sagia, to look after the economic city.”

Al-Rasheed served as Sagia’s chief financial officer before being appointed chief executive officer of Emaar, The Economic City, developer of KAEC, on 20 Janu-ary. According to a Sagia statement at the time, he was brought in to ensure KAEC would be
completed on schedule, and to boost its appeal as a global investment destination.

“KAEC gets a lot of publicity and you have Emaar behind it,” says the second source. “For Hail, a lot of people are not convinced about it. One reason is because it is in the middle of nowhere.

“They are all at different stages, but KAEC is way ahead of the others. KEC has not had a huge amount of publicity but it is moving ahead quite nicely. It is a smaller project, which helps, and they are planning an IPO [initial public offering] soon.

“The other economic cities apart from KAEC have their own unique challenges and Hail has its work cut out,” says the second source.

He adds that although Sagia is well equipped for the work, it is proving difficult to develop the cities because of their size.

“I think Sagia is best placed among anyone to get involved, since before it did so, the projects were struggling,” he says. “I don’t think it is just a Sagia issue, I think it is incredibly ambitious to launch six economic cities simultaneously. Inevitably, it is going to be a challenge.”

Others involved in the projects deny there are problems. Mamdood Tarabishi, project manager with the Savola Group, which is developing Knowledge Economic City near Medina, says the emphasis on KAEC has not hindered investment in KEC, which he claims is attracting a lot of interest. He admits, however, difficulties may occur because of the logistics of attempting to build so many economic cities at the same time.

“I don’t think it is disadvantageous, but the big demand for construction material will create some shortages and the raising of prices,” he says.

Investment in KAEC has reached more than SR130bn ($35bn), according to Amr al-Dabbagh, governor of Sagia.

Al-Dabbagh made the announcement during the visit of King Abdullah to the city on 11 June. The king took part in a foundation stone-laying ceremony at the city, which lies 150 kilometres northwest of Jeddah on the Red Sea coast.

The projects at the city include a port, the first phase of which will be complete in 2010, an aluminium smelter, a lubricant oil facility planned by France’s Total, and a national academic college. Al-Dabbagh said the smelter would create 2,500 direct jobs and 7,500 indirect jobs (MEED 12:6:08).

There are six economic cities under development in the kingdom. Aside from KAEC, KEC and Prince Abdulaziz bin Mosaed in Hail, they are at Tabuk, Jizan and Ras al-Zour.

Sagia was unavailable for comment as MEED went to press.

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