In macro-economic terms, the primary objective of King Abdullah Economic City (Kaec) is to further the diversification of Saudi Arabian economy by providing an environment attractive to industrial investment.

In the masterplan, some 57 million square-metres of land has been set aside for industrial development – almost one-third of the entire project area.

As with the other six zones, the industrial district is being developed in phases, and by when the scheme is completed in 2025, it is expected to be to home to 2,500 factories and provide more than 150,000 job opportunities.

We have identified Kaec as the ideal location and we are working together for a feasibility study

Ahmed Bayoumi, Mars GCC

The first phase covers 6.8 million sq m and caters to light and medium industries, as well as to logistics companies involved in warehousing and storage, packaging and distribution of goods. Later phases will be designed to appeal to heavier industries such as petrochemicals and metals manufacturing. Handover of the land for the first phase began in March 2009. Early residents included local construction materials and logistics companies, such as International Pipes & Electricity Factory and Al-Zamil Trade & Transport, but a host of other firms have also signed agreements to start operations in Kaec’s industrial zone.

In 2007, Emaar, The Economic City (Emaar EC), developer of the project, signed a memorandum of understanding with Saudi Total Lubricants Company, a local joint venture with France’s Total, to build a 35,000 million tonne a year (t/y) advanced lubricant plant to supply the automotive, industrial and marine sectors. In 2008, an agreement for the construction of an aluminium smelter with a first phase capacity of 700,000 t/y, was signed by Emal International, a joint venture between the UAE’s Mubadala Development Company and Dubai Aluminium Company (Dubal).

Plastics hub

The development of a plastics manufacturing hub is central to Kaec’s industrial plans. In 2008, the local Savola Group agreed to study the type of plastics most appropriate for development at Kaec, and the US’ StrateSphere and PolymerOhio, the association of leading polymer and plastics manufacturers representing Ohio state, have been brought in to advise on the development of a so-called Plastics Valley. Ohio’s polymer industry has more than 2,800 companies involved in the production of plastics and advanced materials.

A major seaport under construction at Kaec is designed to complement the industrial district

Consumables manufacturers are also considering Kaec’s potential. The US chocolate firm Mars is conducting a feasibility study for the potential construction of a confectionary factory in the industrial district. Ahmed Bayoumi, general manager, Mars GCC, says the firm has signed an agreement with the Kaec to jointly conduct a study for the plant.

“We have identified Kaec as the ideal location within Saudi Arabia and we are working together to finalise this feasibility study,” Bayoumi says. “Once we enter a market, we look at forming a strategic long-term plan that spans multiple years.”

Kaec provides the basic services for companies to start operations in the industrial zone. The local Civil & Electromechanical Company was awarded a $31m contract to build the potable water and wastewater network for the first industrial phase in February 2008.

A major seaport under construction at Kaec is designed to complement the industrial district, facilitating the import of raw materials and the export of finished goods. “Other countries within the region are leveraging this current lack of infrastructure and services, and taking away much of our potential for logistic operations,” says Fahd al-Rasheed, managing director and chief executive officer (CEO) of Emaar EC. “Places such as Oman, the UAE and Qatar are really taking advantage of this. We need to take back some of these industries and leverage the trade routes between East and West within the Red Sea.”

While Saudi Arabia is one of the largest countries in the Middle East, currently it has one of the smallest port capacities.

The port is being built in three phases, and will include container terminals, as well as solid and liquid bulk terminals. The port’s location will allows manufacturers easy access to markets in Europe and Asia. But Kaec will also have air, land and rail links.

Attracting investors

The state-funded Saudi Arabian General Investment Authority offers a range of incentives to potential investors including 100 per cent foreign ownership of projects, no restrictions on repatriation of capital, no personal income tax and a minimal 20 per cent corporate tax for foreign companies. In addition, customs fees on certain imported raw materials are waived.

Masterplanning for the second phase of the industrial zone is now under way, and Kaec says it will announce more investments later this year. Kaec is particularly keen to develop a centre for research and development. In December 2009, the US’ Rolls-Royce said it would conduct a feasibility study for a research and development facility at Kaec as a precursor for a production plant.

“Twenty-five per cent of the world’s oil reserves are here in Saudi Arabia, but only 2 per cent of energy-based industries are based in the kingdom. By increasing that number and leveraging our energy base, we can create more high-income jobs. So, we are targeting those industries that are energy-intensive,” says Al-Rasheed.

But the key challenge Kaec has to overcome for the industrial zone to become a success, is that of fuel allocation. Concerns over fuel allocations have forced Emal to lower the annual production capacity of the first phase of its planned aluminium smelter. Although the whole scheme will still have a total capacity of 1.4 million t/y, the project will now be completed in three phases instead of two, with the capacity depending on the fuel supply.

Gas allocation is a challenge for many of Saudi Arabia’s industrial cities as supplies become tight. However, given the authorities’ commitment to diversification and job creation, a solution is sure to be found.

Six key components of King Abdullah Economic City

Industrial Zone: This will cover 40 million square metres and will be dedicated to industrial and light-manufacturing facilities, hosting up to 2,700 industrial tenants. International experts have been consulted to ensure the industrial zone is line with environmental best practices.

Seaport: The seaport will be the region’s largest with a container capacity exceeding 10 million 20-foot equivalent units (TEUs) and a dedicated Hajj terminal.

The Central Business District: Kaec will offer 3.8 million sq m of prime office and mixed-use commercial space and features a 14-hectare financial district, which will be the region’s largest, playing host to the world’s leading banks and investment houses.

Residential units and resorts:Kaec will include residential and hospitality schemes. Hospitality schemes will be world-class with 25,000 hotel rooms planned in more than 120 hotels. Kaec will have 250,000 apartments and 25,000 villas. The retail component of Kaec will cover 8.7 million sq m and include leasing space for about 50,000 shops.

The Education Zone: Education in the city will be a key priority and Kaec will offer primary and secondary school education for residents. A number of schools will cater to children in each community and a university campus will accommodate 18,000 students.

Key business sectors: Saudi’s unlimited petroleum resources will provide low-cost feedstock for a range of petroleum derivatives including high-end plastics manufactured in the planned Plastics Valley for automotive, biomedical, construction and food packaging applications.

Source: Sagia