In the seven years since its creation, the Saudi Industrial Property Authority (Modon) has been a key institution behind the growth of the kingdom’s non-hydrocarbons-related industrial sector.

Along with bodies such as the Saudi Industrial Development Company (SIDC), the Saudi Industrial Development Fund and the National Industrial Cluster Development Programme (NICDC), Modon’s goals form a crucial part of the government’s drive to create jobs and, at the same time, increase the variety of industries contributing to the kingdom’s gross domestic product (GDP).

As the regulator and promoter of industrial estates and technology zones, Modon’s primary role is to set up and manage new industrial cities and attract investors to open manufacturing facilities within them.

Plots in these cities are leased for a fixed and renewable period of 25 years. The annual rent is SR1 ($3.70) a square metre, compared with commercial rates of SR20-100 a sq m outside these designated zones. It generally takes one to three months for a company to obtain a land lease in one of Modon’s industrial cities.

Industrial development

The authority manages a total of 14 industrial cities across the kingdom, which collectively occupy 92.8 million sq m of land and accommodate 2,883 factories. The cities are located in Riyadh, Jeddah, Dammam, Mecca, Qassim, Al-Ahsa, Medina, Assir, Al-Jauf, Tabuk, Hail and Najran. Combined, these factories employ nearly 250,000 workers and represent a total investment of more than SR200bn.

Modon’s duties are in many ways similar to those of the Royal Commission for Jubail & Yanbu, which controls two major industrial complexes located on Saudi Arabia’s east and west coasts. It is responsible for infrastructure provision, environmental protection and security in the cities, but the scale and nature of the industries are entirely different.

Whereas the giant industrial cities of Jubail and Yanbu focus on hydrocarbons-processing activities, the industrial sectors represented in Modon’s cities include food and beverages, textiles, building materials, paper, wood and manufactured metals.

The 14 cities vary in size from as little as 3 million sq m to 25 million sq m. Modon continues to increase the number of cities, as half of the existing sites no longer have sufficient room for new factories. To this end, it has allocated an undeveloped total area of more than 458 million sq m for the establishment of nine new industrial cities, which are at various stages of development.

As part of these plans, in 2008, the authority initiated the development of four industrial cities, including Jizan and Arar, and the modernisation of several existing ones at a cost of SR1.5bn. In total, 407 plots of land covering 16 million square kilometres were allocated for development, with an estimated SR24bn in capital investment.

Also included were five land-allocation contracts, which were agreed at the end of December 2008, for investment projects totalling SR420m in Dammam 2nd Industrial City. The first deal was signed with the Saudi German Plastics Manufacturing Company to set up a plant on a 21,000 sq m plot.

The second contract was with the local Al-Mutlaq Service & Manufacturing for a 26,000 sq m area to produce automotive parts such as clutches and radiators.

The third plot of land was allocated to the local Teikyo Middle East Electricity & Equipment Factory to build a 200-unit-a-year electric rotary motor plant.

A fourth plot was signed over to Vital Chemical Factory, also local, for the production of laboratory equipment, while the fifth contract was signed with the local Arab Company Factory for Plastic Pipes.

Following these land allocations, Modon launched three further industrial cities. Two are located in the south, at Al-Baha and Makwah, and will cover 3 sq km and 6 sq km respectively. The other city, which will cover 4 sq km, is at Gurayat, near the Jordanian border in the north of the country.

On 5 January this year, Modon announced a shortlist of 10 developers for the planned Sudair City, a $40bn project that, under current plans, will eclipse even King Abdullah Economic City in size and house 1 million people. The shortlisted developers will be invited to submit their proposals by early March.

Despite project delays hitting megaprojects across the Gulf, Tawfig al-Rabiah, director general of Modon, says Sudair City is progressing according to plan. Details of the city master-plan, which is being designed by Singapore-based construction consultant Jurong Inter-national, have not been officially released.

However, plans for the city are understood to include a combination of commercial, industrial, residential, technological, sport and leisure components.

One of the more unusual projects that falls under Modon’s remit is the plan to establish industrial cities that will be located alongside the prisons in Al-Haer, to the south of Riyadh, and Jeddah.

Modon aims to attract up to SR1bn in investment for the Jeddah project and SR2bn for the Al-Haer scheme. Companies will be encouraged to set up more than 80 light-to-medium industrial factories, which will employ prisoners, on 1 sq km sites. It is hoped that the first plants will be operational by 2010.

These projects are being carried out in conjunction with the Saudi Prison Directorate and will perform a dual role in boosting the kingdom’s industrial output, as well as aiding the rehabilitation of offenders.

In the past, Modon has offered tax breaks to foreign investors to encourage investment in its industrial cities. These have to be sanctioned by the Council of Ministers (cabinet). Modon hopes the government will again look at offering incentives for domestic investment, such as salary contributions, electricity subsidies and business start-up loans.

The investments are not limited to setting up manufacturing plants. The zones also require commercial, residential and support services, such as hotels and medical centres.

In the 30 years since Saudi Arabia’s second economic development plan called for an indus-trial revolution, the kingdom’s manufacturing sector has grown almost 10-fold. In 1975, there were about 472 factories in operation. By the end of 2008, that figure had risen to 4,072.

Invested capital in the industrial sector has also climbed, rising from SR9.9bn to SR343.3bn over that period. Modon can be thanked for nearly three-quarters of these investments.

The authority has created employment for thousands of nationals, and these jobs are dispersed around the kingdom, which has eased some of the migrationary pressure on the large conurbations of Riyadh and Jeddah. These social benefits will continue to be felt, particularly once Modon’s prison projects are up and running.

TABLE: Industrial investment (SRm)

Source: Modon