Prince Abdulaziz bin Mosaed Economic City: A spur to development

04 April 2008
Despite being launched almost two years ago, little progress has been made on the economic city at Hail. But that could change with the recent signing of an agreement.

Launched just six months after King Abdullah Economic City, Prince Abdulaziz bin Mosaed Economic City reinforced the kingdom’s latest drive to diversify its economy through the development of privately funded industrial centres.

Otherwise known as Rakisa Economic City, after its developer, the local Rakisa Holdings, or simply Hail Economic City, the 156 million-square-metre site will become the second-largest economic zone in Saudi Arabia and the largest transport and logistical services hub in the Middle East, with investment of $8bn over 10 years.

The city, which was approved by King Abdullah on 13 June 2006, is 720 kilometres northwest of Riyadh. Just one hour’s flight time from 11 Arab capitals, it occupies a key strategic position, traversing navigation, trade and transportation routes for the Middle East and the West.

It is to be implemented by a newly created investment group comprising local and regional investors, and will have six core activities including logistics and a supply chain zone, educational district, agriculture - 70 per cent of the region’s employment stems from agriculture - and a food-processing services area, mining services area, entertainment hub and residential district.

It is estimated the economic city will eventually house more than 300,000 people and provide 55,000 jobs in seven phases of development over the next 40 years.

Tourist attractions

The education district will cover 10 million square metres and includes colleges, research centres, schools and universities serving an estimated 40,000 students. An entertainment district will include hotels, shopping malls and associated tourist attractions. There are also plans for a dry port capable of handling 1.5 million tonnes a year of cargo, an inter-national airport and housing for 80,000 people.

However, Despite being launched almost two years ago little progress has been made on the construction and development of the site.In October 2006, MEED reported that the local Saudi Oger had signed an estimated SR500m ($133m) contract to carry out the first-phase infrastructure works. However, according to Saudi Oger, no work has yet been carried out.

There were also reports that Rakisa was awaiting approval from the Capital Market Authority to launch an initial public offering (IPO), to offer 30 per cent of its $1.3bn capital. Again, this has not yet taken place.

A source at the government organisation responsible for the cities, the Saudi Arabian General Investment Authority (Sagia), confirms it is still not clear when this will happen, but says it is expected some time this year.

According to another source close to the project, there are serious doubts over the scheme.

“Sagia is struggling with Hail,” says the source. “It has a resourcing problem and is moving incredibly slowly. It has found it more challenging than expected.

“The economic cities are all taking longer than originally planned, but Hail is the one lagging behind everything else. It has been suggested it is the least commercially attractive of all the economic cities.”

Accelerated growth

The same source says that while the concept is sound in theory, the accelerated nature of the kingdom’s development - it has launched six economic cities since 2005 - has placed significant strain on the kingdom, and may have revealed a lack of business acumen.

“I am not convinced the government thought through the whole economic city programme particularly well,” says the source. “Announcements were made one after the other.

“These are all multi-billion-dollar projects. The idea in principle is a great one; it just was not thought through properly.”

One Riyadh-based contractor suggests Prince Abdulaziz bin Mosaed Economic City suffers from the greater exposure enjoyed by Emaar’s King Abdullah Economic City, which was the first economic city to be launched, in 2006, and has remained the focus of public attention ever since.

“All the attention seems to be on King Abdullah Economic City,” he says. “That is the one that seems to be going forward, and the one that gets all the attention.”

But Sagia insists the project is being driven forward. “We launched King Abdullah Economic City first and true development only started this year,” says the Sagia source. “You have to understand, building a whole city takes time. It requires lots of planning, approval, design and royal decrees. It does not mean one takes priority over the other; it is just one came before the other.”

The development took a significant step forward in January with the signing of a memorandum of understanding by Rakisa and Dubai-based Jafza International, the global free zone operations arm of Economic Zones World, part of Dubai World.

This signing could provide a much-needed spur for the development. While details of the agreement are limited, the signing will enable both parties to explore investment opportunities to jointly develop the economic city.

“It is a relatively recent phenomenon, and they are still working out the details, but I expect once that is in place they will be able to move quickly,” says the source close to the deal, who adds that he expects the partnership to provide the necessary impetus for the IPO to also get under way.

But such a timelag between the project launch and tangible construction work is typical of a project the size of the economic city at Hail.

While evidence suggests little work is under way, progress has been made behind closed doors to establish an in-house structure that can take the project forward.

“It is not going slowly; it is the fastest-growing city in terms of available resources,” says the source. “It just takes time to develop - to get approval from the king, for example. You need a team and you need the masterplan approved.”

The masterplan is understood to be in the final stages of design, and once the in-house operations are set up, the project is expected to move forward.

Sagia refutes the suggestion that Jafza was brought in to stimulate the city’s development. “No, that definitely was not the reason,” says the Sagia source.

“The whole point of bringing in Jafza was to ensure that Rakisa had a partner. It is the best way to do it, as none of these companies have the background of developing a full city. You need the best support and we are capitalising on expertise.”

Investing in the city makes sense for Jafza and Sagia as, thanks to its position as master of the free zone authority in Jebel Ali, it understands ports and logistics.

Hail is the logistics hub for Saudi Arabia, connecting the east and west, and is well positioned to capitalise on the Saudi Landbridge project.

“We need a partner such as Jafza, it makes sense,” says the Sagia source.

Such partnerships have been the hallmark of the other economic cities being developed in Saudi Arabia.

Partnership deals

Emaar has joined up with Saudi Binladin Group and Saudi Oger on King Abdullah Economic City, while Jizan Economic City has signed partnerships with Malaysia’s MMC Corporation and Saudi Binladin.

Medina Knowledge Economic City has a developer consortium comprising the local Savola Group and King Abdullah Foundation, among others.

Supervised by Sagia, the Prince Abdulaziz bin Mosaed Economic City project will be headed by Rakisa, with a consortium of local and regional companies. These include Yousif bin Ahmed Kanoo Company, Ahmad Hamad al-Qusaibi & Brothers Company, Tanmiyat Group, Rashid bin Abdulrahman al-Rashid & Sons Company, Abullatif & Company Group, Al-Jouf (Muflih Kayid) Company and the Hail Investment & Development Company.

Regional investors include the Abu Dhabi Investment House, Gulf Finance House, General Warehousing Company, part of the Kuwait-based Public Warehousing Company (PWC), and Kuwait Investment Company.

At this stage, with little evidence of development taking place in Hail, it is easy to side with the view that Prince Abdulaziz bin Mosaed Economic City will struggle to materialise into the project it aspires to be, and that it is one project too far for the kingdom.

Yet steps are being taken to progress the project. Certainly, the memorandum of understanding with Jafza could prove an inspired business move.

What must be demonstrated is patience and a clear direction from Rakisa and Sagia to ensure one of the Middle East’s most important projects emerges from the shadows.

Key facts

  • Logistics and a supply chain zone.

  • Educational district.

  • Agriculture - 70 per cent of the region’s employment stems from agriculture.

  • Food processing services area.

  • Mining services area.

  • Entertainment hub and residential district.

Table: Prince Abdulaziz bin Mosaed Economic City

ClientProjectCost ($bn)DescriptionStatus
Rakisa Holding CompanyAgriculture and food processing sevices area1.25Commercial agriculture and food processing services areaTo be awarded end of 2008
Rakisa Holding CompanyEducational district1.25Development of 10 million-square-metre educational district to serve about 40,000 studentsTo be awarded end of 2008
Rakisa Holding CompanyLogistics and supply chain zone2naTo be awarded end of 2008
Rakisa Holding CompanyResidential district1Up to 30,000 housing units to cater to about 140,000 residentsTo be awarded end of 2008
Rakisa Holding CompanyEntertainment hub1.25naTo be awarded end of 2008
Rakisa Holding CompanyMining services area1.25naTo be awarded end of 2008

na=not available. Source: MEED Projects

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