Renewed impetus on economic cities

12 July 2011

Riyadh drives forward development with funding, but how much is it willing to spend to ensure its future?

Saudi Arabia’s ambitious plans to build six economic cities were launched during the oil boom of 2005-08. During this time the construction industry was booming and the region’s oil producers were looking at ways to plan for the future and diversify their economies.

Riyadh saw the economic cities as an ideal way to increase the role of the private sector and international companies in the kingdom, and the developments were designed to be funded with private investment.

The government also believed they would create jobs with minimal state spending.

Two years later, the global recession was in full swing and private investment in the region dried up. The collapse of the Dubai real-estate market resulted in a loss of confidence in regional megaprojects. As a result, little progress has been made with the economic cities and at least one of the schemes has been dropped.

Riyadh’s recent decision to pump a SR5bn ($1.3bn) loan into the $27bn King Abdullah Economic City, the first proposed economic city, and provide a gas allocation for the $3bn Al-Rahji steel plant planned for the city shows that the government is keen to give renewed impetus to the slow moving schemes.

With firms unlikely to rush forward to invest in the cities without a solid infrastructure in place, the future of the schemes may depend on how much Riyadh is prepared to spend.

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