Government admits projects did not realise their potential
Riyadh says in its Vision 2030 document that it will work to salvage its economic cities programme, after admitting that the projects have not met their full potential.
The cities were launched in 2006 and 2007 as a key component of Riyadhs strategy to diversify its economy. Construction work has progressed on the King Abdullah Economic City (KAEC) at Rabigh as well as Jizan Economic City (JEC). On the other projects, progress has been slow.
A site perspective of King Abdullah Economic City in Saudi Arabia
In the Vision 2030 document, the government says: We are aware the economic cities of the past decade did not realise their potential. Work has halted in several cities, and others face challenges that threaten their viability. We will strive to salvage other economic cities, especially those with comparative advantages.
One economic city that has already been restructured by the government is JEC. MEED reported in March 2012 that Saudi Aramco would take over two major infrastructure projects at the development in the southwest of the kingdom in order to speed up work. Both schemes are vital to a $7bn refinery being developed by Aramco at the city.
For the other economic cities, the government says it will work with existing investors to reinvigorate the projects. We will work with the companies owning those cities to revamp them and transfer vital facilities, the 2030 document says. "This effort will depend on the readiness of these companies to work with the government.
King Abdullah Financial District
Another major project the government plans to salvage is King Abdullah Financial District (KAFD). It is understood that the development in Riyadh is about 70 per cent complete, and the developer is struggling to lease space to financial institutions.
Riyadh says the problems stem from historical decisions: In the past decade, works started at [KAFD] without consideration of its economic feasibility. The objective was to prepare the land in order to allow the business and financial communities to invest and build real estate.
When this objective was not reached, the government decided back then to develop and rent the real estate. Challenges were deepened by the development of the real estate project in one single phase, which caused a significant increase in construction costs and several delays in delivery.
This resulted in large oversupply of commercial space for the years to come. Without any dramatic shift in direction, renting the 3 million square meters of built-up areas at reasonable prices, or even achieving decent occupancy rates, will be very challenging.
In an attempt to make the scheme more successful, the government plans to repurpose some of the built-up areas and change the real estate mix, increasing the allocation for residential accommodation, services and hospitality areas.
KAFD will also be home to the Public Investment Fund (PIF), which Riyadh says is to become the worlds largest sovereign wealth fund. This will attract financial and other companies to establish offices there.
The government also plans to directly connect it to King Khaled International airport in Riyadh and turn the district into a special zone with competitive regulations and procedures, as well as visa exemptions.
New economic cities are also planned. In January this year, MEED reported that the Council of Economic Affairs & Development had set up a committee comprising seven ministries and government departments to study the feasibility of establishing two economic cities in the kingdom.The proposed economic cities will be developed between King Khaled airport and King Abdulaziz International airport in Jeddah.
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