Think Big: Economic Diversification Drive Meets Future

The Kingdom of Saudi Arabia is the scene of undertakings on a massive scale – not quite appropriate for those accustomed to a more gradual approach to development. With a new king and a forward-looking government, the impetus to embark on an accelerated development drive has received a strong boost.

The flagship project, underway since 2005, is King Abdullah Economic City (KAEC), about a hundred kilometres north of Jeddah, the kingdom’s traditional commercial hub. Built around a new port with a capacity to pass through 19m teu (twenty-foot equivalent units), the city covers 173km2 of prime real estate along the Red Sea coast and is designed to welcome up to 600,000 inhabitants once its first development phase has been completed.

KAEC sits at the very heart of the kingdom’s economic future with a free zone of 63km2 able to host close to 3,000 businesses ranging from light manufacturing to services, research and development, and a “plastics valley” reserved for chemical concerns that use the raw and semi-processed inputs readily available in Saudi Arabia to produce high-end plastics for use in the automotive, food-packaging, biomedical, and construction industries.

A number of big-name brands have already claimed a stake in the industrial zone with Mars, Pfizer, and Danone leading the way.

Ports Expansion

The King Abdullah Port (KAP), already in operation and currently equipped to handle 3m teu, is the first Saudi harbour facility to be managed by the private sector – yet another sign that the government in Riyadh is making headway with the implementation of the much-discussed economic reform agenda. KAP is controlled by the Ports Development Company – a joint venture between Saudi BinLadin Group, the kingdom’s largest contracting company, and Emaar The Economic City – the KSA subsidiary of Dubai’s largest real estate developer Emaar Properties.

KAP Managing Director Abdullah Hameedadin explains that the port will eventually comprise two large basins with its layout taking a cue from Laem Chabang in Thailand, only double the size. The new port will put Saudi Arabia on equal footing with Jebel Ali Port in Dubai, the region’s largest trans-shipment facility. Maersk Line and Mediterranean Shipping Company – since January united in the 2M Alliance – are already now diverting vessels to KAP.

However, local traders have been less keen on moving their business away from Jeddah Islamic Port (JIP), completed in 1976 and still the kingdom’s biggest port, to the new facility up north. Mr Hameedadin expects this reluctance to wane as competitive pressure mounts. While JIP is currently not operating at full capacity, it is expected that the upswing in non-traditional exports will choke the port within a few years. Due to its close proximity to Jeddah, the port is unable to expand and suffers from a clogged-up transport infrastructure.

Other ports along the Red Sea coast are now also picking up additional trade. Yanbu is experiencing a boom thanks to the vastly expanded petrochemical processing plants nearby while new ports are planned in Jizan, for the export of refined oil products, and Al-Lith, to catch the overflow from JIP.

Bridge Spanning the Peninsula

Jeddah, Saudi Arabia: Kingdom Tower
Jeddah, Saudi Arabia: Kingdom Tower

Meanwhile the Saudi Landbridge Project is at long last taking shape after a consortium of seven Saudi companies and Australian rail freight and port operator Asciano was unable to agree on the financials of the $7bn undertaking. Suffering from delays, the project is now back on track as the Saudi government stepped in to take over. The Saudi Landbridge will provide a high speed rail connection between the Arabian Gulf and the Red Sea by upgrading 450km of existing track and building a new line of 115km between Dammam and Jubail on the kingdom’s northern shore.

The rail corridor will link the commercially vital western regions of Saudi Arabia with the oil-rich east and is widely expected to transform the way cargo is moved in and around the Arabian Peninsula and will impact existing supply chains by cutting the time freight takes to travel between the two shores of the kingdom from 5-7 days to less than 18 hours. The Saudi Landbridge is now scheduled for completion in 2020 and constitutes an essential component of the megaprojects currently underway, tying them together and providing a fully integrated transport solution to the hundreds of companies expected to shortly descend on the kingdom to benefit from its new economic zeal.

That zeal is impressive indeed with more than eighty projects, each valued at $1bn or more, already underway or planned to be completed before 2030.

Reaching for the Sky

In Jeddah, the city’s skyline will be enhanced by the world’s tallest building – the Kingdom Tower – rising more than a kilometre skywards from a foundation reaching 60m into the desert floor. The $1.2bn building – upon delivery the world’s tallest man-made structure, eclipsing the Petronas Towers in Kuala Lumpur by fully 550m – forms the centrepiece of Kingdom City, the ambitious expansion of KSA’s dominant commercial hub. Equipped with 59 lifts travelling at up to ten meters per second, the Kingdom Tower requires up to 80,000 tonnes of steel and 500,000 cubic metres of concrete to build.

Meanwhile in Riyadh, contractors are racing to complete the congested city’s first metro system in a record time of barely four years. The underground will eventually boast six lines and form the backbone of an all-new rapid public transport network expected to cost northwards of $22bn.

King Abdullah Economic City is to receive a twin in Jazan Economic City, focused on agribusiness and heavy industry. Located in Jizan Province, in the kingdom’s southwest, the city is being planned for up to 300,000 inhabitants and will draw in raw materials and labour from across the infrastructure-deprived and underdeveloped region. The first development phase of the new hub is budgeted at $27bn.

Continuing with supersized projects, the Knowledge Economic City near Madinah is to become the kingdom’s main hub for academic pursuits, research and development, and culture. The new city will welcome up to 200,000 inhabitants and provide over 20,000 jobs to research specialists, lecturers, professors, and other educators. The project is budgeted at $7bn initially – a figure that will balloon once secondary development phases are implemented.

Limits of Transformation

These huge building projects, on a scale that defies human imagination, are to push Saudi Arabia well into the realm of highly developed countries and to the forefront of innovation and scientific research. Worldwide, economists and sociologists are currently debating whether the top-down transformation of an already prosperous nation has any chance of lasting success given that some pushback may be expected from inward-looking forces grounded in tradition.

The risk is not minor. The ambitious modernisation drive, based on a diversified economy empowered by education and research, must reconcile its goals with the pact formed 270 years back in Diriyah where the Saud Tribe joined forces with the clan of Mohammed bin Abd Al-Wahhab, an influential preacher who held on to a strict interpretation of the Koran and declared anything that deviated from this the work of the devil. The founding father of Wahhabism forbade the faithful from idolising monuments, worshipping saints, and listening to music.

The pact sealed in Diriyah still constitutes the bedrock of today’s kingdom in which the Saud family represents the worldly establishment while the Wahhabi doctrine forms the clerical elite. It also helps explain why Saudi Arabia does not allow other religions to build shrines and churches in its territory. Saudi diplomats often explain that their country is not a nation in the conventional sense, but home to the two holy mosques – of which the king is the official keeper – and as such more akin to the Vatican.

While the transformation now in the works will undoubtedly lead to a more diverse society, potentially causing friction with the clerics, King Salman has indicated that he by no means wishes to alter the Diriyah Pact. In one of his first acts upon assumption of power, King Salman appointed an archconservative as head of the religious police – guardians of Wahhabism – and reinstated two legal scholars who had been sacked by his predecessor, King Abdullah, for opposing reforms.

The quandary of embracing the future while looking at the past is one which has so far not been addressed. As a new generation, raised in prosperity and well-educated, bites at the societal bit, the pressure for further reforms will increase