08/10/2010

Saudi Arabia’s Economic Cities: Islands of Change in the Land of Black Gold

Still today, oil remains the key to Saudi Arabian economic success and the backbone of the region’s might on international markets. Rightfully so, global demand for crude oil has relentlessly risen in recent years, causing Gulf economies to boom and Saudi Arabian oil revenues to remain sky high, with an estimate of USD165 billion for 2007 alone.

Nevertheless, Saudi officials are well aware that excessive ‘oil-dependency’ is a risky business in an increasingly globalised and diversified global economic scene. Oil reserves will dry out sooner or later. Increasing resort to alternative sources of energy is hampering the traditional oil monopoly on energy markets. Like all good things, the success of oil-dependency cannot last forever.

As during any prosperous phase, Saudi Arabia’s oil-Driven economic boom has allowed the Kingdom to make plans for the future and look to secure other reliable, long-term non-oil export options.

A plan to build four economic cities across the Kingdom of Saudi Arabia was thus been put forth by His Excellency King Abdulaziz Al Saud in 2005 and will be monitored by the Saudi Arabian General Investment Authority (SAGIA), in the context of the ambitious “10-10 Programme”. The aim of this programme is to transform Saudi Arabia into a top ten competitive investment destination worldwide by 2010.

According to SAGIA, these new economic cities will provide economic diversification necessary to move GDP away from the oil exploration sector, over 1 million new jobs and homes for over 4 million residents, while contributing around USD150 billion to the Kingdom’s GDP by 2020.

King Abdullah Economic City, the largest of the six economic cities, to be built between the Holy cities of Mecca and Medina and the economic hub of Jeddah, will provide a sea port, an industrial valley, an educational zone, a central business district, a financial island and a residential area. It will trigger, alone, an estimated 1million jobs and be home to over 2 million residents.

However, these mega-projects are not without their share of challenges. According to Abeer Allam, reporter for the Financial Times, “the success or failure of the economic cities is tied to their capacity to generate jobs, particularly jobs for Saudi nationals […] [which] is a matter of national security”. But, with the bulk of these economic cities yet to rise from the ground, industrial relocation and, ultimately, job creation have been postponed for a few years. This has led to rising unemployment (despite constant economic growth) and the relocation of some companies’ headquarters in other countries of the region following strict measures to limit foreign recruitment in Saudi Arabia.

To compete on international markets, these cities will have to attract foreign investment en masse and offer an appropriate and competitive ground for the relocation of foreign investors.  But these objectives will be difficult to achieve if the strict rules and restrictions applicable elsewhere in Saudi Arabia are not adapted to the nature of these internationally-oriented economic cities.

A lot thus remains to be done if Saudi Arabia is to secure its future as an influential global economic player. The building of these 21st century economic cities has brought about a number of challenges that will need to be overcome. While these islands of change may have what it takes to offer a sufficiently robust platform to survive in a country of oil, time is counted; world markets will not wait.

Andrew Bower