A guide to doing business in Saudi Arabia: industrial cities

This article is from MEED.com

The primary aims of this strategy are to reduce the kingdom's dependence on oil and to create employment for its expanding youth population. With the average age in the kingdom of 24.9 years, and with about 47 per cent of the population under the age of 18, much needs to be done to ensure employment for young people when they leave school, college or university.

Since the 1970s, Riyadh has sought to use the kingdom's vast hydrocarbons resources as a catalyst to fund and fuel plans for diversifying the economy. Developing a downstream industry is crucial for the kingdom's growth.
The original focus of this strategy was the development of two industrial cities in 1976 in Jubail on the Gulf coast and Yanbu on the Red Sea coast.

In the mid-2000s, Riyadh launched an initiative to extend this programme through the development of several new economic and industrial cities across the kingdom. This focused primarily on the development of six key industrial sectors: metals and minerals; automotive; plastics and packaging; consumer appliances; and construction materials, including solar energy products.

One of the biggest challenges in terms of attracting investment to the new economic cities has come from the incredible success of the twin industrial cities of Jubail and Yanbu, which are run by the Royal Commission for Jubail & Yanbu (RCJ&Y). Many companies would prefer to be based in those cities rather than risk setting up somewhere else.

Jubail and Yanbu make up 11.5 per cent of the kingdom's non-oil gross domestic product and employ 107,000 workers. The RCJ&Y has invested about $22.4bn on developing the cities and 233 industries are now located there. To date, the total investment in these industries has been more than $180bn. According to regional projects tracker MEED Projects, schemes worth another $120bn are at the study, design, tender or construction phase.

The RCJ&Y has also taken ownership of the Ras al-Khair Minerals City that has been developed 60 kilometres north of Jubail. It is designed to add value to the kingdom's minerals resources and has developed fertilisers and aluminium as its anchor industries.

Away from Jubail, Yanbu and Ras al-Khair, the responsibility for developing the rest of the kingdom's industrial cities falls to Saudi Industrial Property Authority (Modon) and Saudi Arabian General Investment Authority (Sagia).

Modon was established in 2001 and currently oversees 28 cities that are either fully operational or under development. These include sites at Riyadh, Jeddah, Dammam and Qassim, as well as developments in Mecca, Medina and Hail.
Several of the cities operated by Modon have been operational for many years. They resemble industrial parks of the type found anywhere in the world and range in size from 3 million square metres to 25 million square metres. The cities accommodate many small industries such as textiles and food production.

Modon has proved to be effective at promoting expansion in smaller industries, but Sagia's plans are more ambitious in scope. Sagia plans to develop four massive industrial areas, each costing up to $27bn. They are the King Abdullah Economic City (Kaec) near Jeddah, Jizan Economic City (JEC) in the southwest of the kingdom, Prince Abdulaziz bin Mousaed Economic City near Hail, and Knowledge Economic City near Medina. These cities are being developed specifically to encourage investment in areas away from the traditional economic centres of the kingdom.

Initial take-up of industries looking to move to the four new cities has been slow, but there are now some large projects under development that should provide anchor industries to attract further investors. The projects include the $3bn Al-Rajhi Steel complex being developed at Kaec and the $7bn Jizan refinery project at JEC.

The kingdom is starting to boost its diversification plans and the continued development of economic cities of all sizes is an important contributing factor to the success of this strategy. Having world-class infrastructure is vital to attracting foreign investment and the Saudi government is aware that providing the right environment for growth and investment through its economic city plans will go some way towards achieving that goal.

This article is part of MEED magazine's Doing Business in Saudi Arabia Guide, for more information please visit MEED.com