Saudi Arabia’s commercial class looks to future

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AL Monitor December 23, 2013

By Parag Khanna

JIDDAH, Saudi Arabia — Saudi Arabia has been making headlines these days for its opposition to the US-led negotiations with Iran over its nuclear program. Should Iran genuinely halt its nuclear program and take advantage of reduced sanctions to gradually reintegrate peacefully into the region, there could be a significant geopolitical realignment in the Middle East. Compounding Saudi fears is the rapidly diminishing Western need for its oil reserves as the US taps massive shale gas deposits, in addition to many countries seeking to transition away from oil. Combined with the continued instability surrounding it — from Egypt to Syria and Iraq — the Saudis are rightly paranoid about a scenario of diminished strategic relevance.

Yet there is another story emerging from Saudi Arabia, one barely visible to those who travel only to Riyadh or the Eastern military and oil compounds such as Dhahran and Dammam. On my first visit to Jiddah, the country’s commercial capital located in the far west on the shore of the Red Sea, I witnessed a thriving business environment and huge expansion of infrastructure both to create jobs and diversify the economy, and to manage the millions of annual visitors performing the hajj. Flights into Jiddah are packed with Arab and Western business travelers, even in the low season for pilgrims to nearby Mecca.

Like other Arab countries, Saudi Arabia faces a demographic crisis. Its population has grown from 3 million in 1950 to 30 million today — with half the population below the age of 25. The country needs to double its housing capacity from 4 million to 8 million units by 2020. Around Jiddah, one can see the effort underway at a pace unmatched in the Arab world. The relatively mellow seaside oasis is now a bustling city of over 3 million residents and a hub for an archipelago of new urban developments stretching hundreds of kilometers north and south.

One particular project stands out as best reflecting Jiddah’s unique model: King Abdullah Economic City (KAEC). Inside a rigid monarchy, KAEC stands out for being a fully private undertaking funded by an IPO, attracting major business investors and residents into a hybrid city that combines a special economic zone of targeted industries and neighborhoods capable of housing upward of 2 million residents. In late November, KAEC played host to the CityQuest summit of the New Cities Foundation (of which I am a trustee). Touring the facilities, the scale of ambition already being executed became clear. According to Fahd Al-Rasheed, CEO of KAEC, “This is the first true full privatization of an integrated city at scale. We aim to become a global logistics hub and regional manufacturing center for industries ranging from pharmaceuticals, consumer goods, automotive assembly and plastics.”

KAEC is nothing less than a monumental investment to engage and educate future Saudi generations, elevate the national economy beyond petrochemical dependency alone and leverage the country’s strategic Red Sea geography. At present, 70% of goods offloaded at Dubai’s Jebel Ali port are destined for Saudi Arabia. But with the construction of an ultramodern new port at KAEC, shipments from both Europe and Asia will have a much more convenient port near the Suez Canal, through which 25% of the world’s shipping cargo passes each year. For this reason, Jaguar Land Rover has announced plans to construct a new assembly plant at KAEC, making it the regional hub for exporting high-end cars both to other Arab countries as well as to the Mediterranean region. This is only appropriate, since Jiddah is where the campaign for female drivers in Saudi Arabia began and has gathered the most steam. Economic opening and investment always brings about change, however small, in the social fabric. Saudi Arabia will be no different. Jobs in education, healthcare and administration will increase — and women will have to fill them, especially as the country seeks to displace as many of the foreign workers as it can to reduce Saudi unemployment, which is four times higher among women than men.

Projects like KAEC also contain the seeds of a diversified Saudi economy in which young Saudi men and women gain employment in the services and technology sectors. Thus far, more than 50 companies have bought into the land and begun to install factories and equipment. KAEC is also home to the country’s first dedicated innovation lab, Sinnova, and nearby is the King Abdullah University of Science and Technology, which was developed in collaboration with leading Western universities and focuses on innovation in environmental sciences and crop engineering, key areas for the post-oil and pro-employment Saudi economy. John Macomber, a professor at Harvard Business School who specializes in the financing of sustainable and competitive cities, commented, “KAEC can succeed if it continues to persuade investors that the regulatory and tax regime will be fast, efficient and transparent, and the business and social setting will be open and supportive. The test now is to see if these early seeds can flourish.”

New institutions and fresh opportunities are among the main drivers luring Jiddah residents northward toward KAEC, where they can enjoy the same cool Red Sea breeze without any congestion. As I jogged on the corniche at sunset, it was easy to imagine scores of young Saudis playing soccer on the verdant grass fields planted between Sinnova and the sea, or lounging in cafes by the sandy beach.

The Jiddah region is benefitting not only from new infrastructure, but a surge in the number of annual hajj pilgrims (over 2.5 million) and visitors to Mecca and Medina (over 12 million combined). The influx of religious tourists has generated a boom in the religious economy. Driving toward Mecca, I witnessed massive engineering projects to carve out new highways and roundabouts from the rocky hillsides — and surrounding the Grand Mosque itself, the leveling of three mountains to make way for gargantuan hotels as part of the Abraj al-Bait complex, complete with a clock tower that dwarfs big Ben. At all hours of the day as pilgrims perform the Umrah by walking in centripetal circles around the giant black Kaaba in the heart of the Grand Mosque, jackhammers pound away to construct a giant granite addition to the mosque, as well as two levels of elevated walkways around the Kaaba.

Within a decade, Jiddah will no longer be a distant and isolated entrepot. High-speed rail lines and 10-lane highways will forge a land bridge across the vast desert to connect to Mecca, Medina, Riyadh and beyond. But Jiddah also faces west, not only east. Jiddah will be the main destination for travelers crossing a proposed 30-kilometer (19-mile) Bridge of the Horns spanning the Bab al Mandab Strait separating Yemen from Djibouti, with twin cities called Al Noor on either side. When the project is complete, the two rapidly growing regions — Africa and Arabia — will be physically connected without having to traverse the unruly Egyptian Sinai. Eventually, a more robust road network in Africa could connect Addis Ababa and Khartoum over the strait all the way to Dubai, easing both trade with East Africa and travel to Mecca for Africans, the continent where Islam is gaining the most converts.

Saudi Arabia has withstood the convulsions of the Arab Spring because of its massive oil reserves and unquestioned royal authority, but both are now liabilities. As its population surges and requires more fuel domestically, oil exports will drop and the country will struggle to maintain the enormous spending needed to continue the infrastructure build-out, from new cities to desalination plants. Ultimately, creating new centers of economic and social dynamism will invigorate the kingdom, even as it devolves power gradually away from Riyadh.

Saudi Arabia shows multiple faces to the world. The House of Saud represents the country’s insecurity over the geopolitical environment, backing Sunni rebel groups across the region and negotiating via the Organization of the Oil Exporting Countries (OPEC) to retain the upper hand in global energy markets. Fundamentalist Wahhabi clerics project religious austerity and continued support for radical militias such as the Taliban. Jiddah’s commercial class is a third face few are familiar with, but in a world that is getting tougher on Islamist terrorist groups and diversifying away from OPEC oil, it is the side of Saudi Arabia the country should let take on greater leadership in representing the country’s future.

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Photo: Saudi Arabian women seeking a job stand in line during a job fair, Riyadh, Jan. 25, 2012. The Saudi government launched similar job fairs in Jiddah and Dammam. (photo by REUTERS/Stringer)

 

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