King Abdullah Economic City (KAEC), a special economic zone on Saudi Arabia’s Red Sea coast near Jeddah, expects its inflow of new corporate tenants to speed up this year as the economy proves resilient to low oil prices, KAEC’s managing director said.
The fate of KAEC is a barometer of business confidence as the Saudi economy copes with a drastic drop in oil revenues this year. The zone is also important for the kingdom’s long-term efforts to diversify its economy beyond oil into manufacturing and trade.
So far the government has kept the economy growing robustly by drawing down its reserves to spend heavily, and Fahd Al Rasheed said he had not seen any pull-back by companies seeking to set up logistics and light manufacturing operations at KAEC.
“We’re not seeing any significant impact on demand from the oil price. Domestic consumption is growing and government spending is strong,” he told Reuters on the sidelines of a business conference.
KAEC expects to attract about 50 new companies to establish operations this year, versus 35 last year, and thinks it will sell around 2,500 residential units in 2015, roughly the same level as in 2014, Rasheed said.
The port, which aims to become a hub for the region, is on track to reach annual capacity of 4 million twenty-foot equivalent units next year from 2.7 million now, he added.
The city’s population is now about 3,000 people; it is expected to roughly double this year and hit 50,000 by end-2020, rising to the ultimate target of 2 million around 2035.
Although the project is planned and supported by the government, it is being developed by publicly listed firm Emaar the Economic City (EEC), where Rasheed is chief executive.
EEC is a consortium headed by Dubai’s Emaar Properties and Saudi investors – the kind of public-private partnership with which the kingdom hopes to develop industrial infrastructure in a cost-effective way.
EEC’s net income attributable to shareholders rose 72 percent from a year earlier to 85.7 million riyals ($22.9 million) in the first quarter of this year, as revenues gained 39 percent to 229.6 million riyals.
On June 3, KAEC will hold an conference in Riyadh to attract investment, aiming to draw about 500 companies from around the six-nation Gulf Cooperation Council, Rasheed said.
In addition to outright sales, it is open to the idea of discussing third-party arrangements in which it might co-invest with KAEC tenants.
Educated in Saudi Arabia and the United States, Rasheed joined KAEC in January 2008 after working at national oil giant Saudi Aramco and the Saudi Arabian General Investment Authority.
He said business sentiment in Saudi Arabia was improving, partly because the country was undergoing a process of “de-bureaucratisation and meritocrisation” linked in part to the accession of King Salman in January.
Since he came to power, Salman has conducted two major cabinet reshuffles and streamlined the economic policy-making aparatus by abolishing some committees and councils. The government has moved forward with some sensitive economic reforms, such as a plan to tax undeveloped land.
Changes to the structure of government in recent months indicate the authorities are working towards more efficient government and a smaller bureaucracy, Rasheed said.
“The best of the best are being put in ministries and administration, and then being held accountable.”