GCC to invest in ‘new cities’ to tap growth

 

 

The work on the first, King Abdullah Economic City (KAEC, pictured above), has already commenced. The Saudi Arabian General Investment Authority (Sagia) recently approved the start of work on the final design of Prince Abdul Aziz bin Musaed Economic City in Hail. Positioned as the largest private-sector project in the region, KAEC has some ambitious targets, raising doubts about the viability of such projects.

The speculation is not about demand, which is firmly supported by the population growth projections at 2.5 per cent and the demographics biased towards the below 15 age group, it is about the ability of the concept to succeed in redirecting this available demand.

While some speculation about a concept that is unproven in the Kingdom is justified, the authorities could not be more confident. And rightfully so. An example of successful implementation of this concept has been the numerous economic and industrial cities in the star economy of the region, Dubai. One such entity, Dubai Internet City achieved break-even financial status in just two-and-a-half years after start up.

In the running

Other regional countries are also joining the fray, but the core focus depends on the strategic advantage of each country. For instance, with financial institutions estimated to reach 400 mark by the year end, Bahrain Financial Harbour is being developed as a city within the city.

Abu Dhabi, a rather recent entrant in the region’s race to build superstructures, already has many mega projects under construction or in the pipeline.

Complementing the Industrial City of Abu Dhabi, which is in a continuous state of expansion, are Mina Zayed, Lulu Island, Reem Idland, Saadiyat Island and Mohamed Bin Zayed City among others.

In fact, the top five active civil projects in the GCC with a combined value of $358bn (Dh1.3 trillion) are: King Abdullah Economic City in Saudi Arabia worth $120bn (Dh441bn); the $86bn (Dh316bn) Silk City project in Kuwait; the $53bn (Dh194.5bn) Prince Abdulaziz bin Mousad Economic City in Hail, Saudi Arabia, Dubai Investment’s $60bn (Dh220bn) Dubailand; and Abu Dhabi’s $39bn (Dh143.1bn) Yas Island.

These economic, industrial or mixed use cities, setting the stage for private investment by promising a conducive business environment supported by investment in infrastructural development, meet the pressing need for greater sector private participation across the region. For instance, the guiding principles of Dubai’s strategic plan 2015 for economic development revolve around building relationship, and partnership, with the private sector.

Hence, as a strategic initiative, these cities are closely aligned with government planning priorities across the GCC. Once again, in the case of Dubai, optimisation of land use and distribution to balance economic, infrastructure and social development needs is a stated government objective in the Dubai Strategic Plan 2015.

Reflecting speed and accuracy in project execution, Dubai Media City, Healthcare City, Motor City, and many others have helped sustain the growth of Dubai’s real GDP at a compounded annual growth rate of 13 per cent since 2000, way ahead of its GCC peers. Further, inflow of foreign capital and a change in regulations have been confirmed as the primary drivers of real estate and construction sectors in the UAE. Riding on this, Dubai hopes to realise a GDP of Dh397bn by 2015 and take employment to 1.73 million.

In Q3 2007, the Abu Dhabi Government revealed its Plan Abu Dhabi 2030, an urban structure framework master plan designed to guide the evolution of the emirate until the year 2030.

The plan provides specific recommendations on the most effective regulatory and institutional framework to manage future urban development – and the four focal areas: the new Central Business District (CBD) and surrounding islands, the Capital District at a key crossroads on the mainland, the Grand Mosque District at the southeast side of Abu Dhabi Island, and Lulu Island. The plan clearly highlights a leanings towards developing self-sustained cities.

Ensuring fairness in the distribution of economic growth in different regions of the country and meeting the requirements to encourage foreign investment and economic diversification is part of Oman’s decision to build self-contained metropolises such as the Blue City.

To further help break the psychological barrier against investing in the region are a whole gamut of incentives and sops.  

DIC offers foreign companies 100 per cent tax-free ownership, 100 per cent repatriation of capital and profits, no currency restrictions, easy registration and licensing, stringent cyber regulations, and stringent protection of intellectual property. Sagia has promised a one-window clearance for all six economic cities.

Strategic location

Care has also been taken to ensure that these cities and industrial lands are strategically allocated. Heavy industries surround the port area, putting them in close proximity to the in-bound materials that fuel them. High tech industries surround the airport, providing a clean, modern gateway image at this important entry portal.

In instances where infrastructure is not readily available in the vicinity of these new cities, it is being built to complete the picture. In the case of King Abdullah Economic City in Saudi Arabia, a port and an airport is part of the in-house infrastructure. Dubai’s new, upcoming airport in Jebel Ali is also a case in point.

Similar in concept, each city has different drivers.

The difference between KSA’s and UAE’s approach lies in the nature of demand.

While the need in KSA is to prevent the existing urban infrastructure from being overstretched any further, the UAE’s model is based on stimulating demand.

The UAE’s location in the early phase of development curve and its perfect timing has allowed it to target industries from the regional booming economies eager for more operational nodes as well as those from the matured markets looking for a gateway to the gulf region.

The projects in Oman indicate the reliance of the economy on tourism to generate the growth momentum.

However, all versions aim to provide enough employment opportunities to guarantee demand for the real estate. Another common feature is the concentration of specific industries that allow leveraging of synergies of scale in infrastructure and other utilities. By providing the entire range of lifestyle needs from schools, jobs, entertainment, housing to transport – developers hope to create enough critical mass to build a self sustaining momentum for these new settlements.

Dubai Media City and Dubai Internet City together are home for about 1,200 companies, while Dubai Internet City alone accounts for more than 10,000 knowledge workers.

Lest the local and international developers forget, the economic viability of the infrastructure created to add value to these communities is also dependent on creating a large catchment base.

Cities within a city

There are more than 10,000 people working in Dubai Internet City. It achieved break-even financial status in just two-and-a-half-years after start up. DIC offers foreign companies 100 per cent repatriation of capital and profits and easy registration.

The $86bn (Dh316bn) Kuwait’s City of Silk is one of the top five active civil mega-structure plans in the GCC with a combined value of $358bn (Dh1.3 trillion). The other four are in Saudi Arabia, Dubai and Abu Dhabi.

With financial institutions estimated to reach 400 mark by the year end, Bahrain’s Financial Harbour in capital Manama is being developed by the country as a city within the city.

Yas Island is Abu Dhabi’s largest resort development yet, which is expected to transform the 2,500 hectare island into a $40 billion (Dh146.8bn) world-class leisure destination.