Saudi City Project Calls in the Musicians as Growth Lags

(Bloomberg) -- On the Red Sea coast of Saudi Arabia, a new city in development is struggling to rise to the ambitious goals set by its founders. Time to call in the musicians.

A concert by Egyptian singer Tamer Hosny on Friday is part of King Abdullah Economic City's effort to burnish its tourism credentials as its tries to attract businesses, residents and investors. The city, population 6,500, also aims to bring in 1 million visitors this year with a slew of new attractions and hotels.

"The idea is to increase interest, spending and create jobs in the city that will translate into more residents," said Fahd al-Rasheed, chief executive officer of Emaar Economic City, which is developing the privately funded project.

At stake is more than the future of KAEC, planned as a city for 2 million on a site the size of Brussels. Saudi Arabia is seeking to develop a number of so-called economic cities as part of a broader plan to diversify the kingdom's economy away from oil. In October, Crown Prince Mohammed bin Salman announced plans to build a new city known as NEOM further up the Red Sea coast near the Egyptian resort of Sharm el-Sheikh. Other projects such as Knowledge Economic City in Medina and Crown Prince Abdulaziz bin Mousaed Economic City in Hail in the north have struggled to get off the ground.

Tourism ‘Intention'

For now, the emphasis on tourism is “an intention rather than a coherent strategy” at KAEC, said Ayham Kamel, head of Middle East and North Africa at political risk consultant Eurasia Group. “Besides building the hotels and the branding effort, there's got to be a clear outline of who are they trying to attract. This is not something necessarily thought of as a tourism destination, nor was the city built as a tourism city."

While Dubai has shown that there's tourism money to be made in the Persian Gulf, creating a new Saudi leisure hub will be more challenging in a religiously conservative country that's much harder to visit than its neighbor. While regulations for tourist visas are awaiting government approval, the crown prince's push toward a more “moderate Islam” in the kingdom is still in its early stages and the recent arrests without charge of businessmen and royal family members have raised red flags for investors.

Mixed-Gender Audiences

Emaar Economic City is a joint venture between the Saudi government and Dubai's Emaar Properties PJSC. CEO al-Rasheed said the company is working on 45 leisure and tourism projects, 30 of which are set to be completed this year. It has also set up an office to attract exhibitions and shows and it's working with the kingdom's entertainment authority to host events that it promotes, including those with mixed-gender audiences.

KAEC, named after the former Saudi ruler, covers 181 square kilometers (70 square miles) of desert. When plans were laid in 2006, it was envisioned as a logistics and manufacturing hub, with a seaport and an industrial zone. While the seaport and one hotel are in operation and a some residential buildings have been completed, the development has been slow to attract investors to a place that's 120 kilometers (75 miles) from the nearest large city, Jeddah and doesn't have its own airport.

“KAEC is supposed to be built out with the private sector in mind, with infrastructure only built as it's funded,” said Emily Hawthorne, Middle East and North Africa analyst at Texas-based advisory firm Stratfor Enterprises LLC. “That will prevent the area from becoming a total ghost town. Rather, it will just be much smaller than intended for years to come."

Rent Free

Aware of a need for inducements, Emaar Economic City is offering free office space for five years to companies that move to the city as well as partnerships for development joint ventures, according to the CEO. For third-party investors, that could include subsidized land or risk-sharing.

Emaar Economic City has invested 2 billion riyals ($533 million) so far in infrastructure, including a race track, golf course and wellness center, al-Rasheed said. "We have almost 1.7 billion riyals in cash and more than 2 billion riyals in unused credit facilities, so for now we are very liquid."

KAEC will have a station on the Haramain high-speed railway connecting Mecca and Medina. The 60 billion-riyal project is on track to be fully operational this year, Arab News reported, citing Transport Minister Nabil Al-Amoudi. The train trip will take about 35 minutes from downtown Jeddah and about an hour from the two holy cities, according to Emaar Economic City.

Despite Saudi Arabia's slowness to open up to foreign visitors, KAEC's focus on tourism makes sense, considering the country's population of 32 million, Hawthorne said. “Unlike the other GCC states, which have very small populations relative to their larger neighbor, Saudi Arabia has tens of millions of Saudis who are already or could be interested in traveling within the kingdom," she said. "But as an organic hub of residential and commercial activity, it is far from achieving its goal."

Knowledge Economic City is even further from being a reality, she said. Because its development will compete with that of NEOM, a much more prominent smart city project the government has been showcasing, “I'm less optimistic about it ever taking off in a meaningful way,” Hawthorne said.

To contact the reporter on this story: Sarah Algethami in Riyadh at salgethami@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Ross Larsen

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