Goodbye oil, Saudi Arabia’s future economic growth will come from its mega-cities

Saudi Arabia’s economy is entering a post-oil era in which the kingdom’s mega-cities, a number of which are under construction, will provide the country’s future growth, Riyadh officials told CNBC on Tuesday.

Fahd al Rasheed, managing director and chief executive of King Abdullah Economic City (KAEC), the world’s first publicly listed city, spoke to CNBC at the World Economic Forum (WEF) in Davos, Switzerland, on Tuesday.

“We are now in the business of building cities,” he said. “We are talking now about moving to a┬áservice economy post oil, and I think the economic driver in the future in Saudi Arabia is going to be these mega-cities.”

Al Rasheed said the economy was transforming away from oil.

“The message is that we are entering a post-oil era in which we are diversifying the economy. We had a hard 2016 to 2017 in terms of economic growth, but I think 2018, with the highest ever government budget announced in the kingdom’s history, (it should improve),” he said.

“We have seen as a post-oil economy, also lots of growth in areas like the port industry, leisure as well as residential (construction), so we truly believe in the post-oil era and I believe we’re going in the right direction there.”

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Al Rasheed is overseeing the creation of KAEC, a port and manufacturing city on the Red Sea that, it is hoped, will boost Saudi’s trade relations with the rest of the world. The city was founded in 2006 by King Abdullah bin Abdulaziz Al Saud, the former king of Saudi Arabia, although it is not yet complete.

The ambition behind the new industrial city was for it to play a part in Saudi’s economic transformation beyond a predominantly oil-based economy. With a national population forecast to double to 1.5 billion by 2050, Riyadh officials believe that the Red Sea region has the potential to be a major growth driver for the global economy.

It’s not the only mega-project that Saudi Arabia has in mind. Late in 2017, the Saudi government announced that it was going to build a $500 billion mega-city, with the goal of diversifying its economy to focus less on crude oil. Called NEOM, the city is planned to run on 100 percent renewable energy. It will be funded by the government and private investors.

A scale model showing the plans for the eventual size of the King Abdullah Economic City on April 07, 2016 in Jeddah, Saudi Arabia. The King Abdullah Economic City (KAEC) is a massive project to create a port and manufacturing city on the Red Sea

“Nobody knows how it (NEOM) will look because no-one has ever built anything like this before,” al Rasheed told CNBC, adding that it was a difficult project.

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“I’ve been in the business for a decade now with KAEC, and it is hard, it’s hard to attract people, but it is NEOM and it has the kingdom’s and Crown Prince’s backing.”

Goodbye oil

Saudi Arabia has announced recently a raft of economic and societal reforms under the aegis of Crown Prince Mohammed bin Salman as part of the kingdom’s move to diversify itself away from its traditional, but volatile, oil-based economy.

Energy Minister Khalid al Falih told CNBC earlier on Tuesday that the kingdom had been “transformed” on an economic level.

“Our message to investors is that the kingdom is transformed, we’re serious about change, it’s comprehensive change,” he said.

“(We need to) not only be ready for the future but to create the future through initiatives that are not only around our traditional strength in oil and gas, which we’re going to build on, but also about creating new industries, through mining, through more advanced manufacturing, through tourism and at the same time socially there are a lot of reforms – all of these are coordinated and they’re bringing a lot of hope,” he said.

Source Credit: CNBC

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