Saudi Arabia’s Sandcastles

As part of Saudi Arabia’s push to diversify it’s economy, King Abdullah unveiled in 2005 a megaproject known as King Abdullah Economic City (“KAEC”). The idea is to build a brand new, 173 km²/66.8 sqm city on the coast of the Red Sea, around 100 km north of the Kingdom’s hub of commerce, Jeddah. Saudi Arabia is hoping to build a more geographically convenient alternative to Dubai in a bid to capture the commerce dollars, create jobs for its youth, and create a future beyond petroleum.

KAEC is just one of several economic cities planned for Saudi Arabia. You can see a promotional video for KAEC here:

What are we to make of the Saudi version of an international trading city? I will basically echo the comments that I made last month on doing business in Saudi Arabia: the chances that Saudi can make this city work to achieve its expected goals are slim to none. Saudi Arabia is the mega-economy of the Middle East because it is a major hydrocarbon exporter with lots of cash to spend. In practice, doing business there is a nightmare — it has an opaque legal system, bribery is rampant, visas are absurdly difficult to obtain for entering the country, women cannot leave their homes alone, business and government shuts down five times a day during prayer times and during the Islamic holidays of Ramadan and Eid, and the lifestyle is incredibly restrictive — forget about drinking alcohol, eating pork, or engaging in extramarital dating. Saudi’s KAEC experiment will, in my mind, end up with a city of sandcastles.

You might think Dubai would be suspicious of the KAEC project, as it is a challenge to Dubai’s position as a regional and international hub of trade. But the project is actually being constructed by Emaar, one of Dubai’s top construction companies, and the KAEC port is managed by the Dubai-based marine ports operator DP World. (Both are private companies substantially owned by the Dubai government.) Certainly the growth of KAEC is not purely zero-sum — but I find it interesting how Dubai’s institutions and Singapore’s institutions are getting closely involved in many projects across the world that challenge the position of both cities as centers of marine trade. That’s a topic for another post soon to come…

About Curzon

Lord George Nathaniel Curzon (1859 - 1925) entered the British House of Commons as a Conservative MP in 1886, where he served as undersecretary of India and Foreign Affairs. He was appointed Viceroy of India at the turn of the 20th century where he delineated the North West Frontier Province, ordered a military expedition to Tibet, and unsuccessfully tried to partition the province of Bengal during his six-year tenure. Curzon served as Leader of the House of Lords in Prime Minister Lloyd George's War Cabinet and became Foreign Secretary in January 1919, where his most famous act was the drawing of the Curzon Line between a new Polish state and Russia. His publications include Russia in Central Asia (1889) and Persia and the Persian Question (1892). In real life, "Curzon" is a US citizen from the East Coast who has been a financial analyst, freelance translator, and university professor; he is currently on assignment in Tokyo.
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6 Responses to Saudi Arabia’s Sandcastles

  1. Ed says:

    What they might want is their own version of Hong Kong -some port under Saudi sovereignty, but with its own way of doing things (“one country, two systems”), and then have different visa requirements for entering the Saudi version of Hong Kong instead of Saudi Arabia proper.

    But of couse they already have these places, they are called Bahrein and Dubai.

    If they are really serious about their religion, I don’t see why they just don’t become an Islamic Bhutan when the oil runs out, in other words poor, isolated, but secure in their way of doing things so they don’t mind the poverty. Once the oil runs out, most of their security issues and the need to maintain modern armed forces will vanish. Plus its not like they will be totally impovershed, since the Holy Cities will still generate a considerable amount of income for the Kingdom.

    The problem with the latter scenario is overpopulation, though I guess they could start repatriating the guest workers as the need for them decreases.

  2. Curzon says:

    Saudi Arabia today is not as rich as it might appear.

    The 30,000 members of the royal family are fantastically rich.

    Another 100-250,000 members of the upper class of Saudi society and many of the religious figures are rich because they have a royal benefactor.

    Most other members of society are lucky to earn $1,000 a month, unless if they’re unemployed.

    Haaj and tourist income is responsible for about 2% of GDP — not enough to add much to the economy standing alone.

  3. Bob Harrison says:

    “The mega-economy of the Middle East” That phrase makes me think not of Saudi Arabia, but of Turkey.
    What is Saudi Arabia’s birthrate? Is it still one of the highest in the world? In a country whose water is rapidly running out, this seems like a catastrophe in the making.

  4. Curzon says:

    Turkey has a slightly bigger economy, and three times the people, but its economy is largely domestic, and irrelevant to the rest of the Middle East except for Iraq. The only Turkish presence you see is in the construction industry. The countries that are economically the “Middle East” are basically mean the GCC — the six gulf states that have all the money. Jordan, Lebanon, and Egypt are pipsqueaks in comparison when it comes to projects, investment, and international business. Saudi’s importance comes from its oil exports and its exports of refined petroleum products — it is basically the refinery for the region.

    The Middle East and Saudi will conquer its water problems through IWPPs and desalinisation plants. The growth is enormous by percentage of growth, but the actual increase isn’t all that great. Saudi has a native population of about 30 million, less than South Korea, and would cut its total population (40+ million) by a third if all the foreign workers left. The real problems are in India, which has a population that adds a new Saudi Arabia every year.

  5. Ed says:

    “Saudi Arabia today is not as rich as it might appear.

    The 30,000 members of the royal family are fantastically rich.

    Another 100-250,000 members of the upper class of Saudi society and many of the religious figures are rich because they have a royal benefactor.

    Most other members of society are lucky to earn $1,000 a month, unless if they’re unemployed. ”

    I’m more inclined to agree with Bob Harrison. This sounds like a miserable society.

    But when the oil runs out, they get rid of the royal family and their hanger-ons, and everyone else is lucky to earn $1,000 a month, just like now. So the problem is solved in a way. What else can they do?

  6. Alfred Russel Wallace says:

    Jolly slick video though….