Saudi Arabia plans an investment zone to expand its economy beyond oil

In response to persistent low oil prices Saudi Arabia says it will create a joint industrial and business zone with Jordan and Egypt to bring in new development and investment in energy, manufacturing, food, water, and more. 

Saudi Aramco/Handout/Reuters/File
View of the Abqaiq oil facility owned by the Aramco oil company of Saudi Arabia. The Saudi government is creating business and economic zones to reduce dependence on oil exports.

Saudi Arabia announced on Tuesday a $500 billion plan to build a business and industrial zone that links with Jordan and Egypt, the biggest effort yet to free the kingdom from dependence on oil exports.

The 10,230 square mile zone, known as NEOM, will focus on industries including energy and water, biotechnology, food, advanced manufacturing, and entertainment, Saudi Crown Prince Mohammed bin Salman said.

The announcement came as an international business conference got under way in Riyadh, drawing more than 3,500 people from 88 countries.

Arranged by Saudi Arabia's main sovereign wealth fund, the Public Investment Fund (PIF), the conference is labeled the Future Investment Initiative – an effort to present the world's top oil exporter as a leading global investment destination.

Saudi Arabia's economy, though rich, has struggled to overcome low oil prices. Prince Mohammed has launched a series of economic and social reforms – such as allowing women to drive – to modernize the kingdom.

Officials hope a privatization program, including the sale of 5 percent of oil giant Saudi Aramco, will raise $300 billion. Riyadh is cutting red tape and removing barriers to investment; on Sunday, it said it would let strategic foreign investors own more than 10 percent of listed Saudi companies.

NEOM could be a major focus of new investment. The Saudi government, the PIF, and local and international investors are expected to put more than half a trillion dollars into it in coming years, Prince Mohammed said.

Adjacent to the Red Sea and the Gulf of Aqaba and near maritime trade routes that use the Suez Canal, the zone will serve as a gateway to the proposed King Salman Bridge, which will link Egypt and Saudi Arabia, the PIF said.

"NEOM is situated on one of the world’s most prominent economic arteries.... Its strategic location will also facilitate the zone’s rapid emergence as a global hub that connects Asia, Europe, and Africa."

There was no immediate comment on the plan from Jordan and Egypt, which are close allies of Saudi Arabia. Riyadh said it was already in contact with potential investors and would complete the project's first phase by 2025.

Prince Mohammed appointed Klaus Kleinfeld, a former chief executive of Siemens AG and Alcoa Inc, to run the NEOM project.

Huge resources

Saudi Arabia will need huge financial and technical resources to build NEOM on the scale it envisages. Past experience suggests this may be difficult.

Bureaucracy has slowed many Saudi development plans, and private investors are cautious about getting involved in state projects, partly because of an uncertain legal environment.

The zone, which will have its own tax and labor laws and an autonomous judicial system, is to power itself solely with wind power and solar energy, PIF said – a goal which may be hard to achieve in practice.

But the project underlines Prince Mohammed's ambition to rescue the economy from severe damage caused by low oil prices. NEOM will reduce the volume of money leaking out of Saudi Arabia by expanding limited local investment options, the PIF said.

A key source of future investment funds for the PIF, which now has about $230 billion of assets under management, is the government's planned sale of a roughly 5 percent stake in national oil giant Saudi Aramco, which could raise tens of billions of dollars.

PIF managing director Yasir al-Rumayyan told the conference that Saudi Arabia was still on track to conduct an initial public offer of Aramco shares in 2018, but did not say on which stock markets the company would be listed.

Aramco CEO Amin Nasser told reporters that in addition to Riyadh, possible foreign listings in markets such as New York, London, Tokyo, and Hong Kong had been looked at, and a decision still had to be made.

This story was reported by Reuters.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Saudi Arabia plans an investment zone to expand its economy beyond oil
Read this article in
https://www.csmonitor.com/World/Middle-East/2017/1024/Saudi-Arabia-plans-an-investment-zone-to-expand-its-economy-beyond-oil
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe