Economic cities —

opening vistas of growth in

the Kingdom of Saudi Arabia

Economic cities — opening vistas of growth 1

Contents
Executive summary 3

Introduction4

Economic diversification — facilitating

real estate sector growth 5
1.1 Macroeconomic and non-oil diversification 5
1.2 Real estate industry insights 7
1.3 ECs and cross-sector links 9

ECs — opening floodgates of growth 10

2.1 ECs — primary objectives 10
2.2 ECs — snapshot and development matrix 11
2.3 Real estate sector components of ECs 11
2.4 Benefit for investors 18
2.5 Top challenges to the development of ECs 19

Stakeholders’ role and outlook 20

3.1 Shaping ECs — SAGIA and ECA 20
3.2 Real estate regulations in ECs 21
3.3 Perceptions of key developers, contractors and consultants 23
3.4 Outlook for real estate development of ECs 24

EY’s role 25

Economic cities — opening vistas of growth

Executive summary
The Kingdom of Saudi Arabia (KSA)
is currently investing heavily in real
estate and infrastructure projects. This is
a part of the Kingdom’s efforts to resolve
the housing and employment crisis,
resulting from a growing population,
and economic diversification.
The current trend of increased
investments in real estate and
infrastructure projects would invariably
help the Kingdom build a strong industrial
base to sustain its economy in the future
as oil reserves shrink. However, the KSA’s
strong oil reserves and the Government’s
resolute economic development plans
provide robust support in moving ahead
with its infrastructure development
projects.
The KSA continues to attract attention
worldwide despite the global economic
slowdown and instability in the Middle
East and North Africa (MENA) region.
The Kingdom’s position among the top
world oil producers and its ambitious
program of developing four economic
cities (ECs) have placed the country
in the limelight.
Economic cities are considered a
significant step toward the long-standing
vision of positioning the Kingdom as a
leading destination for both tourists and
investors on the world map.
Each of the ECs will have its own area of
specialization — being developed around
at least one global competitive cluster
or industry. They are constructed in
compliance with environmental guidelines
using state-of-the-art greenfield
Economic cities — opening vistas of growth
solutions. ECs are expected to create job
opportunities for the private sector, along
with attractive lifestyles, thus providing a
business-friendly atmosphere.
The KSA Government sees ECs as drivers
of growth, opening up the economy
and attracting more foreign and local
investments. The ECs are expected to
allow foreign real estate investors to
own property. Efficient administration
there would ease turnaround time on
simple transactions, like visas and custom
documents. ECs would have relaxed social
rules, improving women’s rights in the
cities and promoting a mix of Western and
Saudi styles.
The EC projects would bring in modern
technology, management skills, corporate
governance and new industries, making
the economy less dependent on oil
and gas.
Economic cities — opening vistas of
growth is a thought leadership paper
by the EY Middle East Transaction Real
Estate Advisory Services Team, based
on their experience of carrying out
market assessments, feasibility studies,
and asset and facilities management
for Government agencies and private
institutions. It offers useful insights of
the four EC projects in the KSA. Besides
providing an analysis into the market
drivers and restraints on the current KSA
construction market, the paper provides
a snapshot of the EC projects and their
objectives, regulatory frameworks and
incentives for investors.
3
ECs in Saudi Arabia
Introduction
The Government of KSA is pursuing investments
and reforms, enabling the oil-rich nation to
become one of the most competitive economies
in the world, by the beginning of 2020. Through
the ECs initiative in Rabigh, Hail, Madinah and
Jazan regions, the Government aims to develop
vibrant urban areas with a business-friendly
environment. This would leverage the KSA’s
competitive advantages — low-cost energy and
strategic locations.
4 Economic cities — opening vistas of growth
EC projects are more than giant industrial zones.
They are cities that will nurture new businesses
and residential communities in areas that
have had limited investment to date. They are
expected to translate into employment growth in
the cities; as a result, the ECs are expected to see
positive growth in population, resulting in higher
demand for real estate in the ECs.
Economic
diversification —
facilitating real estate
sector growth
1.1 Macroeconomic and non-oil diversification
According to the BP Statistical Review of World The Ministry of Finance of the KSA has estimated
Energy 20141, the KSA remains a major player in that the country’s GDP reached US$752.5b at the
the global oil market, with an estimated reserve base end of 2014, achieving a growth rate of 1.09% (in
of 265.8 billion barrels. The Kingdom possesses current prices) compared with US$745.3b in 2013.
about 17% of the world’s proven oil reserves, ranks According to the CDSI2, the Saudi economy grew
as the largest exporter of total petroleum liquids in by 3.6% in 2014, up from 2.7% in 2013. With an
the world and maintains the world’s largest crude oil increase in oil production, by 0.8%, year-on-year
production capacity. (y-o-y), and commissioning of Yasref refinery, a joint
venture between Saudi Aramco and Sinopec, in 2014,
The US Energy Information Administration (EIA)
the overall oil sector growth remained positive at
estimates that the Kingdom can keep pumping oil
1.7% while the non-oil sector maintained a growth of
for the next 70 to 80 years, given its enormous oil
over 6% in 2014.
reserves. Oil, together with the Holy Cities of Makkah
and Madinah, provides the country’s Government
with wealth, power and influence. The KSA has an
oil-based economy, with strong Government controls
over major economic activities like upstream oil,
mining and quarrying, petroleum refining, electricity,
gas and water. According to the Central Department
of Statistics & Information (CDSI), the petroleum
sector, inclusive of upstream crude petroleum, natural
gas and petroleum refining, accounts for roughly 80%
of the budget revenues, 42% of the GDP and about
85% of the export earnings.

BP Statistical Review of World Energy 2014, January 2015

1
National Accounts Indicators 2014 — CDSI, March 2015
2

Economic cities — opening vistas of growth 5

KSA GDP breakdown by economic activity, 2014 KSA nominal GDP and real GDP growth rate, 2008–14

1.9% Agriculture, Forestry 800 752.5 12.0%

15.6% 733.9 744.2
40.2% and Fishing 669.4
700
10.4% Mining & Quarrying 10.0%

600
Manufacturing 526.7 10.0%
8.0%
Electricity, Gas and Water 500

Percentage
5.4%
Construction

US$b
400 6.0%
US$752.5b
Wholesale & Retail Trade,
300
Restaurants & Hotels 4.8%
3.6%
4.0%
2.7%
Transport, Storage 200
5.1%
and Communication 2.0%
100
9.4% Finance, Insurance,
Real Estate
5.4% 10.8%
0 0
1.2% and Business Services 2010 2011 2012 2013e 2014e

Other services Nominal GDP (US$b) Real GDP Growth (%)

Source: Saudi Arabian Monetary Agency (SAMA) Annual Statistics Source: Central Department of Statistics and Information (CDSI).

The non-oil manufacturing growth is expected to remain Key budgetary allocations for 2015, US$b
robust, following a growth of 6.3% and 6.5% in 2013 and 2014,
respectively. Strong construction project activity and rising
Education
domestic demand would sustain strong growth in the non-oil
and manpower
sector. The US$93b King Abdullah Economic City (KAEC), the 42.7
KSA Ministry of Housing’s US$67b 500,000 Houses Program, Health and social
the US$40b Sudair Industrial City, the US$20b Kingdom City affairs
community development, the US$7b Waad El Shammal Mining
Transportation
City, the US$5.3b King Abdullah Medical City, and others are 16.8 and infrastructure
some of the key non-oil construction projects being developed 57.9
in the country. In March 2014, the Council of Ministers Water, agriculture
approved the establishment of the US$530m Saudi Arabian 16.0 and manufacturing
Industrial Investments Company. The company will engage
10.7 Municipality services
in an investment program worth US$2b in the 2015–2020
period, targeting conversion industries that rely on non-oil
manufactured products, including petrochemicals, plastic Source: CDSI, SAMA

and steel.
The KSA’s economy is expected to maintain its growth
momentum in 2015, backed by strong Government spending.
For 2015, the Government has set budget spending of
US$229.3b, focusing on priority investment programs that
enhance sustainable and strong economic development and
employment opportunities for Saudi nationals.
The Government generally ends up spending substantially more
than its budget plan, overspending by an annual average of 25%
in 2004–2013.
Source: NCB Saudi Budget Report 2015.
Key construction projects allocated
• 164 new projects
• Rehabilitation of 500 school buildings
• Rehabilitation of 11 sport centers
• Three new universities
• 27 new hospitals and health facilities
• Funds for 117 hospitals already under construction
• 8 medical cities (ongoing construction)
• 16 sports clubs
• 5 centers for individuals with special need

6 Economic cities — opening vistas of growth

According to the Ministry of Finance, the country’s Government Key drivers in the KSA’s RHC market
spending reached a record of US$293.3b in 2014, 28% above
Developments in the real estate sector are expected to gain
the originally planned US$228b3. The number of contracts
greater significance, given the increase in population and the
signed for Government projects with the private sector in
customers’ growing desire for innovative real estate solutions
2014 was 2,572, with a total value of US$49b. The budget
that suit different incomes. Furthermore, massive investment
will focus on infrastructure, education, health, security, social
in mega infrastructure projects, such as ECs and general
services, municipal services, water treatment services, roads
transportation plans are boosting the growth of the RHC sector
and highways, with special emphasis on science and technology
in the KSA.
projects, as well as eGovernment services.
Globally, oil prices have fallen by nearly 60% since June 2014,
but the KSA’s economic performance will remain largely
insulated from the recent decline in international oil prices.
3
Religious
Supported by high Government spending on construction,
tourism
transport, retail and utilities, the GDP growth in the oil-rich
nation is projected to remain strong at around 4.5% in 2015,
4
according to the International Monetary Fund (IMF).
2 1 Ease
Demography of doing
1.2 Real estate industry insights Non-oil
diversification business
In an attempt to reduce dependence on natural resources
and the negative influence of oil — price fluctuation on the
Saudi budget, the Government is making efforts to diversify
from its reliance on oil. Since its accession to the World Trade
Organization (WTO) in 2005, the Saudi Government has
improved its regulatory regime and opened up many sectors to
foreign investors. The Government is prioritizing the real estate,
hospitality and construction (RHC) industries as key areas for
investments.
The Saudi Government has invested heavily in national RHC market drivers
infrastructure to attract investment. Foreign direct investment
(FDI) is seen as one of the most effective ways to diversify the • Fluctuations at the global level are cushioned by
economy and provide employment for younger generations. the non-oil sector diversification
The authorities welcome FDI for its ability to transfer technology, 1 • Cluster development plans fuel real estate and
employ and train the national workforce, foster economic construction development activities
development and enhance local raw materials. The country’s
controlled inflation and relatively stable exchange rates and • The growing population base and expanding
openness to foreign capital in upstream gas as well as extensive
2 urbanization translate into increased demand for
privatization programs are among the advantages attracting the residential and commercial office properties
investors into the country. Also, access to the world’s largest oil
reserves, very low energy costs and a high standard of living are • Religious tourism boosts real estate development
decisive factors for foreign investors.
3 in the Kingdom as the KSA is home to the Muslim
In March 2015, the Saudi Arabian General Investment Authority world’s two holiest shrines of Makkah and Madinah
(SAGIA) reported that it intends to invite foreign Investors for
transport and health care projects over the 2015–2020 period, • Simplification of procedure for business
with a combined value of nearly US$140b. Oil revenue is now start-ups is expected to reduce the delays for
directed into major social infrastructure projects, to attract starting construction projects
foreign investment. The Government has allowed foreign 4 • Relaxation of foreign investment laws are expected
ownership in ECs by allowing investments in transportation, to permit and promote 100% foreign ownership
education, health, information and communications technology, • Mortgage law is expected to boost real estate
life sciences and energy. The RHC market is set to gain from the financing and demand for housing
Government initiatives to diversify and build the economy.
Source: NCB Quarterly Construction Contract Awards Review

BP Statistical Review of World Energy 2014, January 2015

3

Economic cities — opening vistas of growth 7

With a population of about 30 million, the KSA has one of the KSA RHC opportunities
largest real estate markets in the MENA region. The Jeddah
Chamber of Commerce and Industry valued the KSA real estate
market in 2014 at US$347b4. The Chamber expects the value to • World’s 8th highest education
top US$400b within the next few years, with growth averaging spender
about 5% to7% year over year. Local and foreign investors, who Education • Building new educational institutes
are realizing the potential of the relatively immature market and funding overseas degrees and
which could offer high returns, will drive this growth. According training programs for Saudi students
to the Chamber, the real estate market further requires
US$171b of investments to meet the demand by 2020.

Recent trends
The measures that the KSA Government introduced in Q1 2014
and 2015 and the investor-friendly environment should help
promote the development of the RHC sector. The introduction
of these policies reflects a move towards a more westernized
framework for the real estate sector, which should help promote
the RHC industry as a destination for international investment
on a similar level with neighboring states, such as the UAE,
Qatar and Bahrain.
KSA’s commitment to the RHC sector
• Real Estate Development Fund (REDF)
approved US$2.1b in housing loans to build
19,406 housing units
• New regulations, introduced in July 2014, have
made it compulsory for all real estate firms to
join the electronic Ijar system
2014 • A new court solely dedicated to tackling real
estate disputes.
• KSA created its first housing committee,
grouping its public and private sectors, to
deal with the construction of nearly 250,000
houses in Jeddah during the 2015–2025
period
• Largest construction market in the
Middle East
Construction • Government focused on improving
infrastructure, transport and
real estate
• ECs are being developed to satisfy the
needs of the growing KSA population
Economic by providing new living space and
employment opportunities combined
cities
with world-class infrastructure
• Economic incentives for investors
• As part of diversification,
Saudi Industrial Property Authority
(MODON) is developing new industrial
Industrial
cities focused on petrochemicals,
cities plastics, metal goods, construction
materials, electrical appliances
and more

• KSA Government to construct 3,000 new
schools and 117 hospitals over the 2015–2020
period
2015
• Ministry of Housing will launch housing projects
on 56 million sqm of land in Jeddah, Taif,
Eastern Province, Al Qassim Province and Hail
Source: Saudi Gazette‎, NCB Capital, Global Investment House
Source: SAGIA, MEED, Zawya, BMI Reports
• Largest market for medical equipment
and healthcare products in the
Middle East health care
Healthcare • Focused on building additional health
care facilities by the construction
of new hospitals, clinics, medical
education and research facilities

Jeddah Chamber of Commerce and Industry — Jan 2015

4

8 Economic cities — opening vistas of growth

1.3 ECs and cross-sector links ECs of the KSA

The Kingdom’s Government budget reflects the importance Prince Abdulaziz Bin Moussed
of ongoing growth in the construction sector. Turning to the Economic City
composition of the budget, the provisions for 2015 suggest Hail
continuity across the country’s key strategic areas for spending Knowledge Economic City
and investment: education is allocated 25%, while health care Madinah
Riyadh
and social development receives 19% of spending. Additionally, Rabigh
a general revival in the Saudi economy is likely as demand King Abdullah Economic City
for projects continues to increase further, improving the Saudi Arabia
financial climate. Jazan Economic City
Jazan
The RHC sector in the KSA has great potential for growth
as demand rises for residential, commercial, housing and
institutional construction. The housing segment, in particular, ECs are greenfield developments, which cluster residential
is likely to grow the most as the Saudi population is rising by and commercial buildings, and also feature industrial facilities
2.7% a year.
The ECs will offer a huge range of contracts and potentially
present contractors with more opportunities from port and
industrial infrastructure packages to a full range of residential
and commercial real estate developments.

US$135b 2.7m
1.17m
Project value Employment Housing
(persons) (persons)

Source: ECA, SAGIA

Economic cities — opening vistas of growth 9

 ECs — opening the
floodgates of growth

2.1 ECs — primary objectives

The objective of ECs is to grow the national economy and raise the standard
of living for Saudis through enhancing the competitiveness of the economy,
creating new jobs, improving Saudis’ skill levels, developing regions and
diversifying the economy.
The private sector is developing each city around at least one globally
competitive cluster or industry, which will serve as an anchor and a growth
engine for the city, around which other businesses will be located.

• Economic diversification
• Pilot for base economy
• Regional development
ECs’ objectives
• Job creation for nationals
and expected
• Domestic and foreign direct
benefits investments
• Unique lifestyle options
• Innovation

Source: SAGIA, ECA

10 Economic cities — opening vistas of growth

2.2 ECs — snapshot and development matrix
SAGIA acts as the regulator, facilitator and promoter of the ECs in the Kingdom. The private sector will work as the capital provider,
land owner and developer of the ECs. The ECs, according to SAGIA, are estimated to contribute 20% of the Kingdom’s GDP by 2020.
Spread out around a country the size of Western Europe, the new cities will take the pressure off Riyadh, Makkah and the Eastern
Province, which now house almost 65% of the population, and are home to 75% of the businesses. The table below provides a
snapshot of the ECs.

Snapshot of ECs in the KSA

King Abdullah Prince AbdulAziz Bin Mousaed Knowledge Economic Jazan Economic
Description
Economic City (KAEC) Economic City (PABMEC) City (KEC) City (JEC)

Master developer Emaar the Economic Al Mal Investment Company Knowledge Economic Saudi Aramco
City City Company
Contractor Saudi Building Al Dar, Al Arabia Saudi Binladin Group
& Construction Architecture &
Management (SBCM) Construction Company
Limited (Phases 1 and 2),
AlRajhi Holding Group
Consultants LJA Engineering, Saudi KEO International Consultants AECOM, Dar Al-Handasah
Consulting Services (Shair and Partners) SAL,
(infrastructure design), JV of HOK, Inc. — Dubai
Skidmore Owings and and Branch and IBI Group
Merrill (SOM), WATG,
Turner Arabia (PMC)
Timeline 2006–2029 2009–2025 2006–2020 2007–2037
Current status Construction — On hold Construction — execution Construction —
execution (after design execution) execution
Expected 2 0.3 0.15 0.3
population
(million)
Investments 93 8 7 27
(US$b)
Employment 1,000,000 55,000 20,000 100,000
(persons)
Sources: SAGIA, Zawya Projects Monitor (as of 31 December 2014), MEED Projects (as of 31 December 2014)

2.3 Real estate sector components of ECs

Real estate components of ECs

Key components KAEC PABMEC KEC JEC

Airport
Seaport
Educational
Commercial
Residential
Hospitality and leisure
Logistics, warehouses, industrial
Health care
Sources: SAGIA, ECA

Economic cities — opening vistas of growth 11

King Abdullah Economic City
Launched in 2006 to promote economic diversity in the Kingdom, the King Abdullah Economic City (KAEC) has six components —
seaport, industrial district, educational zone, central business district, resorts and a residential area.

The King Abdullah Economic City

KAEC King Abdullah Economic City

Location
• Rabigh, area: 168sqkm

Focus
• Logistics
• Light and processing industry
• Financial services Rabigh
Key components
• industrial district
• Seaport
• Residential area
• Central business district
• Resorts
• Educational zone

Sources: SAGIA, KAEC website

Features of KAEC
The table below describes the key components of the KAEC.

Key components Description

• An industrial district covering an area of 64.8sqkm

industrial
• The zone will accommodate around 2,700 manufacturers and logistics companies in a special
district
economic zone

• A seaport covering an area of 14.0sqkm

Seaport • Handling capacity of 20 million twenty-foot equivalent units (TEU)
• Facilities to handle cargo and equipped to receive the world’s largest vessels

• A fully integrated 48sqkm residential zone, providing housing for all income groups
Residential
• The residential area is planned to include 260,000 apartments and 56,000 villas
area
• Will be divided into smaller residential, commercial and recreational areas

Central business • A 13.5sqkm central business district, featuring high — density living and commercial zone,
district a financial island and a central park

• A 27.0sqkm resorts area that will feature luxury villas, townhouses, seaside resorts and spa,
Resorts shopping centers and other recreational facilities
• The number of hotel rooms and suites are estimated to be 11,000 in more than 70 hotels

Educational • An educational zone covering an area of 5.0sqkm

zone • Multi-university campus designed to accommodate 18,000 students

Source: SAGIA

12 Economic cities — opening vistas of growth

Prince AbdulAziz Bin Mousaed Economic City
The Prince AbdulAziz Bin Mousaed Economic City (PABMEC) is the second economic city launched (after KAEC) in the KSA.
The ground-breaking took place in 2009 and the city is expected to be fully completed by 2025. The main objective is to position
the new city as the premier commerce, industry, transportation and logistics hub in the Middle East region.

The Prince AbdulAziz Bin Mousaed Economic City

PABMEC Prince Abdulaziz Bin

Moussed Economic
Location Key components Hail
City
• Hail, area: 156sqkm • Logistics and transportation center
• Agro-industrial zone
Focus
• Knowledge center
• Logistics and • Petrochemical industries district
transportation • Residential area
• Agriculture • Entertainment area
• Minerals • Mining center
• Construction materials

Sources: SAGIA, PABMEC website

Features of PABMEC
The table below describes key components of the PABMEC.

Key components Description

• An international airport, expected to serve 3 million passengers per year
Logistics and
• A supply chain center and a multi-modal passenger station
transportation
• Dry ports with an annual capacity to handle over 1.5 million tons of cargo
center
• An expanded railway system and road connections to the rest of the KSA, to Jordan and Iraq

• This area will group a number of services through activities linked to stages of crop growing,
Agro-industrial harvesting and processing
zone • An agricultural research center that aims at increasing output with the help of modern
production plants

• A knowledge center featuring colleges, research centers, vocational and training centers, as well
Knowledge as public and private schools
center
• The education zone will be spread across 10sqkm and is expected to serve nearly 40,000 students

Petrochemical • Petrochemical industries district will included an oil refinery, natural gas processing plant, and
production facilities for producing pharmaceuticals, fibre, rubber, plastics, basic chemicals,
industries district
fertilizers and petrochemical feedstock

• The residential area will cost about US$2.7b

Residential area
• Employment and living facilities, with 55,000 potential employment opportunities and up to
15,000 residential units

• Hotels, shopping centers and entertainment facilities

Entertainment
• Expected to attract nearly 70,000 tourists annually, providing additional investment
area opportunities in hospitality and tourism-related industries
• Visitors will also benefit from a host of health care facilities

• Mining center will include a minerals laboratory; land surveying and geotechnical services firms;
Mining center
mining equipment rental companies; and processing facilities for limestone, kaolin, silica sand
and phosphate.

Source: SAGIA

Economic cities — opening vistas of growth 13

Knowledge Economic City
King Abdullah bin Abdul Aziz launched the Knowledge Economic City (KEC) in Madinah in June 2006. It is the third of the four ECs
in the Kingdom. The KEC is designed as a project to position the KSA and young Saudi Arabian entrepreneurs as internationally
respected leaders in knowledge-based industries. It aims to attract and develop talent from around the world.

Knowledge Economic City

Knowledge Economic City
KEC
Location Key components
• Madinah, • Complex for technology
area: 4.8sqkm and knowledge based economy

Focus
• Technological and administrative
Madinah
colleges
• Knowledge- • Islamic civilization studies center
based • Campus for medical studies,
industries biological sciences and health
• Tourism services
• Services • Business center
• Transport
• Lifestyle
• Commercial plaza
• Residential areas

Sources: SAGIA, KEC website

Features of KEC
The table below describes key components of the KEC.

Key components Description

Complex for • To support technological research and development in the region
technology and
• The complex has extensive facilities and support services focused on eGovernment, e-libraries,
knowledge-
e-education, Arabic language technologies and technologies for managing religious tourism
based economy

Technological and • Technological and administrative colleges will offer advanced technical study options and
administrative facilities, including scientific research laboratories, IT, software development, automation,
colleges multimedia and business administration

Islamic civilization • Focused on collecting, developing and transmitting the knowledge, values and artwork of Islamic
studies center civilization, as well as finding Islamic solutions to contemporary problems

Campus for
medical studies, • To provide medical services to visitors and residents
biological sciences • Campus for biological sciences will concentrate on fields critical to the KSA, such as vaccine
and health development, crop engineering and biotechnologies for waste and water treatment
services

• Advanced infrastructure, including conference halls, exhibition centers and offices

Business center
accommodating up to 10,000 employees

• A central transportation station will connect the city with Prince Mohammed Bin Abdul Aziz
Transport
International Airport and the city with Makkah, Yanbu, KAEC and Jeddah

Source: SAGIA

14 Economic cities — opening vistas of growth

 Key components Description

• Commercial complexes
• Residential and hospitality facilities
• Theme park (Seera Land)
Lifestyle • King Abdul Aziz Mosque capable of accommodating 10,000 worshippers
• The project will include a shopping mall implemented in two phases. Phase 1 will be 100,000
sqm and will include 300 shops, 4,000 parking lots and a hypermarket. Phase 2 will increase
the retail space to 300,000sqm

• The main plaza in the center of KEC is surrounded by pedestrian walkways, forming a point of
Commercial plaza connection between visitors, workers and residents of Madinah, as well as hotel towers and
residential apartments

• Residential areas including two villa areas, mid-to high-rise residential buildings, serviced
Residential apartments, green spaces and hospitality facilities provided for 30,000 visitors and 150,000
areas residents at a time

Source: SAGIA

Economic cities — opening vistas of growth 15

Jazan Economic City
The Jazan Economic City (JEC) was launched as the fourth Economic City in November 2006 and is located 60km northwest of
Jazan City. The JEC will be divided into industrial and non-industrial areas made up of four zones. JEC’s industrial zone will represent
two-thirds of the city and will comprise a primary and heavy industry zone, secondary industry zone, and human resources and work
development zone.

Jazan Economic City

Jazan Economic City
JEC
Location Key components
• Jazan, • Power plant
area: 113sqkm • Water desalination plant
Focus • Industrial port

• Heavy, secondary • Aluminum smelter

and labor-intensive • Refinery
industries • Iron ore complex
• Agriculture • Ship building
• Energy

Sources: SAGIA, JEC website

Jazan

Features of JEC heavy industry zone

The table below describes the key components of primary and heavy industry zones in the JEC.

Key components Description

• The power plant consists of the main power plant, associated balance-of-plant, electrical
substation and fuel storage facilities
Power plant
• Using a steam cycle technology firing on Arabian crude oil, the power plant will be built with
sufficient capacity to provide for the power needs of the Economic City

• The desalination plant will be capable of providing about 50,000 cubic meters of potable water
Water
per day to cater to the internal requirements of JEC as well as to supply water to the distribution
desalination plant network

• The industrial port will provide an additional terminal on the Red Sea’s coast, becoming one
Industrial port
of the biggest ports in the region

• Aluminum smelter with an annual production capacity of one million metric tons;
Aluminum
this development is a joint venture between MMC Malaysia Group, Saudi Binladin Group
smelter and China Aluminium Company

Refinery • Refinery standards with a production capacity of 250,000–400,000 barrels per day

• Phase 1 of the South Steel Company (SOLB)’s project aims to produce iron billets with an annual
production capacity of one million metric tons
Iron ore complex • The project will also comprise a complex for iron raw trade and a raw iron fabrication factory with
a production capacity of six million tons per year
• An iron plate and fabrication plant with an annual production capacity of two million tons

• A dry anchor will annex the main port for the purpose of repairing and maintenance of ships
Ship building and fishing boats

Source: SAGIA

16 Economic cities — opening vistas of growth

Features of JEC secondary industry zone
The table below describes the key components of the secondary industry zone in the JEC.
Components of JEC secondary industry zone

Key components Description

Silicon processing • Silicon processing industry being planned due to abundance of silicon in JEC’s vicinity

• Tech-park focused on manufacturing, research and development from a wide range of public
and commercial sources
Tech/agri-tech park
• Agri-tech industry to add value to the regional agricultural industry and to make improvements
in management of livestock and crops
Textile industry • JEC will host a significant artificial textile fiber industry

• Food processing is a main focus in JEC, particularly to provide healthy nutritional food to satisfy
Food processing
the requirements of the KSA
• Development of industries involved in the manufacture of nutraceuticals and health-food products,
Pharmaceutical industry
drawn on agricultural resources in the Jazan region
Source: SAGIA

Features of other zones of JEC

Components of JEC nonindustrial zone

Key components Description

Human resources • A technical training zone of 100sqm business zone, research and study centers, exhibition
and work zone and conference halls, and commercial zone
• Residential spaces, 8,000 residential units, public utilities and integral recreational services,
Residential
and a waterfront that will include 7,000 villas, chalets, hotels, resorts and a marina
• 1,000sqm land area for health facilities, 1,400sqm land area for education centers, 200sqm land
Social infrastructure
area for social facilities
• 3,200sqm land area for sport and recreation facilities, 5,500sqm land area for commercial centers
Other amenities
and 800sqm land area as green spaces
Source: SAGIA

Following is some additional information on the Jazan Economic City. This information is not available for the other cities referenced in this report.

Economic cities — opening vistas of growth 17

2.4 Benefit for investors
Description Investor benefits
• 100% foreign ownership of projects, including property required to support the business activities,
Foreign ownership
in addition to owning private residences and employee accommodation
Employee sponsorship • No restrictions on sponsoring foreign employees
• Minimum capital requirement and no restrictions on repatriation of capital
Capital requirement
• Ability to carry forward losses indefinitely
• Accelerated investment application, business registration and setup process, with a guaranteed
Ease of doing business
decision for foreign investment applications within 30 days of submission to SAGIA
Taxation • No personal income tax and a minimal 20% corporate tax for foreign companies
• Exemption from import fees for selected raw materials imported for manufacturing products
• No export duties within the 17 countries of the Greater Arab Free Trade Area
Export/import duties
• Few restrictions on currency conversion, exchanges and transfers
and transaction incentives
• Duty drawback, a customs refund for raw material imports that are processed and exported as
finished goods
• Preferential treatment for national products in Saudi Government procurement
• Export credit, financing, guarantees and insurance through the Saudi Export Program
• Financial support for the training and employment of Saudis from the Human Resources
Industrial incentives Development Fund
• Low-cost loans from the Saudi Industrial Development Fund and Public Investment Fund
• Customs duties exemption on imported machinery, equipment, raw materials and spare parts, if they
are for industrial use
• Net leasing rate/annum: SAR700/, service charge: SAR120/sqm (total service charge: SAR820/sqm,
Leasing and contract to be paid annually in advance on a quarterly basis)
terms • Contract term: minimum two years; no escalation during the first two years, year three onward,
5% per annum)

Source: SAGIA

18 Economic cities — opening vistas of growth

2.5 Top challenges to the development of ECs
Challenges of ECs

• Uncertainty around global economies might impact private sector participation,

Global e.g., following to the global financial crisis, plans to develop several infrastructure
slowdown components of the JEC project were delayed. SAGIA terminated the contract awarded
to the joint venture of MMC Corporation Berhad and Saudi Binladin Group in 2013

Supply • Developers faced a shortage of contracting capacity while contractors found it difficult to
shortages source labor and materials during many phases of the ECs project development

• Recent declines in hydrocarbon prices will impact oil revenues and influence the
Oil price Government’s spending plans. According to the NCB Quarterly Review of Contract Awards,
decline the KSA construction sector witnessed a significant drop in value of contracts awarded during
Q3 2014. Contracts worth US$9.14b were awarded; a 77% decline compared with Q3 2013

Project • Delays in awarding projects and challenges developers face while raising funds will hamper
delays deter the progress of the ECs project. Two ECs planned in Tabuk and Eastern Province have yet
investments to make any progress since the launch in 2006

Source: EY analysis

Economic cities — opening vistas of growth 19

 Stakeholders’ role
and outlook

3.1 Shaping ECs — SAGIA and ECA

The establishment of the SAGIA in 2000 was a key milestone in the KSA’s drive to build a world-class economy. SAGIA aims
to promote, attract and retain quality local and foreign investments in untapped sectors by developing an optimal business
environment.

• Started as an agency in 2006 within SAGIA and launched the four ECs
Economic Cities
• In 2010 by a Royal Decree the ECA was spun off from SAGIA as the regulator and
Authority (ECA) supervisor of the ECs

• Supervise, serve, and regulate the ECs, including:

• Oversee developers to ensure value proposition of the ECs
• Support the Kingdom’s socioeconomic development objectives
• Monitor developers’ projects’ deadlines
• Develop and enforce global reference regulations and standards
• Provide world-class services through the 60 minutes an hour, 24 hours a day and 7 days a week (60x24x7) concept
• Develop and monitor public–private partnership (PPP) models
• Contribute to the promotion of ECs

Source: SAGIA, ECA

20 Economic cities — opening vistas of growth

Key stakeholders and their roles in ECs projects

SAGIA/ECA Master developer (MD) Consultant Contractor

• Regulator, facilitator • Capital provider • Planning and urban • Project construction

and promoter of ECs • Land owner (only for design and maintenance
KAEC and PABMEC • Landscape • Preparation
projects) architecture construction
• Develop and operate phase plan
• Civil engineering
ECs • Management of
• Project management
• Promote investment subcontractors
• Contracts and
in ECs • Risk management
quantity surveying
• Liaison with parties
• Maintenance of cost
involved in ECs
and schedule control
project
system
• Workforce and vendor
• Other preconstruction
management
services

• As described in the Developer Agreements executed between the MD and SAGIA and/or the ECA, the MD of each economic
city will have the power to contract, outsource or license any and all of its duties, powers or responsibilities as permitted by
the Developer Agreement.
• All developers, sub-developers, contractors, sub-contractors, outsource contractors and licensees shall comply with the
master plan.

Source: SAGIA, ECA

Source: SAGIA, SUSRIS, ECA

Economic cities — opening vistas of growth 21

3.2 Real estate regulations in ECs

Land ownership Rights of property Foreign investment

and development in ECs ownership restrictions in the ECs

• SAGIA’s license allows the MD to
establish and carry out investment
projects in the ECs.
• MD will enter into a master
developer agreement with SAGIA.
• MD will establish a project company
(PC) to undertake the development
of the ECs.
• The PC will be required to offer 30%
of its issued share capital to retail
investors.
• Non-GCC/Saudi nationals are
covered by the Foreign Investment
Law and the Law of Non-Saudis
Proprietorship and Investment of
Real Estate issued by the Royal
Decree 15 dated 17/4/1421H
(Foreign R/E Ownership Law).
• GCC nationals are covered by the
GCC Nationals Royal Decree No. 4
dated 12/7/1415/H and Executive
Rules (GCC R/E Ownership Law).
• SAGIA has issued a list of some
business activities prohibited to
foreign investment. These include
manufacturing of military materials,
equipment and explosives, oil
exploration and production, services
related to security, real estate
brokerage and land transportation
services (excluding trains).

Project land ownership

in ECs Opportunity

• For KAEC and PABMEC projects: the MD acquires land • 100% foreign land — ownership is allowed in the ECs,
for the EC; the MD will then transfer the title to the land except for KEC in Al Madinah Al Munawara.
that will then transfer to the PC. The PC will transfer the
land to investors under a long-term lease or develop the
land for sale to third parties or retain ownership of the
land and manage the developed property or enter into
strategic partnerships, alliances or joint ventures for the
development of components of the EC.
• For KEC and JEC, the land remains under the ownership
of SAGIA and is managed by MD (under Royal Decree
number M/15 dated 11/03/1424 (H.) corresponding to
13/05/2003 (G).

Source: SUSRIS, SAGIA, ECA

22 Economic cities — opening vistas of growth

3.3 Perceptions of key developers, contractors and consultants
Voices of key stakeholders

“As of 2014, KAEC had attracted more than 70 leading local and international companies, which will use the Industrial Valley
as their base of operations.”
“Many companies have chosen to invest in KAEC because of its world class service facilities, highly developed infrastructure
and the strategic advantages of its location.”
“The direct link between the Industrial Valley and King Abdullah Port in KAEC makes it an important logistical hub and an
access point to reach 250 million consumers in the Middle East and North Africa.”

Rayan Qutub, CEO — KAEC Industrial Valley

“King Abdullah Port in the KAEC has the potential to become a global logistics hub, handling trade for the entire region.
The port has a capacity for 1.3 million containers in operation and is planning four million in the next two years and seven
million by 2017.”

Fahd Al Rasheed, CEO — Emaar Economic City

“The investment market in the KSA is considered to be the most advanced in the region.“
“The country is currently witnessing significant and unprecedented development and the absorptive capacity of the Saudi
economy is huge, while big spending on development projects creates countless investment opportunities. The conditions are
very favorable to encourage the entry of promising investment for the national economy.”

Nasser Al-Tawayan, Communications Director, SAGIA

“Jazan Economic City will become a key contributor to the KSA’s economy as current infrastructure and projects development
will provide a solid base for further investments in heavy and secondary industries, petrochemicals, mining and conversion
industries.”
“Saudi Aramco has been entrusted to build Jazan’s strategic infrastructure through the development of a refinery and
terminal, a power plant, a commercial seaport, a water desalination plant, roads and water and sanitary drainage systems,
in addition to connecting electricity.”

Khalid A. Al-Falih, President and CEO, Saudi Aramco

Sources: Arabnews, Zawya, Saudi Gazette

Economic cities — opening vistas of growth 23

 3.4 Outlook for real estate development of ECs
With depleting oil reserves and the necessity to rope in private
investment to sustain its ambitious investment plans, including
that of the four ECs, the KSA Government is currently focusing
on developing clusters to feed the Kingdom’s growing economy.
The construction of four integrated ECs promises to considerably
alter the economic landscape and provide a wealth of exciting
greenfield opportunities to investors. ECs will act as engines for
industrial growth, real estate development, seaport and dry port
development, and educational advancement in the Kingdom.
The ECs are expected to bring a considerable economic and
construction boom, with global investors and companies
pumping in billions of riyals. The new ECs, according to SAGIA5,
would contribute US$150b to the GDP by 2020. They will
also provide a living environments for 4 to 5 million people
and increase per capita GDP from US$13,000 in 2007 to
US$33,500 by 2020.
The private sector develops each city by generating private
investments in infrastructure, real estate and industry. By
identifying and attracting core investors, additional jobs are
created, which will then spur jobs in other supporting services.
The ECs will be offering an attractive lifestyle to grow beyond a
mere industrial free zone. The cities enjoy a globally competitive,
business — friendly regulatory environment.
While the regulatory climate is more rigid as compared with
its Gulf Cooperation Council (GCC) counterparts, the Saudi
Government’s liberalization measures to simplify procedures
were put in place to make the new mortgage laws more
transparent. Foreign investments are likely to help attract
investment in the ECs and spur growth across the real estate,
hospitality and construction industries in the Kingdom.

JEconomic Cities Authority Overview - HR Forum” — January 2015

5

“Saudi Arabia’s Economic Cities — Economic Cities Agency SAGIA” , January 2015

24 Economic cities — opening vistas of growth

EY’s role
EY’s Middle East Transaction Real
Estate Advisory Services Group
is an integrated, cross-functional network
of experienced real estate and hospitality
professionals who focus on providing
value-added multidisciplinary services
and cutting-edge strategies to companies
that own, develop or operate real estate
and hospitality assets and project
management services.
• We advise developers and investors
on the highest and best use of their
lands, taking into account location
and site attributes, market dynamics
and competitive landscape.
• We perform market studies
for developers and investors to assess
opportunities and keep them abreast
of market performance, trends
and outlook.
• We offer development advisory services
or review and refine clients’ facilities
programs.
• Our services are designed
to select a management company/
operator on a timely basis to meet
our clients’ needs as well as to provide
professional advice during the contract
negotiation process.
• We help clients assess the fair market
value of their real estate assets
through market and/or income-based
approaches.
Economic cities — opening vistas of growth
• We perform financial and commercial
due diligence on any target acquisitions
in real estate and hospitality sector that
clients intend to make.
• We can benchmark your property
and help you identify your key
opportunities for improvement:
renovation, re-branding,
cost containment, enhancing
product/service quality, increasing
product/service differentiation,
improving sales/marketing strategy
in rooms, food and beverage,
meeting/banquet and all other
revenue-generating departments.
• Our restructuring advisory services
include guiding your company through
the liquidity management process
focused on operational cost savings,
developing and evaluating your
business plan and strategic alternatives,
providing alternative debt/equity
structures based upon your asset base
and/or anticipated cash flows, advising
on negotiations and on pre-bankruptcy
and divestiture planning. We also
provide financial advice throughout
Chapter 11 proceedings, and advise on
tax aspects of restructuring in and out
of bankruptcy.
25
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About EY’s Global Real Estate Sector
Today’s real estate sector must adopt new approaches to address Sajith P
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Assistant Manager, Business Research
the challenges of expanding globally and achieving sustainable growth.
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