Saudi’s Emaar Economic City Says Cheap Oil May Boost Growth

Saudi Arabia’s Emaar the Economic City (EEC) expects demand for its industrial and residential property to grow this year as companies increase investment despite the plunge of oil prices, a top executive said.

Established in 2006, EEC’s operations are an example of the public-private partnerships which Saudi Arabia is using in a drive to expand its industrial base, create jobs for local citizens and diversify its economy beyond oil.

The company, a consortium headed by top Dubai real estate developer Emaar Properties and Saudi investors, is building King Abdullah Economic City, a special economic zone on Saudi Arabia’s Red Sea coast near Jeddah.

The zone, focused on light industry and shipping, is projected to be the size of Washington DC when completed, hosting up to two million people.

The tumble of global oil prices since last June is prompting Saudi Arabia to postpone some energy-related projects, state oil giant Saudi Aramco said this week. But Fahd Al Rasheed, EEC’s group chief executive, said he expected no slowdown in his business.

“We actually expect in 2015 that the market for our product, for manufacturers is going to increase. As you know, a lower (oil) price means global growth, as companies have growth markets in the U.S. and elsewhere,” he said in an interview.

“So we expect more liquidity, hence more investments in the kingdom,” Rasheed added, noting that Saudi government spending related to his and other projects was continuing.

The government has projected a slight increase in nominal state spending in its 2015 budget, saying it will use its huge fiscal reserves to fund a deficit while oil prices are low.

EEC reported a 39 per cent jump in net profit to SAR379.7 million ($101.2 million) for 2014 as gross profit climbed 3.3 per cent. Rasheed said the company did not forecast earnings “but we certainly expect growth over the future.”

The company will focus this year on expanding its port and industrial area, attracting more retail and commercial investors to the city, and developing an area around a high-speed rail line, now under construction, that will link King Abdullah Economic City with Mecca, Medina and Jeddah.

The port’s annual capacity, now at 1.3 million twenty-foot equivalent units, is expected to rise to four million TEUs by the end of 2016 and ultimately 20 million TEUs in subsequent years.

Ninety-three companies have agreed to invest in the city, many of them first-time investors in Saudi Arabia, and EEC is signing about one per week, focusing on attracting industries such as pharmaceuticals, logistics, building materials, plastics and automotive components, Rasheed said.

EEC says King Abdullah Economic City has attracted about $10 billion of investments from all sources including the government; billions more are expected.

Rasheed said EEC had raised SAR3 billion from banks in 2014.

“We expect this to be sufficient for our plans going forward – we won’t be having a further debt raise.”

But he added, “We are investigating all alternatives, especially investment with third parties – joint investments with third parties to increase investment from other parties into the city.”