Saudi Arabia attracts foreign investment with purpose-built industrial cities

In its drive to diversify its industrial base and attract inward investment into the Kingdom, Saudi Arabia offers commercial land at significantly discounted rates in zones known as industrial cities. Although there is no prohibition on the construction of made-to-measure factories by businesses moving to one of these industrial cities, there are off-the-peg, ready-made units for light industrial purposes in most parts of the country.

MODON: The Saudi Industrial Property Authority ( MODON) was established in 2001 and tasked with establishing, developing and operating industrial cities to ensure the availability of commercial space with integrated services and facilities to meet the needs and requirements of investors. It is currently overseeing 32 of these cities, some of which are still under development, and aims to have 40 sites within five years, with a total area of 160m sq metres. There are four in Jeddah, three in Riyadh, three in Dammam, two in Qassim, two in Al Ahsa and two in Al Baha, as well as individual sites in many other urban centres around the country.

Although there are currently 3000 factories employing 300,000 people on these sites, according to MODON, at the time of writing there was space available in 17 of the developments in the central, south, north, west and eastern regions of the country.

PRICING: Rents and maintenance fees for land for factories that do not cause pollution range from SR1 ($0.27) to SR3 ($0.80) per sq metre per annum, while the fee for a factory with high levels of pollution associated with production varies from SR1 ($0.27) to SR25 ($6.66) per sq metre per annum. MODON has rules about the operation and siting within its industrial cities of plants that create fumes, and businesses producing hazardous or medical waste are required to obtain licences from the Presidency of Meteorology and Environment. A one-off development fee is charged for a company moving into the zone and is calculated according to the size of the unit. Tariffs for electricity and water use start at SR0.05 ($0.01) per KWh and SR0.10 ($0.03) per cu metre, respectively, but rise from there in bands.

PURPOSE BUILT: MODON had constructed 306 purpose-built, 1500-sq-metre units by the end of 2013, when 40 of them had already been let out. They can be used for food-based industries, light industry or eco-friendly businesses. The rental for these factories starts at SR120,000 ($31,980) per annum. The pace of development means that some of the industrial cities are more developed than others. As a starting point, the MODON website gives further details for each site including directions and lists of industries permitted for each site. The development of some sites in new areas has also necessitated work to supply the new zones with utility services, infrastructure and roads.

PLUGGED IN: Although the industrial cities have been built to cater to inward investment by foreign companies, they are also there to nurture the growth and development of home-grown Saudi businesses. While the industrial cities in Riyadh are fully occupied, some business leaders feel more could be done to help companies setting up in the new cities establish themselves. Ibrahim Behairi, CEO of Al Watania for Industries, a holding group with interests in plastics, paper and food, said the different agencies responsible for the developments need to work together more. “MODON needs to better coordinate with other stakeholders so that industrial cities have timely access to electricity, roads and other supporting infrastructure,” Behairi told OBG. It is a sentiment echoed by Mohammed Alnamlah, managing director of Amnest Group, a holding company that is primarily focused on manufacturing building materials, but with a number of other subsidiaries. “Developing industrial cities without investing in the proper transport infrastructure to support the operations located there will not help grow the sector quickly,” Alnamlah told OBG. “There needs to be better coordination to ensure smoother progress in developing the Kingdom’s industrial capabilities.”

WOMEN’S CITIES: One way in which MODON has adapted its development plans to address issues in the economy can be seen in its development of new industrial cities catering for women. Although figures from the Central Department of Statistics and Information (CDSI) suggest that the overall unemployment rate for Saudis has fallen from 12.2% in the first quarter of 2012 to 11.6% in the fourth quarter of 2014, the rate for women has remained high, at 32.5% in the fourth quarter of 2014. In 2013 the IMF reported that female graduates accounted for 70% of unemployed women in Saudi Arabia in 2012. Social factors impact female unemployment, including gender segregation in the workplace and transport issues stemming from the ban on female drivers. However, MODON is making an effort to tackle this and to provide a solution for female entrepreneurs or foreign investors keen to employ female staff. MODON is spending SR85m ($22.7m) on building 20 factory units, each 2000 sq metres, on the Ahsa Oasis site, which will also have day-care facilities. “The city will be fully furnished and investors will have to only install machinery and equipment in their factories,” said a MODON statement. The 500,000-sq-metre site with 80 units is intended to house businesses in industries from garments and jewellery to food and packaging. The site is near Al Ahsa Airport and also King Faisal University, where 6000 female undergraduates study agricultural and food science, education, medicine, pharmacy, ICT and administration. In March 2014 the foundation stone was laid for a women-only MODON city in Yanbu on the Red Sea coast, and a year later MODON announced that another industrial city for women was being built at Usfan near Jeddah.

IT & TECH: MODON was also given responsibility for two technology zones in Riyadh designed to foster businesses focusing on specific areas of expertise. The Information Technology and Communication Complex (ITCC) was the brainchild of the Public Pension Agency and is currently under construction. It will consist of four, 22-storey office towers at the core of a 600, 000-sq-metre development that includes 28 commercial buildings and over 100 residential buildings. Riyadh Techno Valley has been built adjacent to King Saud University and includes biotechnology, business and science-based business incubator units.

PRIVATE CITIES: It is also part of MODON’s remit to work with the private sector in the planning, construction and operation of industrial cities. Six of these private cities have been built to date, five of them in Riyadh and one in Rabigh, where a 2.4m-sq-metre centre designed for plastics companies has been built to encourage downstream businesses to develop near Saudi Aramco’s refinery and petrochemicals complex.

ECONOMIC CITIES: The work MODON is doing to encourage the development of businesses in specific zones is complemented by schemes to build new settlements by 2020. The four economic cities are King Abdullah Economic City (KAEC), which is being built by Emirati developer Emaar at Rabigh port on the Red Sea; Prince Abdulaziz bin Mousaed City, at Hail in the north of the country; Knowledge Economic City in Medina; and Jazan Economic City, a new development being led by Saudi Aramco in the south-west of the Kingdom. Construction work has already begun at all four sites.