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Economic News

22 Jul 2010
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Last week, Malaysian conglomerate MMC Corporation announced a mega-deal to manage and develop the Jizan Economic City (JEC) in Saudi Arabia.

With a US$30bn price tag and a 30-year timeframe for implementation, the massive project, even by Middle Eastern standards, marks Malaysia's most valuable overseas contract. MMC will develop the new city in partnership with the Saudi construction and property conglomerate Saudi Binladin Group. MMC received the letter of award from the Saudi Arabian General Investment Authority in Jeddah on November 5, at the launch of JEC by Saudi Arabia's King Abdullah bin Abdulaziz Al Saud.

JEC will be Saudi Arabia's fourth special economic zone created by the government. It will occupy a 117 sq km site on the Red Sea, 725 km south of Jeddah near the border with Yemen. It is envisioned to become a fully integrated and self-contained development, comprised of industrial and non-industrial zones. It is hoped that the city will provide an area of growth in the country's underdeveloped south.

According to MMC, of the $30bn cost, roughly $17bn will be spread among the different project components within the industrial zones. The remaining amount will be spent on the development of infrastructure, commercial areas, residential areas and public amenities.

Two-thirds of the land space will be given over to the new city's industrial zone. The zone will accommodate a port, an aluminium smelter, a steel processing plant, an oil refinery, a copper processing plant, as well as fisheries and an agro-based industry. To support the industries, it will also include a power and desalination plant.

Saudi Arabia's Economic Cities are aimed at attracting foreign investment and transferring technology. The decision to launch the fourth Economic City in Jizan came about after a study of the region's industrial prospects and its strategic geographic position. Petrochemicals, metal processing, silicon processing, agro- and biotechnology are some of the industries that Saudi leaders hope will create some 500,000 new jobs.

Though MMC officials have not commented on the possibility, it is likely that companies within the MMC group will also benefit from the JEC project. There have been reports that the Port of Tanjung Pelepas (PTP) aims to play a role in the management of the planned seaport in the new city.

Observers also expect other Malaysian subcontractors to follow in the wake of MMC's involvement in Saudi Arabia. This would be in keeping with the general tendency of Malaysia's technicians and machinists to also seek opportunities abroad alongside the larger players.

For the main contractor, the project will boost MMC's revenue from overseas and place the company in a prime position to take advantage of further opportunities arising from the Gulf's building boom.

Hamzah Hasan, the chief executive officer of the Construction Industry Development Board of Malaysia told OBG that there is a lot of momentum gained from venturing abroad, and a success story goes along way. "Word gets around," he said.

MMC is the most recent of several Malaysian companies that have won contracts in the Middle East. Construction companies like UEM, Gamuda, WCT Engineering and IJM have contracts in Abu Dhabi, Bahrain, Dubai and Qatar.

"The trend is increasing. There are opportunities out there and with Malaysian contractors' capacity, they almost have to go." Hamzah said.

After years of cutting their teeth on increasingly sophisticated projects domestically - borne of the years of rapid Malaysian economic development during the 1990s - Malaysian contractors are skilled enough to be competitive internationally.

That the Saudi government would choose MMC is therefore no surprise to Hamzah. "MMC has a lot of experience with major infrastructure projects in Malaysia - railways, electrical plants, refineries. It makes sense that they would be attractive for a project such as this," he said.

Malaysian companies can also count on religious ties and a reputation for quality in the region to bolster their position in what some Malaysians refer to as 'West Asia.'

"[Middle Eastern governments] tend to favour contractors and companies from Islamic nations," Gan Kim Khoon, head of research at AmResearch, told a news agency.

* Editorial Note: Last week's Malaysia briefing mistakenly referred to MMC Corporation as 'Marsh and McClellan Companies.' MMC is the acronym for Malaysia Mining Corporation, though the company is now called MMC Corporation. We regret the error and apologise for any confusion caused.

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