The logistical demands of Jeddah's growing metropolitan area bring fresh opportunities to Saudi Arabia

Spurred by rapid population growth and mounting public and private investment, Jeddah – Saudi Arabia’s second-largest city – is on the rise. Since the early 1990s the population of the Jeddah urban area has more than doubled, reaching 4.1m residents as of the end of 2015, according to data from the General Authority for Statistics. While population growth in the city has slowed somewhat over the past half decade, from a high of 3.4% in 2011 to 2.6% in 2015, rising economic uncertainty across much of the Gulf and wider Middle East has driven increased investment in Jeddah over the same period. Indeed, as of January 2016, more than 850 development projects worth a combined SR74bn ($19.7bn) were under way across the municipality, according to local media reports. This total includes state-led initiatives aimed at upgrading and expanding the region’s transport infrastructure, power and sewage networks, and education provision, among other key areas.

Building Blocks

In line with the increase in public expenditure, private investors have flocked to Jeddah in recent years. With the explicit support of the Jeddah municipality and a number of other public sector entities, private firms have moved into a wide range of sectors, including housing, real estate, technology and manufacturing. “The state is driving development in Jeddah right now,” Nidhal Abdulrahman Taibah, vice-president for development at the Jeddah Development and Urban Regeneration Company (JDURC), told OBG in early 2016. “But I see the private sector taking on more and more responsibility here in the coming years.”

Although economic activity is continuing apace in Jeddah, the metropolitan area faces several pressing challenges. Population and economic growth have put pressure on the city’s infrastructure, housing stock and public services. Despite rising demand for affordable housing, the residential property pipeline remains focused primarily on the upper end of the market. Furthermore, while Jeddah’s status as the “Gateway to Makkah” has helped insulate it somewhat against lower energy prices, which have impacted national budgets across the GCC, the Jeddah region has by no means escaped the economic impact.

Pillars Of Growth

Jeddah’s economy relies on a handful of well-developed industries. Shipping, which has been a vital component of the area’s economy for centuries, remains a cornerstone of activity today. Jeddah Islamic Port (JIP), which was established by the Saudi Ports Authority in 1976, is the largest port on the Red Sea and in Saudi Arabia, and a key access point for trade flowing in and out of the country. JIP’s Red Sea Gateway – the port’s most recently built terminal, which opened in 2009 – serves a number of leading multinational container shipping lines. As of the end of 2015, JIP had 58 terminals in total, with a combined container capacity of 6.5m twenty-foot equivalent units (TEUs), in addition to major bulk cargo-handling facilities and a wide range of additional capacities.

Like most other major transport and trans-shipment hubs in the Middle East, JIP has reported declining revenues in recent years. This can be attributed to both the slowing pace of global trade and, more specifically, the 2014 launch of operations at King Abdullah Port, a privately operated container facility located at King Abdullah Economic City (KAEC), around 140 km north of JIP.

Additionally, as the largest city in the Makkah administrative region, Jeddah serves as the primary point of entry to Saudi Arabia for the millions of religious pilgrims that travel to the Islamic holy cities of Makkah and Medina each year. Attracting between 1.5m and 2m visitors per annum, the Hajj, which in 2016 took place in the middle of September, is the single largest mass gathering in the world. The Umrah pilgrimage, meanwhile, which Muslims may carry out at any time of year, attracts millions more visitors to Jeddah.

Catering To Growing Needs

In order to provide effective transport and services to pilgrims, in recent years the government has invested heavily in upgrading and expanding infrastructure and other facilities in the two holy cities, as well as in Jeddah. Indeed, most incoming Hajj and Umrah pilgrims land at Jeddah’s King Abdulaziz International Airport (KAIA) before making their way to the holy sites, primarily by road transport. Construction of the first phase of a new terminal at KAIA, which has been under way for the past decade, is expected to be completed before the end of 2016, with positive implications for both pilgrim traffic and domestic tourism, the latter of which has grown considerably in recent years. Additionally, the government is in the midst of constructing a new high-speed railway, which will connect Makkah, Medina and Jeddah upon its scheduled completion in 2017, with positive knock-on effects for the city and wider region (see Transport chapter).

Jeddah has come to rely on a thriving manufacturing sector in recent years, centred on four industrial cities located in the municipality. Under the leadership of the Saudi Industrial Property Authority (MODON), a quasi-governmental entity set up in 2001, the government has moved to ramp up spending on industrial activity across the country, with an eye towards improving the sector’s contribution to GDP from 10% in 2013 to 20% by 2020. As of late 2015, MODON oversaw around 45m sq metres of industrial land in and around Jeddah, according to recent reports. The bulk of this area was tied up in the four aforementioned industrial cities, some 25m sq metres of which have already been developed by a combination of state-owned and private firms. At the time of writing, the remaining 20m sq metres were still under development by MODON (see analysis).

Religious Visitors

Muslims around the world are obligated to complete the Hajj once in their lifetime, provided they are financially and physically able. As such, religious visitors have served as a major and consistent source of revenue for the Makkah administrative region for centuries. In recent years the national and regional government alike have gone to great lengths to boost visitor capacity at the Grand Mosque in Makkah, which is home to the Kaaba, Islam’s holiest site, as well as other important religious sites in the area. The mosque complex is currently in the midst of an expansion project – the fourth to be carried out since the early 1970s – which is expected to be completed in 2020, at which point the facility’s capacity will increase to around 2m worshippers, up from approximately 1m at present.

In 2015 some 1.33m pilgrims came from outside the Kingdom to participate in the Hajj, down slightly from 1.38m the previous year, according to government figures. The majority of these visitors entered the country at KAIA, which saw more than 14m arrivals in 2015, as per data from the General Authority for Statistics. Handling large numbers of visitors – many of whom arrive and depart within a few days of one another during the five-day Hajj period – remains a major challenge for the government, as evidenced by ongoing infrastructure construction in Jeddah and the two holy cities (see Makkah & Medina chapter).

KAIA, which opened for business in the early 1980s, was built specifically with pilgrims in mind and includes a dedicated Hajj terminal with a capacity for 80,000 people. With pilgrim arrivals having risen rapidly over the years, the General Authority of Civil Aviation launched a three-stage KAIA upgrade project in 2006, slated to increase the airport’s capacity from 13m to 80m passengers. As of late 2015, about 80% of the work had been carried out on the first phase of the project, which is expected to be completed by 2017, raising the facility’s capacity to 30m passengers per annum. The second and third stages of the upgrades, which will boost KAIA’s overall capacity to 55m and 80m passengers per year, respectively, will be launched subsequently, though a date for completion has yet to be set.

New Transport Links

In December 2015 the minister of transport, Abdullah Al Muqbil, announced that the Haramain High-Speed Rail Project, which will connect Jeddah to Makkah and Medina, was on schedule to be completed at some point in 2017, five years after the original completion date in 2012. As of mid-2016, around 90% of the work had been finished, including the world’s widest overpass, at about 70 metres in width. The project, which is based on plans that have been in circulation since the mid-2000s, involves installing 450 km of track at a total cost of more than SR50bn ($13.3bn), according to data from the Saudi Railways Organisation (SRO).

Construction work on the project began in early 2009. Upon completion, the line will have a capacity of around 3m passengers a year, with rolling stock capable of speeds of up to 300 km per hour. Hajj and Umrah pilgrims who land at KAIA, which will have a dedicated train station, are expected to make up a considerable percentage of Haramain rail passengers. In March 2016 SRO announced it was in the process of carrying out technical and safety tests on the line, and that basic construction work on the network’s railway stations had been completed. According to a senior SRO official, all stations are now ready and have been provided with necessary infrastructure and services.

At the same time, the government has continued to invest heavily in improving and expanding the road network across the country. By the end of 2015, the total length of paved roads in Saudi Arabia reached 64,000 km. Furthermore, the Ministry of Transport was in the process of asphalting an additional 24,000 km of roads, at a cost of more than SR20m ($5.3m). According to Al Muqbil, the government plans to pave a further 60,000 km of roads in the future. Given the annual influx of religious pilgrims to Jeddah, the Makkah region is widely expected to be a major beneficiary of the Kingdom’s ongoing road upgrade projects.

Port City

JIP is at the heart of Jeddah’s economy. In the first five months of 2016 the port handled 23.4m tonnes of throughput, with 16.3m tonnes of incoming cargo and 7.1m tonnes of outgoing cargo. This top-line figure is slightly up on the first five months of 2015, when JIP recorded 23m tonnes of total cargo, according to data from the Saudi Ports Authority. The port handles a wide variety of goods. In terms of container traffic, in the first five months of 2016 JIP saw 1.8m TEUs of total container throughput, up from 1.74m TEUs over the same period in 2015 and 1.77m TEUs in the first five months of 2014. Major incoming cargo in the first five months of 2016 included food and foodstuffs, construction materials and consumer goods. Meanwhile, key outgoing products included refined hydrocarbons products, petrochemicals, industrial oils and related products.

For the past three years, however, JIP has seen rising competition from King Abdullah Port, which is Saudi Arabia’s first privately owned and developed port, located in KAEC. The port had a total container-handling capacity of 3m TEUs as of mid-2015, after having opened a new container berth with an annual capacity of 1m TEUs in 2014 (see Transport chapter). The port attracted 1.3m TEUs of container throughput in 2015, more than double the 2014 figure of 500,000 TEUs, according to data provided by the Ports Development Company (PDC), the owner and developer of King Abdullah Port. PDC, which was established in 2010, is a joint venture between Emaar, The Economic City, the developer of KAEC, and Huta Marine Works, a Jeddah-based marine services firm.

Like many other major ports in the Gulf region, the bulk of cargo handling at King Abdullah Port – some 70-80%, according to the port’s management – is trans-shipment. Since opening three years ago, the port has quickly risen up the ranks of major cargo-handling destinations in the Middle East, and in 2015 it saw the arrival of ships affiliated with the 2M vessel-sharing alliance, which is composed of global shipping giants Maersk and the Mediterranean Shipping Company.

Tourism Destination

While Hajj and Umrah pilgrims constitute a large percentage of arrivals at KAIA, Jeddah and the surrounding region has also been a major beneficiary of rapidly expanding domestic tourism in recent years (see Tourism chapter). In 2015 the Tourism Information and Research Centre (MAS), the data-collection arm of the Saudi Commission for Tourism and National Heritage, reported total domestic tourism expenditure of SR42.2bn ($11.3bn), up 19.2% from SR35.4bn ($9.4bn) in 2014. Echoing this jump in spending, the number of domestic tourism trips more than doubled between 2012 and 2015, rising from 19m to 46.5m, based on the most recent annual data available at time of publication. The bulk of this travel involved trips to Makkah and Medina, which attracted 16.6m and 7.4m visitors, respectively, in 2015, making them the top-two most-visited provinces in the Kingdom for the year.

Regional employment and revenues have also been positively impacted by these recent developments, with the total number of direct tourism employees in the country reaching 883,000 nationals in 2015, compared to 750,000 in 2013, according to MAS data. Similarly, the tourism sector’s contribution to GDP – a large percentage of which can be attributed to domestic tourism spending – jumped from SR82bn ($21.9bn) in 2014 to SR84.1bn ($22.4bn) in 2015. MAS forecasts nationwide tourism expenditure will hit approximately SR100bn ($26.7bn) by 2020, with the total number of trips slated to reach more than 56m.

Coming Into Its Own

The city of Jeddah is an increasingly popular tourist destination in its own right. Following a three-year urban regeneration project, in 2014 Jeddah’s 2500-year-old city centre was named a UNESCO World Heritage Site on the basis of its celebrated history as a major Red Sea and Indian Ocean trade site, as well as its status as the primary gateway for Muslim pilgrims to Makkah. As the UNESCO listing notes, beginning in the 8th century, Jeddah developed into a thriving cosmopolitan centre, “characterised by a distinctive architectural tradition, including tower houses built in the late 19th century by the city’s mercantile elites, and combining Red Sea coastal coral building traditions with influences and crafts from along the trade routes”.

In line with the rejuvenation of the city centre, in recent years Jeddah’s regional government has moved to boost the entertainment, shopping and lodging options on offer in the city, dovetailing with the Saudi government’s current economic diversification plan, Vision 2030. Central to this plan has been the establishment of a variety of festivals scheduled to take place. These include Jeddah Heritage Festival, which was launched in 2014, the Jeddah Summer Festival, which has attracted visitors to the city every summer since 1998 with its entertainment, sports and cultural activities, and the Hayya Jeddah shopping festival, which also involves a substantial number of games, entertainment and other events aimed at children.

Public Planning

State-led planning has driven much of the development that has taken place across Jeddah in recent years. In 2013 Jeddah’s ministers voted to approve a nine-year, £8bn public transport infrastructure development strategy, which has the potential to fundamentally alter the way residents commute and travel around the city. The Jeddah Public Transport Programme, which is scheduled to be completed in 2022, includes plans for a three-line metro and light-rail network, multiple bus lines, ferries, a tramway, taxis and park-and-ride facilities. In total, the design for the network includes 46 stations.

A variety of foreign firms have been linked to the project, including the UK-based architecture house Foster + Partners, which was appointed in March 2015 to develop the project. “Currently, only 12% of the population live within a 10-minute walk of Jeddah’s transport nodes,” the firm said at the announcement of their involvement. “The project aims to achieve 50% through a process of densification and strategic planning.”

Partnership

A number of state-affiliated entities have taken leading roles in the development of Jeddah. In addition to the regional government of Makkah Province, which is involved in planning and implementation across the region, the Jeddah Chamber of Commerce and Industry (JCCI) and the JDURC play key roles. “Our members are increasingly being called upon to partner with the state to carry out projects and provide services,” Nadia Al Amoudi, research and studies manager at the JCCI, told OBG. “Public-private partnerships (PPPs) are increasingly popular in the Kingdom, and as one of the largest collections of private firms, we do a lot to encourage these kinds of deals, plus private sector-led developments of other kinds.”

In the late 1990s the JCCI was closely involved in the establishment of the Jeddah Economic Forum, a high-profile annual conference aimed at thinking through key social and economic issues in Saudi Arabia and across the wider region. The 2016 forum, which took place in March, focused on PPPs and opportunities for privatisation in Saudi Arabia.

The JDURC, meanwhile, which was formalised as the city’s primary project delivery agency in 2006, is involved in the implementation of new public sector projects, the privatisation of state-owned assets and the development of various new projects in the greater Jeddah region.

Housing is a important area of focus for the JDURC, as is urban infrastructure and logistics. “There is a national mandate for privatisation now – this is the key strategy moving forward in Saudi Arabia’s Vision 2030,” said the JDURC’s Taibah. “More specifically, there is a focus both here and nationally on boosting private involvement in religious tourism, industry, logistics and housing.”

Outlook

Jeddah faces a range of challenges. Declining oil revenues forced Saudi Arabia to cut overall investment spending by nearly two-thirds in 2015, and the state expects to see infrastructure and transport expenditure fall by an additional 63% in 2016, according to government figures. While Jeddah’s governor, Prince Mishaal bin Majed, assured local media in early 2016 that none of the city’s major development projects had been postponed, national spending cuts could have a negative impact on Jeddah in various ways for the foreseeable future. “The whole economy has been impacted by the oil price,” the JCCI’s Al Amoudi told OBG. “There are very few sectors – in Jeddah or elsewhere – that have not been affected.”

Despite these issues, Jeddah is widely seen as better situated than many other parts of the Kingdom to not only endure the current period of economic volatility, but to flourish. So long as the state’s plans move forward, a decade from now Jeddah has the potential to be a major urban capital, not only in the Gulf or Middle East, but globally.

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The Report: Saudi Arabia 2016

Jeddah chapter from The Report: Saudi Arabia 2016

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