Developments in Jeddah's transport, tourism and entertainment sectors underscore investment opportunities

 

Located on Saudi Arabia’s Red Sea coast, Jeddah is the Kingdom’s second-most populous city after the capital Riyadh, and serves as a key commercial and logistics centre. Its regional importance stems from more than its proximity to the holy cities of Makkah and Medina. In addition to boasting the two largest seaports on the Red Sea, the city is benefitting from a host of development projects to expand transport and logistics infrastructure, and – as part of the city’s growing tourism offering – the events and entertainment segment. However, the drop in oil prices and the country’s response to the Covid-19 outbreak in early 2020, which included the temporary suspension of international flights in mid-March, will have an impact on Jeddah’s construction, logistics and tourism sectors, among others. Nevertheless, the city is set to play a key role in realising the economic diversification aims laid out in the Kingdom’s long-term development plan, Vision 2030.

Economic Cities

Jeddah’s geographic position places it in close proximity to a series of economic cities that are under development across the Kingdom as part of efforts to boost economic diversification. Situated on the Red Sea coastline some 150 km north of Jeddah, King Abdullah Economic City (KAEC) is one such project – with another located in Medina (see Makkah & Medina chapter). KAEC encompasses King Abdullah Port, residential districts, connections to the Haramain High-Speed Rail (HHSR) and an industrial zone. As of end-2019 approximately 40% of the project had been completed. Dubai real estate company Emaar Properties is in charge of the economic city’s development.

Strategically located between Makkah and Medina, another mixed-use development is under construction with the goal of becoming a community-based centre for investment, entertainment and living. The 5.3m-sq-metre Jeddah Economic City (JEC) is being built by Kingdom Holding at an estimated cost of $20bn. In addition to residential and diplomatic quarters, business zones, commercial centres, academic institutions and tourist facilities, JEC will house the Jeddah Tower, formally called Kingdom Tower. The 1-km-tall structure is set to surpass Dubai’s Burj Khalifa (828 metres) as the tallest building in the world. Jeddah Tower will comprise 243,866 metres of gross leasable area (GLA); a wide range of hotels, residential apartments, office spaces and luxury condominiums on over 200 floors; as well as the world’s highest observation deck, standing at some 660 metres. The structure is estimated to cost $1.4bn and is set to open in the second half of 2020, though it is unclear whether this will be delayed by Covid-19.

Port Expansion

The largest port on the Red Sea, Jeddah Islamic Port (JIP) has been a mainstay in the shipping industry since 1976, and handles around 60% of all sea cargo imports to the country. Total cargo throughput stood at 55.2m tonnes in 2019, an increase of 0.8% on the previous year. In the month of January 2020 this increased by 2.2% year-on-year (y-o-y) to 4.9m tonnes. In early April 2020 Red Sea Gate Terminal expanded its operational capacity at JIP, officially taking over operations at the northern section of the port. In December 2019 the Saudi Ports Authority signed a 30-year, $2.4bn build-operate-transfer contract with UAE logistics company DP World to develop JIP’s Jeddah South Container Terminal. The agreement will see the firm invest $500m in key infrastructure upgrades to allow the port to handle ultra-large container ships.

King Abdullah Port, located in KAEC, is the second-largest port on the Red Sea, and is positioned on the primary east-west trunkline between Asia and Europe. The privately owned and operated port commenced operations in 2014, and has a cargo capacity totalling 30m twenty-foot equivalent units (TEUs). As well as being in close proximity to an industrial centre, the port’s position in KAEC provides it access to a range of transport links that help reduce shipping times and costs, and facilitate the port’s growth. In 2018 the port was the second-fastest-growing facility in the world, and in 2019 its throughput for bulk and general cargo increased by 335%, from 689,000 tonnes to 3m tonnes.

Logistics

Elsewhere on Jeddah’s Red Sea coast, Al Khomra Logistics Zone (AKLZ) announced in October 2019 is set to become the Kingdom’s largest integrated logistics facility. The industrial zone will cover 2.3m sq metres and is expected to create approximately 10,000 direct employment opportunities. Plans for the zone include 10 business areas across four sectors — electronics, vehicles, electrical equipment, and food and beverages — as well as facilities for both primary and secondary manufacturing, storage and cooling, and food distribution. AKLZ will benefit from connections to JIP, King Abdulaziz International Airport (KAIA) and the upcoming Saudi Landbridge Project. Nabil bin Mohammed Al Amoudi, the former minister of transport, told local media at the time of the announcement that investment opportunities in AKLZ would be offered to the private sector, with the state acting as a regulator, although full details have yet to be released.

Technological innovation has also played an important role in improving efficiency in the local logistics industry. “Clearance productivity at seaports and airports has risen in the last few years,” Marwan Faisal Alfadl, CEO at logistics service provider Wared Logistics, told OBG. “There have been investments in technology in Customs clearance that have reduced cargo control times, easing trade activity.” Mohkam Bahakim, CEO of logistics and supply chain firm Bahakim Group, similarly told OBG that enhanced Customs technology had reduced some service times from more than 10-15 days to under a few hours.

International Air Arrivals

Located 19 km north of Jeddah, the busiest airport in the country is KAIA (see Transport chapter). This is due in large part to the area’s proximity to Medina and Makkah, and the significant flows of Hajj and Umrah pilgrims. The facility has undergone three phases of expansion since 2006, and in May 2018 the new Terminal 1 began operations. The newly opened KAIA space includes a shopping mall, a five-star hotel, and a dedicated Hajj and Umrah terminal with a capacity of up to 3800 people per hour during peak times. Passengers benefit from an integrated transportation network, which provides multiple options for transit to Jeddah or the holy cities, including the SR60bn ($16bn) HHSR. In early 2020 plans to connect Jeddah’s metro were also floated.

In 2018 the government relaxed visa restrictions for Umrah visa holders, allowing travellers to procure a one-month tourism visa. While international arrival numbers will be dampened by the travel restrictions put in place in early 2020 to mitigate the global spread of Covid-19, the launch of tourist visas marks a significant liberalisation of the visa regime that will spur greater activity in the aviation and tourism sectors as passenger movement normalises.

In the interim, a February 27, 2020 order prevents Umrah visa holders from entering the country on public health concerns, and Saudi authorities are expected to make a final call in May as to whether the yearly Hajj pilgrimage, due to start in late July, can safely proceed (see Makkah & Medina chapter).

High-Speed Rail

The HHSR opened in September 2018, connecting Jeddah to KAEC, KAIA, and Makkah and Medina. The line allows pilgrims staying in Jeddah to reach Makkah and the Grand Mosque in approximately 20 minutes, which could see more visitors use Jeddah as the base for their stay in the Kingdom and make day trips to the holy city.

In September 2019 operations at the HHSR were halted after a fire damaged the main station in Jeddah. December 2019 saw a limited number of routes begin again, and by January 2020, 30% of the project’s total capacity was in use. According to local stakeholders, the line is expected to benefit 50m-60m passengers annually once fully completed.

Public Transport

Regarding transport infrastructure in Jeddah city itself, in March 2018 it was announced that contracts would be offered to the private sector for key parts of a master transport plan. Such initiatives will see the expansion of the city’s public transport system, including several metro lines, a light rail, tram, commuter rail, feeder bus network and marine taxi service, connecting major transport centres including KAIA and JIP. The SR45bn ($12bn) Jeddah Public Transportation Programme is being rolled out under the Metro Jeddah Company, and the total length of the redeveloped network will amount to over 1700 km.

The Kingdom’s Public Transport Authority has helped devise the strategy for the bus network, while private sector participation will likely be welcomed in the latter stages. Preliminary plans anticipated a completion date of 2022, with the public transport system forecast to be fully commissioned for use by the year 2025. As of January 2020 designs for the first stage of the three-phase $60bn metro system were approximately 30% complete. The line was originally scheduled to be completed that year; however, given the first phase involved launching a fleet of 770 buses, the project timeline is contingent on the progress of the bus network.

Rail Connections

Another large-scale transportation development is the Saudi Landbridge Project. It involves connecting Jeddah to the capital city Riyadh and Dammam, home to King Abdulaziz Port, via a 1000-km rail line. Initial plans outline a daily cargo capacity of 400 TEUs over 35-40 freight trains, and a reduction in freight transportation time from between five and nine days – depending on the route and whether trans-shipment is required – to just 18 hours. The benefits for shipping and related industries could be considerable. The east coast’s King Abdulaziz Port experienced 4.3% growth in 2019, while JIP’s more moderate 2.2% expansion is set to accelerate once its capacity is increased and operations begin at AKLZ.

There are also plans for five or six passengers trains per day between Jeddah and Riyadh, with stations to be located in the city centre and at KAIA. Passenger trains will almost halve the transit time between the Kingdom’s two most populous cities – from 10-12 hours by bus to six hours.

In October 2018 Rumaih Al Rumaih, president of the Public Transport Authority, signed a memorandum of understanding (MoU) with China Civil Engineering Construction Corporation (CCECC) for the implementation of the project, although it was still in the planning and design stages as of early 2020.

Similarly, in February 2020 the Ministry of Transport announced a feasibility study for the world’s longest hyperloop track. This would enable passengers to travel between Jeddah and NEOM, a planned cross-border city in north-western Saudi Arabia, in 40 minutes; between Jeddah and Riyadh in 45 minutes; and from the capital to Abu Dhabi in 48 minutes.

Smart Technology

There is scope for both the HHSR and the Saudi Landbridge Project to benefit from smart railway technology, following the signing of a MoU between the Saudi Railway Company and Chinese technology giant Huawei in July 2019. Both rail networks are included in the first stage of the project, which early estimations suggest will cost SR63bn ($16.8bn). One of its overarching goals is to transform the Kingdom’s rail connectivity through integration with the internet of things, artificial intelligence, cloud services and a next-generation railway wireless network, as well as 5G technology.

Making Room

Jeddah remains an important tourism destination, and government initiatives have encouraged Hajj and Umrah pilgrims, as well as businesspeople and other international tourists, to visit, in line with broader Vision 2030 goals. To cater to an anticipated increase in tourist traffic, developments are under way to expand Jeddah’s hotel supply.

According to US real estate company CBRE Group, the number of keys was expected to expand by almost 50% over the 2019-22 period, with the addition of 6400 more rooms to an overnight capacity of 13,760 rooms as of end-2018. While measures to stop the spread of Covid-19 will distort visitor patterns in 2020, figures from the start of the year showed that hotel supply was being outpaced by rising demand. Hotel occupancy rates in January 2020 rose by 31.8% y-o-y to reach 63.5%, according to data analysis company STR, marking a four-year high. Even with a lower average daily rate, which decreased by 9.5% to SR600 ($160), revenue per room increased by 19.4% to reach SR381 ($102).

Entertainment

The Kingdom has identified the entertainment segment as a key driver of economic growth. The General Entertainment Authority was established in 2016 to guide the organisation, leadership and development of the entertainment industry. As part of the Quality of Life Vision Realisation Programme, a host of facilities were slated to open across the Kingdom in 2020, including 149 art galleries, 27 electronic games venues, 18 theatres and 16 family entertainment centres, among others. In Jeddah new projects were expected to add approximately 600,000 sq metres of retail GLA over the 2019-22 period, representing a 40% increase on 1.5m sq metres recorded in 2018, according to CBRE’s “Jeddah Market Snapshot 2018” report. It was announced that the Saudi General Culture Authority would build Saudi Arabia’s first opera house, which could be ready as early as 2022.

The programme’s emphasis on entertainment is also targeted at improving the quality of life for citizens by enhancing the offering of cultural, environmental and sporting activities. Broader goals include having a Saudi city included in the top 100 of the Global Liveability Index compiled by the Economist Intelligence Unit, and 2.2% of household spend going towards leisure activities.

Jeddah is well placed to contribute to these efforts. Jeddah Season was launched in 2019 to establish the port city as a capital of tourism and entertainment, via a wide-ranging offering of “entertainment, leisure and thrills of activities entailing music, art, culture and sports”, according to the website. The 2019 Jeddah Season offered 150 activities over the five weeks between June 8 and July 18, and provided seasonal employment to over 5000 Saudis – including valuable work experience for the population’s youth. The season closed with the Kingdom’s biggest music festival to date, the Jeddah World Fest, which welcomed a roster of international stars including Janet Jackson, 50 Cent, Chris Brown and Tyga to the 60,000-capacity King Abdullah Sports City stadium. The 2020 Jeddah Season was cancelled on March 19 as part of measures to curb the spread of Covid-19.

The city was also selected to launch the Red Sea International Film Festival, though this too was postponed due to the pandemic. The inaugural event had been scheduled for March 2020 and was set to showcase 107 local, regional and international features and shorts. The film festival is likely to be rescheduled at a later date.

Outlook

Recently completed and ongoing developments to enhance Jeddah’s transport infrastructure will continue to strengthen the city’s position as a key thoroughfare for both cargo and passengers. Although visitor numbers will dip as a result of the Covid-19 pandemic, in the long term the city will be able to leverage relaxed visa regulations and the increased capacity of its hotels. Furthermore, expanding entertainment offerings should encourage visitors to include Jeddah on their itinerary. Alongside greater capital flows stemming from economic cities and transport and logistics centres, more funding will be available to continue expanding Jeddah’s offering and boost economic activity.

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The Report: Saudi Arabia 2020

Jeddah chapter from The Report: Saudi Arabia 2020

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