NEW "KING ABDULLAH ECONOMIC CITY" ON THE RED SEA:

C O N F I D E N T I A L SECTION 01 OF 02 JEDDAH 000557

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SIPDIS

RIYADH, PLEASE PASS TO DHAHRAN; DEPARTMENT FOR NEA/ARP;
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DONNELLY AND PAUL BURKHEAD

E.O. 12958: DECL: 08/22/2016
TAGS: ECON PREL SA
SUBJECT: NEW "KING ABDULLAH ECONOMIC CITY" ON THE RED SEA:
THE DUBAI OF THE FUTURE OR WHITE ELEPHANT?

REF: JEDDAH 497

JEDDAH 00000557 001.3 OF 002


Classified By: Consul General Tatiana Gfoeller,
for reasons 1.4 (b) and (d).


1. (C) Summary: Among the Saudi Government's many new
megaprojects, the planned $26.7 billion "King Abdullah
Economic City" has attracted the most media and investor
attention. Its organizer, Saudi General Investment
Chairman Amr Dabbagh, is pushing ahead. In a recent
meeting, CG and EconCouns told Dabbagh the USG is
interested in his project for two reasons: first,
the commercial opportunities for US firms in building
this city; second, the reforms that he will have to
implement in order for this enormous infrastructure
construction project to become a real city, and a
real competitor to Dubai. End Summary.

AMBITIOUS URBAN PLANNING


2. (SBU) The Consul General and EconCouns met recently at
the Jeddah offices of Amr Dabbagh, Chairman of the Saudi
General Investment Authority (SAGIA),an independent SAG
agency. Dabbagh is heading the US bilateral investment
treaty effort (reftel); he is also in charge of large new
infrastructure megaprojects for the Kingdom. The most
prominent of these is the planned "King Abdullah Economic
City," to be built approximately 80K north of Jeddah on
the Red Sea coast at the small port of Rabigh, which
currently holds a Saudi naval base, and a petrochemical
complex (built and partly owned by the Japanese firm
Sumitomo).


3. (SBU) Dabbagh sketched out his ambitious plans for
the proposed King Abdullah city. The development plan
(prepared by Stanford Research Associates of Palo Alto)
calls for $26.7 billion of total investment (of which
the total SAG commitment is about $7 billion to build
the basic infrastructure.) Dabbagh sees the city as
ultimately housing 1.7 million residents. It will
include a sea port with the ability to moor mega-vessels
and handle millions of TEUs each year, an international
airport and a financial center with 1,200 business hotel
rooms and 60,000 square meters of convention center space
and business hotels. The five million square meters of
resort property will include 3,000 hotel rooms, an
18-hole championship golf course and yacht club. The
residential areas will include a "town center" urban
area with low-rise medium density apartments, a
stylish sea-front area district, and luxury waterfront
villas with private boat docks. Planners are creating
"state of the art" sewer, power and desalination systems,
and the city will have its own power grid. Planners have
not designated a "diplomatic" quarter, but expect that
consulates and diplomatic missions from Jeddah will
relocate to the new city. Dabbagh has hired two US
consulting firms to provide the urban and financial
planning.


4. (SBU) The new city will also have an industrial
center, building on the current Sumitomo complex, and
a rail transport hub. Plastics and petrochemical
industries will be industrial cornerstones of the new city,
with neighboring cities and provinces, such as Yanbu,
supplying raw materials that will be processed into final
products. The Economic City will be part of a high-speed
train system linking important cities such as Mecca and the
current city of Jeddah. Planners hope that it will compete
with Jeddah as an embarkation point for religious pilgrims
fulfilling their "hajj" and "umra" to the Holy Cities of
Mecca and Medina.


5. (SBU) The initial stage of construction that will
start soon will include a sea port, the first phase of
an industrial park focusing on light industry and R&D,
two resorts, 1,500 homes surrounding a golf course,
and approximately 6,000 apartments in the proposed
"Red Sea Village" complex. Power and light are due

JEDDAH 00000557 002.3 OF 002


to be switched on in September 2008.

NEW CITY AS "AGENT FOR CHANGE"


6. (SBU) Dabbagh stressed that the new city's
success will require it to have its own separate
legal regime, and he sees the city as an "agent
of change" and catalyst for reforms for the rest
of the country as well. SAGIA will act as the
"front desk" of the new city, encouraging
efficiency, eliminating bureaucratic hassles,
and streamlining the process for business
licenses and work visas, with a strong private
sector business focus.


7. (SBU) An early indication of public support for the
city was the initial public offering, in the first week
of August, for shares in the development company "Emar
Economic City," a joint venture between Emar Properties
of Dubai and Saudi businesses (the Bin Laden Group most
prominently). The IPO aimed to raise about $700 million
per Dabbagh, but was oversold and raised over $1.5 billion
from the Saudi public.


8. (SBU) The SAGIA planners of the city told the CG and
ConGenOff in follow-up meetings that most residents will
be Saudi nationals. Promotional literature and the
official website (www.kingabdullahcity.com) show men in
characteristic white "thobes" and Arab headdress and
women in the all encompassing black "abaya." Success
of the city is premised on the promise of Saudi Arabia's
burgeoning population. Seventy five percent of the
population is under age 30 and sixty percent is under
age 21. The demand for housing in the Kingdom is
expected to skyrocket in the next twenty years.


9. (C) City planners were vague when the CG asked what
personal freedoms will be enjoyed by city residents.
Lifestyle limitations in the Kingdom include bans on
alcohol, movie theaters, and public performances of
music. Saudi law requires shops, restaurants and
businesses to close their doors during the five daily
prayer times. Mixed gender seating in public places
is prohibited. Women are prohibited from driving
automobiles or riding bicycles, and are obliged to
wear the ubiquitous black "abaya" when in public.

COMMENT: CAN DABBAGH AVOID WHITE ELEPHANTIASIS?


10. (C) Saudi elites in business and government are
watching Dabbagh's ambitious plans for the "new Dubai"
as they call it, silently cheering on his reform agenda,
but also handicapping his chances. They tell the
Embassy and ConGen Jeddah Dabbagh brings two important
assets to the table. First and foremost, he has King
Abdullah's backing (witness the name of the new city).
Second, Dabbagh is from a prominent Jeddah family and
that city's merchant class (the country's single largest
reform constituency) is his natural constituency. Some
members of it have told the CG they are investing in this
project enthusiastically.


12. (C) However, the Saudi elites remain skeptical of
Dabbagh's ambitious plans, for several reasons. First,
he has a very aggressive, go-it-alone style, reminiscent
of his US business school training, which does not work
well in this consensus-driven society, especially in the
government, where he is perceived to have overridden the
bureaucratic prerogatives of other agencies, including
the Commerce and Finance Ministries. Second, we hear
he has alienated at least parts of the Jeddah business
community, his natural constituency, by pushing ahead
with this new competitor to Jeddah before fully consulting
them. But Dabbagh, with his American business school
style, is pushing ahead, and we will continue to watch
and report on his progress.
Gfoeller