As the second-largest city in Saudi Arabia, Jeddah plays a central role in the Kingdom’s non-oil economic growth, largely due to a combination of its roots in shipping and trade, and its importance as a transit point for millions of visitors travelling to the holy cities of Makkah and Medina each year.
Major infrastructure projects in the city are set to underpin growth across various sectors in the coming years – including industry, tourism and logistics – while also positioning the broader region as a principle contributor in achieving the country’s longer-term goals under Saudi Vision 2030.
Transformation Partner
The Jeddah Development and Urban Regeneration Company (JDURC) represents the investment arm of the Jeddah municipality. It is responsible for overseeing projects related to the city’s expansion and rejuvenation, as well as infrastructure and logistics capacity development. Saudi Arabia’s Public Investment Fund (PIF) – which aims to become the world’s largest sovereign wealth fund under the National Transformation Programme (NTP) 2020 – owns 75% of the JDURC, with the Jeddah municipality retaining a 25% share. Prior to the PIF’s acquisition, the municipality was the only partner of the JDURC, and as such was afforded access to substantial amounts of government land, as well as all of the concessions the municipality sought to privatise. However, the scope of potential partners is set to increase dramatically.
“Now that the PIF is the majority stakeholder, it broadens the possibility of privatising both assets and concessions across a multitude of governmental entities, governmental organisations and other ministries,” Ibrahim Kutubkhanah, CEO of the JDURC, told OBG. “In addition, having the PIF on board will help bolster private sector confidence when it comes to large, long-term investments. Its ability and reputation, coupled with JDURC’s success and expertise in managing public-private partnerships, makes for a combination that can propel Jeddah’s investment potential to new heights,” he added.
The PIF’s involvement signals the important role the national authorities hope the JDURC will play in Jeddah’s contribution to Vision 2030. This is no surprise, given that the company has worked hard over the past several years to enhance capacity in areas outlined by the long-term plan. Indeed, the JDURC’s ongoing logistics, tourism and housing initiatives are designed to tie in with various goals laid out under Vision 2030, including raising the Kingdom’s global ranking in the World Bank’s logistics performance index from 49th in 2014 to 25th; more than doubling household spending on domestic cultural and entertainment activities from 2.9% in 2016 to 6%; and boosting home ownership from 47% to 52%.
In addition, sustainability – a core tenet of Vision 2030 – lies at the heart of the JDURC’s development approach, according to Kutubkhanah. “We need to be very careful to balance the sustainability aspect, whether it is environmental sustainability, social sustainability or economic sustainability,” he said. “We need to make sure that we get the triple bottom line right from the beginning in order to save future generations the headache of having to deal with any shortcomings on our part related to planning.”
Economic Pillars
Jeddah’s economic role in the Kingdom revolves around a handful of well-developed industries. Given its location on the Red Sea, shipping has traditionally been a mainstay of the local economy, and Jeddah Islamic Port (JIP) is a cornerstone of the region’s maritime activity.
JIP was established by the Saudi Ports Authority in 1976 and has a total capacity of 6.5m twenty-foot equivalent units (TEUs), making it not only Saudi Arabia’s largest port, but the biggest on the Red Sea, and a key access point for products flowing in and out of the country. According to the General Authority for Statistics, 85% of Saudi Arabia’s imports arrived by sea in 2016, 36% of which came through JIP. In value terms, JIP’s share of maritime imports reached 54.9% in October 2017. In the eight months to August 2017 the port’s total throughput was 36.6m tonnes, down slightly on the 37.4m tonnes recorded in the same period of 2016.
JIP operates a total of 58 berths – up from the initial 10 in 1976 – across 10 specialised terminals, including two container terminals, two general cargo terminals, a roll-on/roll-off (ro-ro) and passenger terminal, a bulk grain terminal, and a chilled and frozen cargo terminal. The most recently completed of these, the Red Sea Gateway for international containers, opened at the end of 2009 and represents the first privately funded build-operate-transfer (BOT) port development in Saudi Arabia.
Five years later, in 2014, the Kingdom’s first privately owned and funded port began operations. Located in King Abdullah Economic City, some 140 km north of Jeddah, King Abdullah Port (KAP) comprises a container terminal, a ro-ro terminal, and a bulk and general cargo terminal. The port’s development will be carried out in stages through to 2025, at which point KAP will have a total container capacity of 20m TEUs, a ro-ro capacity of 1.5m car equivalent units and a bulk capacity of 15m tonnes.
Logistics
The large amount of shipping activity in Jeddah has fuelled the development of warehousing and logistics facilities, with the segment pegged to see renewed growth in line with Vision 2030’s goal to transform the Kingdom into a global logistics hub. The JDURC has worked to increase the number of high-quality warehousing facilities in the city over the past several years, particularly for fast-moving consumer goods. A 1.8m-sq-metre warehouse complex is currently being built in the south of Jeddah, and there are plans to develop a further 2m sq metres of warehousing space. These facilities will ultimately tie into a dry port development, as well as the proposed Land Bridge rail line between Jeddah and Riyadh. “We are trying to cluster these logistics projects with a dry port, which would help relieve the pressure on JIP,” Nidhal Abdulrahman Taibah, vice-president for development at the JDURC, told OBG. “The previous expansions of the port came about via sea reclamations; however, we don’t believe that is a sustainable model. We are therefore looking to develop several million sq metres of municipal land that falls directly on the path of the proposed Land Bridge rail project.”
Pilgrimage Push
Religious tourism is a major component of Saudi Arabia’s non-oil economy and a key part of the wider tourism sector, which contributed $18.7bn, or 2.9%, to GDP in 2016, according to the NTP 2020. The segment is set to grow considerably, as Vision 2030 has earmarked religious tourism for significant investment and growth.
As the largest city in the Makkah Administrative Region, Jeddah – and specifically King Abdulaziz International Airport (KAIA) – serves as the primary point of entry for religious visitors travelling to the holy cities of Makkah and Medina, which are the respective homes of the Grand Mosque, which houses the Kaaba, Islam’s holiest site; and the Prophet’s Mosque. All Muslims, provided they are both physically and financially able to do so, are required to perform the Hajj pilgrimage at least once in their lifetime, whereas the Umrah pilgrimage is not compulsory. The Hajj – which takes place over five days during the 12th month of the Islamic lunar calendar and coincides with the holiday of Eid Al Adha, marking the end of the holy month of Ramadan – forms one of the five pillars of the Islamic faith. The Umrah, for its part, may be carried out at any time during the year. Both pilgrimages have been a mainstay of Jeddah’s economy for centuries.
In 2017 the Hajj took place from August 30 to September 4, with 2.35m people participating. Of these, 1.75m came from outside the Kingdom, according to local media. These figures were up 53% on 2016, when the number of Hajj pilgrims fell to a 10-year low of 1.86m, around 1.32m of whom were foreign travellers. The rebound is largely attributable to an easing in pilgrim quotas for Muslim countries for the first time in several years.
The caps had been implemented in response to work that started in 2007 to increase capacity inside the Grand Mosque from 600,000 to 2.2m worshippers by 2020. However, the expansion programme – the fourth to be carried out since the 1970s – was halted after a falling crane killed 107 people just weeks before the 2015 Hajj. Construction was postponed for two years until it was announced that the Saudi Binladin Group would be resuming work on the $26.6bn initiative from September 2017.
The Umrah pilgrimage should play a larger role in the tourism sector in the coming years, with Vision 2030 targeting 15m Umrah visitors annually by 2020 and 30m by 2030. The most recent Umrah season, which ran from October 2016 to September 2017, saw 6.75m visas issued, according to the Ministry of Hajj and Umrah, up from 6.39m the previous season.
As part of the Kingdom’s focused efforts on increasing the number of Umrah visitors, the Umrah Plus programme was launched in 2016. This allows visitors to extend their stay beyond the pilgrimage, with various operators now marketing the package to travellers (see Tourism chapter).
Supporting Infrastructure
The goal of attracting more visitors to Jeddah – both religious and otherwise – is underpinned by several big-ticket infrastructure projects being rolled out across the region. KAIA, which began operations in the 1980s, was originally built with religious visitors in mind and includes a dedicated 80,000-person Hajj terminal. The airport has since been connected to the Haramain Express, a new high-speed railway set to open in 2018, connecting Makkah and Medina, with stops in Jeddah, KAIA and King Abdullah Economic City.
KAIA is the third-largest airport in the region after Dubai and Doha, and has experienced rapid growth in passenger numbers since the mid-2000s, particularly in terms of international travel. According to OAG Schedules Analyser, an airline schedule and flight status database, international capacity at KAIA increased by 228% between 2007 and 2016, whereas domestic capacity rose by 60%.
In September 2006 the General Authority of Civil Aviation broke ground on a three-stage expansion of the airport to help accommodate rising traveller volumes. Located to the east of the current site, a new terminal will boost annual capacity from 30m passengers to 80m upon completion in 2018. Changi Airport Group of Singapore, which was awarded a 20-year operating contract for KAIA in April 2017, have said they will focus on developing traffic and international routes, as well as on further integration with Jeddah city by connecting the new facility to the proposed Jeddah Metro project.
Rail Links
The Haramain Express is set to become fully operational in the first quarter of 2018. In October 2017 the Saudi Railways Organisation announced it had successfully completed the second test run of the train on the 72-km stretch between Jeddah and its terminus in Makkah. The new line, which is around 450 km in length, will shuttle pilgrims between the holy cities in less than three hours, while travel time between Jeddah and Makkah will be cut to roughly 20 minutes. Once fully operational, the Haramain Express is expected to transport over 60m passengers a year, with a daily capacity of 166,000 across 35 trains. This will provide a major boost to the region’s infrastructure and a considerable stimulus to economic activity.
“All investment areas associated with the hospitality industry are going to see a huge jump in their performance when the railway starts operating,” the JDURC’s Taibah told OBG. “This will be the case in Makkah and Medina, and of course in Jeddah, as the main hub for the whole system,” he added.
Another rail project in the pipeline is the proposed 950-km Land Bridge connecting the port cities of Jeddah, Dammam and Jubail, and passing through Riyadh. The project is expected to be developed on a BOT basis and, according to Taibah, will be used primarily to move large quantities of cargo. “The line might have a passenger component in the future, but its initial purpose will be to create a logistics connection between the central and eastern regions, and the western seaport of Jeddah,” he told OBG.
The Jeddah Metro project also appears to be regaining traction after being shelved in 2015 due to budget constraints. In June 2017 it was reported that the government of Jeddah was beginning the process of securing funding for the development. The extensive network, which will span more than 800 km and feature metro lines, light rail, tram links and bus routes, is expected to tie in with Jeddah’s existing transport links, including KAIA to the north.
Industrial Cities
Jeddah municipality is home to four industrial cities, all administered by the Saudi Industrial Property Authority (MODON), a semi-governmental entity established in 2001, and tasked with overseeing and developing industrial land. The government has outlined plans to grow the manufacturing sector’s contribution to GDP from 6.2% in 2011 to 20% by 2020, according to MODON, leveraging investments from international manufacturers like GE and Unilever in recent years.
The first industrial city in the Kingdom was set up in 1973 to the south of Jeddah; MODON launched the second and third cities in Jeddah in 2009 and 2010. Development on the area’s fourth industrial city began in 2012, located on 5m sq metres of land to the north-east of the city. In 2015 it was announced that MODON planned to develop four additional industrial cities across the Kingdom designed specifically to employ Saudi women, one of which will be in Jeddah. These projects are in line with Vision 2030’s plans to increase women’s participation in the national workforce from 22% in 2016 to 30%.
Another major industrial development occurred in 2017, when the PIF announced it would be creating a new company, Saudi Arabian Military Industries (SAMI), to be responsible for manufacturing products and providing services for air systems, land systems, weapons and missiles – including ammunition – as well as defence electronics inside the Kingdom. By partnering with both local and international companies across its four business areas, it is hoped that SAMI will contribute SR14bn ($3.7bn) to Saudi Arabia’s GDP by 2030 and create more than 40,000 jobs. The company will also help meet Vision 2030’s goal of localising 50% of Saudi Arabia’s military procurement spending.
Real Estate
Although rents for Jeddah’s office market remain soft, according to a third-quarter 2017 report by international real estate consultancy JLL, landlords are hoping to see increased demand from the health care, education and technology sectors under Vision 2030. Activity in these areas is expected to pick up significantly thanks to $400bn worth of trade deals signed during US President Donald Trump’s visit to Riyadh in May 2017, which cover various sectors earmarked for investment and local development by Vision 2030.
In addition, the Saudi government is now permitting 100% foreign ownership in certain sectors, which should serve to further buoy demand – and rents – for office space. According to JLL, the total stock of quality office space in Jeddah is just over 1m sq metres, with 28,500 sq metres added to the market in the first nine months of 2017.
The residential and retail segments are also anticipating renewed growth following the government’s decision in April 2017 to reinstate benefits for public sector employees. The total number of residential units in Jeddah stood at 812,000 in the third quarter of 2017, with the major Obhur Al Janoubia residential development project currently under way to the north of the city. The first phase, which will deliver approximately 2500 apartments, is being undertaken by the Kingdom’s Al Ra’idah Investment Company; subsequent phases should see the completion of roughly 4000 apartments and 1100 villas.
One of the most eye-catching developments taking place in Jeddah is the Kingdom Tower, set to become the world’s tallest building once completed. While the project has been subject to delays, it is currently targeted to finish in 2019. The tower will add approximately 500 apartments to the market, in addition to various business facilities, offices, a Four Seasons hotel, and a variety of shopping and dining areas. The tower is the centrepiece and inaugural phase of the ambitious Jeddah Economic City, a multibillion-dollar, three-stage development being spearheaded by Prince Alwaleed bin Talal bin Abdulaziz Al Saud’s Kingdom Holding. The mixed-use city, located to the north of Jeddah, will span an area of approximately 5.3m sq metres when complete.
Tourism & Hospitality
Domestic tourism to Jeddah has been on the rise in recent years, thanks in large part to the designation of the city centre as a UNESCO World Heritage site in 2014. Visitor numbers are also being driven up by the various festivals staged in the city each year, including the Jeddah Heritage Festival, which was launched in 2014; the Jeddah Summer Festival, which has attracted visitors to the city every summer since 1998 with a variety of entertainment, sports and cultural activities; and the Hayyah Jeddah shopping festival, which involves a substantial number of games, entertainment and other events aimed at families with children.
Efforts to achieve Vision 2030’s aim of doubling household spending on cultural and entertainment activities inside the Kingdom (see analysis) are underpinned by Jeddah’s strong and well-established hospitality segment. In July 2017 JLL listed Jeddah among the cities to watch in hospitality, and according to figures from consultancy EY, Jeddah posted the highest hotel occupancy rate in the MENA region in May 2017, at 80.2%, ahead of the emirates of Ras Al Khaimah (77.9%) and Dubai (77.8%). The city also registered the region’s highest revenue per available room that same month, with $247.
One of the most notable hospitality developments in 2017 was the opening of the Ritz-Carlton Jeddah, which pushed the total supply of hotel rooms in the city across the 10,000-key threshold. In addition to boosting Jeddah’s room stock, the opening added 83,000 sq feet of meeting, conference and convention centre facilities to the local market.
Outlook
As Jeddah plays an increasingly important role in Saudi Arabia’s progress towards the goals laid out in Vision 2030, non-oil industries will continue to power growth, supported by the enhanced infrastructure offerings set to come on-line in 2018. Jeddah is also poised to benefit from the list of PIFbacked investments expected in the coming years, with the government looking to stimulate growth through partnerships with the private sector.
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