Saudis set $500 billion plan to develop zone linked with
Jordan and Egypt
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[October 24, 2017]
By Andrew Torchia
RIYADH (Reuters) - Saudi Arabia announced
on Tuesday a $500 billion plan to build a business and industrial zone
that links with Jordan and Egypt, the biggest effort yet to free the
kingdom from dependence on oil exports.
The 26,500 square km (10,230 square mile) zone, known as NEOM, will
focus on industries including energy and water, biotechnology, food,
advanced manufacturing and entertainment, Saudi Crown Prince Mohammed
bin Salman said.
The announcement came as an international business conference got under
way in Riyadh, drawing over 3,500 people from 88 countries.
Arranged by Saudi Arabia's main sovereign wealth fund, the Public
Investment Fund (PIF), the conference is labeled the Future Investment
Initiative - an effort to present the world's top oil exporter as a
leading global investment destination.
Saudi Arabia's economy, though rich, has struggled to overcome low oil
prices. Prince Mohammed has launched a series of economic and social
reforms -- such as allowing women to drive -- to modernize the kingdom.
Officials hope a privatization program, including the sale of 5 percent
of oil giant Saudi Aramco, will raise $300 billion. Riyadh is cutting
red tape and removing barriers to investment; on Sunday, it said it
would let strategic foreign investors own more than 10 percent of listed
Saudi companies.
NEOM could be a major focus of new investment. The Saudi government, the
PIF and local and international investors are expected to put more than
half a trillion dollars into it in coming years, Prince Mohammed said.
Adjacent to the Red Sea and the Gulf of Aqaba and near maritime trade
routes that use the Suez Canal, the zone will serve as a gateway to the
proposed King Salman Bridge, which will link Egypt and Saudi Arabia, the
PIF said.
"NEOM is situated on one of the world’s most prominent economic arteries
... Its strategic location will also facilitate the zone’s rapid
emergence as a global hub that connects Asia, Europe and Africa."
There was no immediate comment on the plan from Jordan and Egypt, which
are close allies of Saudi Arabia. Riyadh said it was already in contact
with potential investors and would complete the project's first phase by
2025.
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A man counts Saudi Riyal
banknotes in a jewellery store story in Riyadh, Saudi Arabia,
October 18, 2017. REUTERS/Faisal Al Nasser/File Photo
Prince Mohammed appointed Klaus Kleinfeld, a former chief executive of Siemens
AG and Alcoa Inc, to run the NEOM project.
HUGE RESOURCES
Saudi Arabia will need huge financial and technical resources to build NEOM on
the scale it envisages. Past experience suggests this may be difficult.
Bureaucracy has slowed many Saudi development plans, and private investors are
cautious about getting involved in state projects, partly because of an
uncertain legal environment.
The zone, which will have its own tax and labor laws and an autonomous judicial
system, is to power itself solely with wind power and solar energy, PIF said - a
goal which may be hard to achieve in practice.
But the project underlines Prince Mohammed's ambition to rescue the economy from
severe damage caused by low oil prices. NEOM will reduce the volume of money
leaking out of Saudi Arabia by expanding limited local investment options, the
PIF said.
A key source of future investment funds for the PIF, which now has about $230
billion of assets under management, is the government's planned sale of a
roughly 5 percent stake in national oil giant Saudi Aramco, which could raise
tens of billions of dollars.
PIF managing director Yasir al-Rumayyan told the conference that Saudi Arabia
was still on track to conduct an initial public offer of Aramco shares in 2018,
but did not say on which stock markets the company would be listed.
Aramco CEO Amin Nasser told reporters that in addition to Riyadh, possible
foreign listings in markets such as New York, London, Tokyo and Hong Kong had
been looked at, and a decision still had to be made.
(Reporting by Andrew Torchia Editing by Jeremy Gaunt)
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