Transport vital for saudi development

Transport is widely recognised as the key to stimulating economic development. Today, this means not just building roads and rail lines, but ensuring there are good connections through gateways with the outside world, notably ports and airports.

The importance of transport infrastructure was recognised in the recent landmark report by Sir Rod Eddington, the former chief executive of British Airways, produced for the British Chancellor of the Exchequer, Gordon Brown, in December 2006. Eddington examined the long term transport needs of the country, looking forward to 2015 and beyond, a difficult task in a world that is changing so fast. Eddington’s stressed the importance of three types of infrastructure, and this is a model that can be applied to countries like Saudi Arabia, which are still very much developing their basic transport infrastructure, as well as more established economies like that of the UK. Indeed, transport is a key component of the Saudi Arabia’s massive $624 billion investment scheme announced by the government of the Kingdom to cover the five years from 2005 to 2009. This scale of investment dwarfs the previous modernisation programme during the 1970s and 1980s when high oil prices allowed Saudi Arabia to begin the process towards becoming a modern state with a well developed infrastructure.

Eddington attempted to put transport at the heart of the economic development agenda. In a conversation with Think, he stressed that ‘transport is essential for economic growth, something which has not always been recognised by governments in the past.’ In particular, the way that assessment of schemes is carried out through a cost benefit analysis does not always reflect the regenerative benefits for the economy of ensuring efficient transport. That has resulted in governments often underspending in relation to transport, compared with other areas of expenditure such as health and education, because the value of providing facilities has not been sufficiently recognised.

For business users, Eddington emphasised the importance of three types of journey: commuting journeys, the ‘getting to work experience’ that can be a nightmare in many cities around the world; the need for good inter city links and, finally, the vital role of ‘gateways’ . The size of the travel to work area, which is determined by the efficiency of the transport infrastructure, has crucial importance for growing economies, because improving transport links essentially increases the extent and therefore efficiency of the labour market. For example, Professor David Begg, a former advisor to the British government on transport, suggests that not expanding the travel to work area in line with growth can be a major restraint to sustained economic development: ‘Providing good infrastructure for commuters essentially extends the labour market, both for skilled and unskilled workers.

People will only travel a certain amount, which is generally measure in time rather than distance, every day and therefore if there is too much congestion on the roads or no good public transport between their home and a potential employer, they will not want to work there.’

Hong Kong is a perfect example of how an efficient transport system has stimulated development and ensured continued growth. At the core of the network is the MTR metro, carrying 2.4m people every day on six lines which total less than 100kms, which makes it one of the most intensively used systems in the world. The first line was only built as recently as 1979 and there has been almost continuous expansion, providing a service that is not only extensive, but also remarkably efficient which makes the metro the first choice for most commuters. Moreover, the railway has introduced a form of contactless ticketing, Octopus, that is transferable between all modes of public transport and also allows users to buy other small items like food and drinks in vending machines and at various outlets, making it the most advanced such system in the world.

Although Riyadh is not as compact as Hong Kong, and could never achieve that level of passenger usage for a metro system, the Saudi government has realised the importance of developing a mass transit system for the burgeoning town where, according to the ArRiyadh Development Authority, daily car trips have increased from one million to fifty million in the past twenty years. During that time, a 1,300 km highway system, mostly of three and four lane roads, has sprung up in and around the city but there is now a widespread recognition that building roads alone will not cope with the expected continued growth rate in the population – and in the number of trips – of 8 per cent per year. With 93 per cent of journeys to work currently being undertaken by car and under 1 per cent using buses, the roads will become more and more congested unless public transport is improved.

In 2003, the Development Authority announced a project to build a metro and in 2006 plans for the scheme were firmed up with the scoping out of the routes which comprise two primary lines in the capital, costing an estimated $2bn. The first route will be the 35km Olyia Batha line, which will link the northern and the southern parts of the city. The second route will be along Prince Abdullah Road, and will link the east of the capital with the west, a distance of 13km. These routes have been chose to serve all facilities around the areas of dense traffic congestion and several commercial centres.

There is, at present, virtually no public transport in Riyadh. According to Dr Jafal Nafakh, the director of ArRiyadh Development Authority’s transportation unit, less than 1 per cent of commuters travel to work by bus. Cars are universally used because they are cheap to buy and to run and parking is free. For those without a car, taxis are, too, relatively inexpensive, all of which has led to levels of congestion that are becoming intolerable in certain parts of the city. Dr Given there is this culture of car dependence, Dr Nafakh recognises that a public transport system will have to be designed to very high quality in order to attract people out of their cars: ‘There will be air conditioning on the trains, plenty of room at the stations and park and ride schemes.’ Moreover, a bus network will be establish to feed the stations in order to encourage use. The metro system will be designed to be able to take 8,000 people per hour in each direction, but that level of traffic is not expected to build up for 15 years. Nevertheless, despite the novelty of using public transport, the planners are expecting flow rates of 3,000 per hour at the peak times right from the outset.

There may be, too, some sticks to go along with the carrots: ‘Perhaps we will start charging for parking,’ he added. However, it will be difficult to convince the public of the benefits of such charges in a country where a generation has been brought up on the availability of cheap motoring and more radical ideas to reduce traffic levels, such as the congestion charge in central London, would be very difficult to implement in such a climate.

Kito de Boer, Managing Director of McKinsey’s Middle East agrees with the Eddington analysis about the importance of infrastructure: ‘The Gulf region has to catch up in terms of infrastructure spending. It has been spending around 17 per cent of GDP, whereas typically a developing region needs to spend 30 per cent. In China it is 42 per cent, but that may be too much’. He points out that the Saudi Arabia of today was established by the spending of the 1970s and 1980s but that low oil prices reduced the level of spending. ‘There is a lot of catching up to do and this big investment programme is wholly appropriate for the country’s needs.The region needs to create jobs at three times the rate that China does. That’s a big ask. You can’t do it by incremental actions, adding to the existing situation. It needs a big vision. It needs to be carried out in a strategic way and largely through the private sector’.

De Boer supports the Kingdom’s efforts to privatise and deregulate, and says these must be speeded up: ‘It is time to move away from the centralised state that was created when the country was formed and to devolve a lot of economic activity away from Riyadh which is at risk from water shortages. Originally Saudi Arabia needed to create a strong centre, and that was correct, but now decentralisation is very important to spread economic activity around the country. That is why the strategy of building new economic cities is correct.’ De Boer points out that the Gulf region is in a unique situation in ‘unparalleled in the history of the planet’ that demands ‘a big bold vision’: ‘No country in the world has had so much liquidity. And no country in the world has had the curtrent demographics. Half the Saudi population is under 25 and they are going to need jobs in the private sector. There is a fantastic amount of liquidity creating funds for investment. That is why far more needs to be spent on the infrastructure, to create the jobs for the future.’

Eddington’s second category is inter regional travel, which even in a relatively small country like the UK, is of vital importance for companies to gain and retain access to markets. Britain has a relatively well-developed transport network but Eddington guards against complacency. He told Think: Yes Britain has a good network and business people say that London is well connected. However, there is the problem of capacity – will it continue to be as good? Business people are most concerned about transport congestion and about it getting worse’. That is indeed true. The motorway network in the UK, which is very difficult and expensive to expand given the price of land in Britain’s buoyant South East, is becoming gridlocked for much of the day and even the comfortable inter-city trains leaving London are now 40 per cent fuller than a decade ago.

In Saudi Arabia, the highway network has been developed extensively in recent years with most important towns now linked with fast roads and virtually every village connected with tarmaced roads. For regional connections, however, a new form of transport is coming into play which is of growing importance in a relatively large country like Saudi Arabia. Traditionally, aviation had been highly regulated and largely provided by government owned airlines, or private ones which were protected from competition by barriers to entry such as bilateral agreements. Flying was effectively limited by the high fares to the relatively affluent. As a result of liberalisation and privatisation, a raft of low cost new players has arrived on the scene, opening up the prospect of flying to people far down the income scale.

The idea of low-cost airlines was initially developed in the United States by the founders of Southwest Airlines, Rollin King and Herb Kelleher, in the early 1970s who realised that passengers were more interested in getting to their destination cheaply and safely than with lots of expensive ‘frills’. Moreover, people appreciated flying direct to their destination, rather than to a hub where they were required to change planes, a time consuming and fretful process. The concept took quite a long time to spread, not least because of resistance from the regulatory authorities and governments but it took hold in the early 1990s in Europe with the launch and rapid of Easyjet in the UK and Ryanair in Ireland and the UK. These airlines offer direct flights at to a range of small and sometimes obscure destinations, building up the market through the widespread availability of very cheap tickets. Both these airlines have opened a series of hubs across Europe and now virtually every country is following suit with entrepreneurs launching similar airlines.

Saudi Arabia is no exception. The government has recently opened up the market by granting licences to private operators and the response has been mainly airlines intending to offer low cost flights. The reason is simple – the size of the potential market in a country where wages for many of the country’s 6 million expatriate workers are relatively low and Saudis’ fondness for travel. Moreover, currently the only way to get round the country for many middle class Saudis as well as expatriates use is to use long distance public or private buses and taxis for long journeys which are extremely time consuming and cost around the same as the likely low budget fares. This is not just important for leisure passengers, but is vital for business as it will improve connectivity between Saudi cities, a vital part of stimulating growth.

The Sharjah-based Air Arabia, the first low-budget airline to operate in the Kingdom, started its flights to Riyadh, Jeddah and Dammam in 2006 and plans for low cost flights by two Saudi operators are well underway. Two private companies have been granted licences, National Air Services (NAS) and Sama, although details of where they will fly are yet to be finalised. Both are expected to rely on the same formula as their predecessors, with a low cost base, high utilisation and a modern aircraft fleet that is relatively cheap to maintain and providing a one class no frills service.

Then there are the railways. Saudi Arabia came reasonable late to railways, completing its first 450km line between Riyadh and Dammam on the Gulf, in 1951 when many countries had started concentrating transport investment on the road network. That first line was always envisaged as part of a railway linking the Red Sea and the Gulf because of the with vast distances to cover through often difficult terrain and now, with the creation of the Landbridge project, that is soon to become a reality. The Landbridge is a near 1000km scheme linking Riyadh and Jeddah and the successful bidder will also build a connected 115km line between Dammam and Jubail. It is not an exaggeration to say that the Landbridge project is the centrepiece of the Kingdom’s development strategy as the implications of the scheme go well beyond transport. According to a government statement, ‘the Landbridge will stimulate industry and business along its path as no other one single project has done. It will throw up new towns, new business parks, new industrial zones, new factories, and new service companies, all founded on the opportunities created by the new line. Tens of thousands of new jobs are going to be created’. It is hoped that the Landbridge will reduce costs of transport dramatically, stimulating trade and boosting the economy of Jeddah. It is hoped that Dammam too, will become a major international transshipment centre, with all the implications in terms of new logistics companies setting up, plus all the services industries and retail businesses that ensue from such developments.

The Landbridge will reduce travel time between Riyadh and Jeddah by at least five hours and is expected to change the region’s shipping patterns by enabling cargo to be taken on the railway far faster than the longer sea route. For example, instead of an eight-day sea journey from the Gulf to the Red Sea, products from Jubail heading west or to the Mediterranean will be able to move in less than 48 hours by container to Jeddah and from there to ports abroad. The project, which has a preliminary estimate of $5bn but may well cost double that sum, is ambitious and groundbreaking, and faces numerous technical challenges to create a line through difficult terrain involving 28 kilometres of tunnels and 100 bridges. Although initially it was hoped to be entirely self-financing, last summer Saudi Arabia’s Council of Ministers offered the government’s financial support to the Landbridge project and decided to provide 50 years operational rights to the consortium that wins the contract to build the 950-km rail tracks.

There are other plans to improve the country’s railways, notably with the construction of a 500km electrified railway linking Makkah and Madinah via Jeddah, aimed largely at the growing number of pilgrims visiting these holy cities each year and a north south mining line. When these railways are all built, the existing length of the country’s railway network will have more than tripled to over 3000kms.

The growth in interest in developing transport infrastructure in Saudi Arabia has been stimulated by the readiness of the government to privatise many enterprises and to open up markets. The Kingdom is keen to obtaining private sector investment wherever possible for these projects. In common with governments around the world, ministers have realised that private funding will be necessary to support these schemes given the high cost. However, transport schemes are rarely self funding and in November Saudi Arabia’s Council of Ministers announced the government would guarantee financial support to the Landbridge project to the consortium that wins the contract to build the 950km line. Culture and Information Minister Iyad Madani explained: ‘The investor will be given operational rights for 50 years in order to take long-term strategic and investment decisions,’ adding that an independent authority, chaired by the transport minister, would be established to supervise and organise railway services. Four consortia, which include both Saudi and foreign partners and led respectively by Saudi Binladen Group, Bouygues, Mada Industrial and Commercial Investment Company, and Public Warehouse Company have qualified to bid for the construction of the line and the winner is expected to be announced later this year. Similarly, in Riyadh, the Development Authority is seeking bidders to participate in the design and development of the metro lines.

Eddington’s third important aspect of transport infrastructure is the development of gateways and he emphasises the importance of ports: ‘I was surprised at discovering what a vital role ports play. Virtually everything that people buy in the shops in the UK has come through a port and their role has often been underestimated in the past’. In the past, Saudi Arabia has lacked sufficient capacity at its ports and those with long memories recall queues of ships waiting to disembark at Jeddah in the 1970s but recent expansion and privatisation at Jeddah has greatly improved efficiency and throughput. Now a new port and indeed, a whole new conurbation, the King Abdullah Economic city, is being envisaged, 50 kilometres north of Jeddah, which will be able to accommodate the largest ships currently sailing.

Transport ministers often like referring to the concept of ‘integrated transport’ with the notion that all the various modes of transport will be linked together in a seamless way. This is, in fact, very hard to retro-fit in existing cities where developments such as bus terminals, stations and airports may be far apart and hard to connect with efficient roads or rail networks. However, the new King Abdullah Economic City, the largest project on the Arabian Peninsula, will such a transport system at its core. The central feature of the new city is the vast new Millennium Seaport which will immediately become one of the world’s largest 10 ports and will be able to handle any ship currently sailing. With its strategic location on the Red Sea and easy access to key cities within Saudi Arabia, the port will have a designated area for light industry and logistics and be a natural platform for onward movement of goods to Europe, Africa and Asia. The aim is for the port to have an integrated transport system for both freight and passengers with seamless transitions from sea to rail, road and air, making the new City the main gateway to the central and eastern provinces as well as the entire Kingdom. The port, with its close proximity to the two Holy Cities of Makkah and Madinah, will have a dedicated Hajj terminal that will be able to handle 500,000 pilgrims every season.

Interestingly, Eddington was rather sceptical of what he called ‘grand projects’ to stimulate the economy. But there is a crucial difference. The United Kingdom has a well developed infrastructure, built over the past two centuries since the opening of the first major railway line in 1830. Saudi Arabia needs these big schemes to lay down the basic infrastructure whose absence, so far, has constrained development. As de Boer put it, ‘transport infrastructure is particularly important. The infrastructure in Saudi Arabia and the Gulf generally is poor, even the aviation links are not good. This is changing fast but has to change faster. The region cannot follow the timid model of Western developed countries. It needs to go much faster.’

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