TURAIF, Saudi Arabia, Feb 13 (Reuters) – Billboards on the highway outside Turaif, a remote desert town in the far north of Saudi Arabia, foretell a glittering future of glass offices and palm-shaded residential streets. A future that won’t rely on Saudi oil.
Last week an array of government ministers gathered in a tent near this barren outpost, 1,100 kilometres (700 miles) from Riyadh, to sign contracts to develop an industrial complex around a phosphate mine, with a new railway link to a Gulf port and total investments estimated at more than $9 billion.
The Waad al-Shimal project, or “Northern Promise”, is part of a wider strategy in the kingdom, the world’s largest oil exporter, of building downstream industries and boosting the private sector instead of simply exporting raw materials.
It follows in the footsteps of Jubail and Yanbu, massive industrial cities on the Gulf and Red Sea coasts that were built in the 1980s as Saudi petrochemical production grew.
Riyadh is also pushing the King Abdullah Economic City near Jeddah, run by Emaar Economic City, as a private-sector scheme along the same lines.
“I think this approach is something that will help diversify the economic base,” said Paul Gamble, director, sovereign risk, at Fitch Ratings. “It will help diversify export revenues. It will have an impact on employment, though not a large one. The one thing it doesn’t address is diversifying budget revenues.”
Recent diversification efforts through industrialisation have had little impact on official figures showing the size of the oil industry relative to the wider economy as increased crude revenues have outpaced growth in non-oil sectors.
Oil and gas accounted for 49.7 percent of GDP in 2012, up from 37.7 percent in 2002, the most recent central bank data shows, as the price of Brent crude quadrupled over the period.
But many analysts expect oil prices to fall in the next few years as the United States ramps up shale oil production, which will shine a light on the virtues of diversification.
“We started out exporting crude oil, then we moved into refining, then we moved into gathering gas and creating a petrochemical industry. Then we moved into large-scale mining. The benefit of it is that it has large downstream industries,” Economy Minister Mohammed al-Jasser told reporters at Turaif.
The desert stretches in all directions from the spot where he spoke to an unbroken horizon, but when complete, Waad al-Shimal will be a major producer of phosphate products including the industrial fertiliser ammonia, animal feedstock, plastics and detergents.
THE SABIC MODEL
The project could make its biggest shareholder, half state-owned Saudi Arabian Mining Company (Maaden), a significant player in the global minerals industry, modelled perhaps on Saudi Basic Industries Corporation (SABIC), which was built from nothing in the 1980s and is now one of the world’s biggest industrial chemical companies.
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