Culture clash

As the construction bubble bursts in Dubai, Saudi Arabia has emerged as the Gulf’s most attractive investment destination. But with the rate of development increasing at a phenomenal rate, can the kingdom avoid some of the challenges faced by its regional rival?

“US$ 38 billion... Investment aimed at improving tourism infrastructure”

Dubai is many things, but understated is not one of them. Everything about it is big. The emirate recently completed construction work on the world’s tallest building and is home to the world’s first seven-star hotel. It features some of the most ambitious land reclamation work in history in the shape of the Palm Islands, as well as the world’s largest man-made harbour. Indeed, in a place where it has been possible to build an artificially chilled ski slope on the edge of one of the world’s hottest deserts, and where one hotel chain recently announced it would construct the world’s first air-conditioned beach, nothing should surprise us when it comes to the scale and ambition of its construction projects. This is Dubai: glamorous, brash and undeniably modern.

But scratch beneath that shiny new surface and the emirate faces some very real challenges. For instance, there are accusations that developers have focused more on style than they have on substance, with much-needed infrastructure development receiving less attention than high-profile skyscrapers and hotels. The emirate’s sewerage and waste disposal systems are hopelessly inadequate to meet the requirements of such a rapidly growing city. Its roads are amongst the most heavily congested in the region. And its public transport networks – despite millions of dollars of investment and the imminent arrival of the much-heralded metro system – are still very much a work in progress.

Perhaps more importantly – at least as far as the indigenous Emirati people are concerned – is the perception that in the rush to become the biggest and the best, Dubai might have sacrificed something of its soul. The city is undoubtedly an architectural marvel, but in the headlong rush towards modernisation, precious little has been preserved in the way of history and tradition. Today, old Dubai – which includes Bastakiya, the grand market and al-Shindagha, a complex centred on the home of Sheikh Saeed al-Maktoum, grandfather of Dubai’s current ruler – represents less than one percent of the total area of urban sprawl.

It’s a lesson that Saudi Arabia must learn if it is to successfully reconcile its own ambitious modernisation programme with the country’s rich cultural legacy. As custodian of the two holy mosques and numerous other sites of historical and religious significance – both Islamic and otherwise – the Saudi government has a huge responsibility to not only provide the social and economic infrastructure required for current and future generations, but also to preserve the kingdom’s heritage in the face of rapid economic growth. In addition, the growing trend towards socially responsible construction means it must do so in an increasingly sustainable way.

Money magnet
Many experts believe that Saudi Arabia will be the key region for construction activity going forward, along with Abu Dhabi and Qatar. “The Kingdom of Saudi Arabia has just announced its largest ever budget,” says Ali Kologhassi, Saudi Oger’s VP of Corporate Business Development. “The government will announce major infrastructure projects in the next few years, meaning there will be big opportunities for developers and contractors who are solid and not highly leveraged.” According to Kologhassi, Saudi Arabia’s young population means that the Kingdom’s demand for social housing has risen to around 1.5 million units – which many see as a much more sustainable form of development than the type of rampant property speculation that has gripped its near neighbour in recent years. Luxury condos for the rich and famous are out; houses for the masses are in.

Indeed, Saudi Arabia has been the world’s fastest growing large country in terms of population over the past 10 years. As a result, it has a very young demographic profile, with around 45 percent of the population currently aged below 20 years. This young age profile and the rapid rate of urbanisation have been the major demographic factors driving the boom in construction in recent years.

“Now is a very interesting moment to be looking at investment opportunities in Saudi Arabia,” says Paul Taylor, the Middle East expert at UK Trade and Investment. “The global credit crunch has had an impact in the gulf, seen most starkly in Dubai, but I think the situation is different in Saudi Arabia – as it is in Abu Dhabi and Qatar – because all three states are rich in oil and gas and they’ve accumulated a tremendous amount of wealth from oil sales over the past few years. Saudi Arabia was bringing in roughly one billion dollars a day from oil sales over the first half of 2008, so there’s definitely money available, and the Saudi government has committed to spending that money throughout 2009 in order to keep the economy going.”

Most people are aware of the megaprojects that have been launched in Saudi Arabia over the last few years – in particular the six economic cities, four of which have already been launched and two more of which are in the pipeline – and these provide the major plank of the Saudi government’s plans to diversify the economy. But in addition to the economic cities, there are a number of other major infrastructure projects that provide interesting investment opportunities, argues Taylor. “Take the Saudi LandBridge, for instance, which is a plan to build a railway line from the Red Sea across to the Gulf,” he says. “This offers companies the possibility of transporting goods from Jeddah and Mecca to Dubai two or three days quicker than if you were to ship them around the south of the peninsula. And in December, the government launched an expansionist budget, which will mean billions of dollars worth of investment being poured into other new projects.”

He cites plans to boost infrastructure in areas such as education, healthcare and transport as prime examples. “In education, the government has announced that it is going to build 1500 new schools, a new university for women in Riyadh and a science centre for the King Saud University. As far as transport is concerned, the country is going to build 5000km of new roads on top of the 15,000km that are already being built. And in healthcare, there are plans to build over 80 new hospitals and primary care centres.”

Courting controversy
The scale of the required investment is huge. A recent report by the Saudi British Bank (SABB), one of the kingdom’s biggest lenders, estimates that US$30 billion will be invested in construction and infrastructure in Mecca alone over the next four years from local and foreign companies. Up to 130 new skyscrapers are anticipated, including the US$6 billion Abraj Al Bait Towers, a seven-tower project that, once completed later this year, will be one of the largest buildings in the world. The scale of the project is staggering: a 60-floor, 2000-room hotel; a 1500-person convention centre; two heliports; and a four-story mall that will house, among 600 other outlets, Starbucks, The Body Shop and Tiffany & Co. En route to the hajj, pilgrims already have the opportunity to stop at cosmetic superstore MAC, perfumery VaVaVoom and Claire’s Accessories. H&M and Cartier are on the way. “All the top brands are flocking here,” says John Sfakianakis, SABB’s chief economist.

Unlike Western-friendly Dubai, Saudi Arabia had, until very recently, resisted commercialising its major cities – particularly Mecca, site of Islam’s holiest relics, where millions of pilgrims flock every year to perform the hajj. But the dramatic rise in global oil prices – and the construction boom across Saudi Arabia that followed – has finally caught up with the city where Mohammed was born. The modern Mecca bears little resemblance to the birthplace of the prophet, and the proliferation of global chains, high-rise apartment blocks and five-star hotels has already raised fears that Saudi Arabia’s rulers are less concerned with preserving the country’s history than they are about squeezing as much money out of its visitors as possible.

Irfan Al Alawi, founder and Executive Director of the London-based Islamic Heritage Research Foundation, estimates that over 300 antiquity sites in Mecca and Medina have already been destroyed, such as the house of the first caliph, Abu Bakr, which was levelled to make room for the Mecca Hilton Hotel. The building boom has also seen the house of Mohammed’s first wife Khadija (where Muslims believe he received some of the first revelations of the Koran) lost under the construction, as well as the Dar al-Arqam, the first Islamic school, where Mohammed taught. “It’s not just our heritage, this is evidence of the story of the Prophet,” says Al Alawi. “What can we say now? This parking lot was the first school of Islam? There used to be a mountain here where Mohammed made a speech? The difference between history and legend is evidence.”

Some commentators suggest that Saudi Arabia’s rulers do not concern themselves with preserving such historic sites because their interpretation of Islam regards venerating holy places as akin to idol worship. Others, even more outspoken, believe such an approach affords the government the opportunity to follow religious doctrine while at the same time benefiting from the massive monetary gains to be had from making the city a more tourist-friendly destination. The tourism sector generates billions of dollars in revenue and provides jobs for more than 342,000 people in areas related to hotels, resorts, furnished apartments, cafes, travel agencies, transportation and entertainment. “The government has finally woken up to the commercial value of religious tourism,” says Sfakianakis, “and they are really the ones driving this construction boom in Mecca.”

No matter the reasoning, what is undeniable is that the number of historical religious sites remaining in Mecca is shrinking fast – in fact, Al Alawi claims they can be counted on the fingers of one hand, and some will likely not make it much past the next hajj. “It is incredible how little respect is paid to the house of God,” he laments.

Added to this, Al Hokeir, a leading Saudi investor in the sector, says that investments in tourism are likely to increase significantly over the coming decades. “The Saudi economy is witnessing robust growth and a major leap in investment in general. Of late, we have noticed an unprecedented boom in the tourism sector in particular. The market has enough potential to accommodate more tourism investment projects,” he says.

Sustainable development
Of course, the irony is that in rushing to cater for tourist dollars in the short-term, Saudi Arabia may be missing out on opportunities to develop a wider appeal in the long-term by destroying its precious historical sites – after all, cities such as Rome are popular mainly for their links to antiquity and the cultural delights that are found around every corner, rather than the number of five-star hotels or international coffee houses there are. Catering to tourists is as much about providing a unique cultural experience as it is about luxury branding.

The good news is that while the number of projected visitors is set to rise – the kingdom estimates tourist numbers to almost double from 47 million in 2008 to 88 million by 2020, while the number of hotel rooms is tipped to rise from 117,097 to 254,310 – there are signs that the government is waking up to the importance of its cultural heritage. Prince Sultan bin Salman, President and Chairman of the Saudi Commission for Tourism and Antiquities, recently outlined plans to focus resources in this area as part of its tourism drive.

“The government has approved bank financing to process loans to fund heritage projects for small and medium size enterprises, and we will announce a national crafts and heritage industry plan to incubate projects in this sector,” the Prince said in a recent briefing. “In Jeddah alone, there is a project with Solidere to redevelop the historic centre, while we have 17km of untouched beachfront in the city centre. The Red Sea will be one of the biggest growth areas with up to 21 new destinations — indeed, we will announce at least one or two of these new projects by the end of this year.” Other tourism initiatives being undertaken in the kingdom include the launch of eco-lodges and farm hotels, as well as heritage accommodation. “We have already started licensing several projects in these areas, and are talking to some of the major hotel chains about these things,” added the Prince.

In an encouraging move, the government has also sought to clarify its position on the preservation of antiquities and sites of historical interest. “We have designed a comprehensive awareness campaign to enlighten the public about the misunderstanding over some archeological sites and antiquities,” says the Prince. “We do not base our stand on enthusiasm only, but on the value of the archeological site in terms of its historical importance. Today, historical sites and national antiquities are protected and no one can dare to demolish or disfigure them because there is a national will stemming from the King, who is keen on maintaining and preserving the principles on which the state has been founded.”

Back in Dubai, officials have finally begun to wake up to the value of the emirate’s historic sites – partly reflecting a popular demand for tangible links to a fast disappearing past, and also because of the realisation that history can boost tourism. For instance, a project aimed at restoring Al Bastakiya’s old buildings and lanes was initiated by Dubai Municipality in 2005. “We have to have our culture and traditions to show to others,” explains Waleed Nabil from the Sheikh Mohammed Centre for Cultural Understanding in Bastakiya. “We have to be able to show schoolchildren how their grandparents lived or we will lose our culture.”

The government's willingness to increase the number of inbound visitors is a sign that Saudi Arabia is aware of the revenue and employment opportunities underlying a robust tourism sector. But the biggest challenge for the country will be to balance its tourism offer with local customs, and allow the sector to grow in a sustainable way.

Infrastructure development
One of the largest impediments to tourism growth in Saudi Arabia is its infrastructure capacity. The country’s shortcomings are most evident during the Hajj, the annual pilgrimage of three million Muslims to Mecca, which creates so many problems due to overcrowding that the government is forced to restrict the number of visas for pilgrims.

Recognising this, the Saudi government has approved a US$38 billion tourism programme aimed at improving infrastructure as part of an effort to boost tourism revenue and employment opportunities for its citizens. Under the new strategy, the kingdom is investing US$5.1 billion to upgrade its transport system. Five new airport construction projects are currently in development, including a US$1.5 billion terminal at Jeddah, which will help the city cope with the influx of religious visitors.

The kingdom has also announced plans to build a 450km high-speed railway valued at US$1.8 billion that will link Jeddah, Mecca and Medina. Once completed, the travel time between Jeddah and Mecca will be less than 30 minutes, while journeys between Mecca and Medina are expected to take two hours.

The railway line, which is scheduled to be completed in 2012, is expected to carry 72,000 passengers per hour at peak period and cut the five-hour car journey to just half-an-hour. The government said the railway will help increase the number of worshippers to the holy sites to 14 million per year by 2030.

Capitalising on the downturn
Saudi Arabia plans to spend US$400 billion on infrastructure projects in the next five years as the kingdom seeks to benefit from lower construction costs amid the global financial crunch. “We are looking at much lower construction costs because of the drop in the prices of steel, cement and other building materials,” said Saudi Arabian General Investment Authority Governor Amr Al Dabbagh in a recent briefing. “Today it will cost us 30-40 percent less for infrastructure projects than six months back.”