Economics

Beyond Oil: Saudi Arabia as a Data Hub

Saudi governor Amr Al-Dabbagh explains the nation’s strategy to become one of the world’s top 10 investment destinations.

May 20, 2010

| by Dave Murphy

It wasn’t even six years ago that Saudi Arabia decided it wanted to be among the world’s 10 most competitive investment destinations by 2010, an audacious goal considering it wasn’t known as an easy place to do business. But not only is it close to hitting the top 10 today, but also the country plans to spend an extra $600 billion in the next decade to be even more competitive, with a $300 billion upgrade of its energy system, plus $100 billion apiece for transportation, knowledge-based industries, and specialized economic cities.

That was the message brought to Stanford GSB May 18 by Governor Amr Al-Dabbagh of the Saudi Arabian General Investment Authority. Al-Dabbagh explained that although much of the nation’s recent success came from adopting the best practices of other thriving countries, many goals now concern capitalizing on Saudi Arabia’s status as an energy leader, its preeminence as a religious destination, and its potential as a transportation hub.

The Saudi Arabian General Investment Authority represents the kingdom’s government, and is responsible for promoting direct investment.

One key element in promoting growth is the creation of a handful of economic cities. Al-Dabbagh said his country looked at economic zones in China and similar efforts around the world, but is going beyond those. “We introduced a new business model,” Al-Dabbagh said. “It is not a free zone, it is not a special economic zone, it’s not a processing zone; it’s all of the above plus. This is a model where we are offering a work, play, and live environment that is second to none.”

He said the cities are developed by the private sector, with a sole regulator and one performance indicator: Every government service in those cities must be available within 60 minutes 24/7. As part of its emphasis, the country is working with Cisco Systems on a pilot project to produce a broadband speed 10 times faster than anywhere else in the world.

“If things work according to plan, these economic cities should contribute by 2020 [to] the tune of $150 billion U.S. to the Saudi GDP. They should have accommodated by 2020 [to] the tune of 4.5 million of collective population. They should have created [to] the tune of 1.3 million jobs by 2020, and should have enhanced the GDP per capita from the current $18,900 to $33,500.”

In a speech as part of the business school’s Global Speaker Series, sponsored by the Global Management Program and the MBA students’ Middle East and North Africa Club, Al-Dabbagh said a key change in Saudi Arabia has been the creation of an environment to encourage entrepreneurs. “Basically, we’re applying the corporate culture to the public sector.”

Not only has foreign direct investment in Saudi Arabia risen markedly, Al-Dabbagh said his country’s World Bank ranking for ease of doing business jumped from 67 in 2005 to 13 when the latest rankings came out last September. “We are determined to join the club of 10 this September.”

He said growth has focused on energy, transportation, and knowledge-based industries. With that came the realizations that the educational system needed a major upgrade to train those workers, and the country had to liberalize its standards about having immigrants and women in the workforce, drawing workers and leaders from around the world.

Al-Dabbagh said the country has a “human capital road map” for the special cities, and 28% of the workforce in his organization is women, including several in senior management. “We are starting in the government to fill key positions with talented women.”

Over the next decade the country will invest $300 billion to become a global energy hub. “Today,” Al-Dabbagh explained, “Saudi Arabia is not the energy capital of the world; we are the oil capital of the world.” To broaden that definition Saudi Arabia is working more on petrochemicals, such as finished plastic products. While the country has viable mineral deposits that can be developed, there are some natural resources the country lacks, such as water.

“Wherever we dig a water well, we come up with an oil well. It’s a serious problem we have,” Al-Dabbagh said, drawing laughs from the audience, “so we are trying to phase out all water-intensive industries.”

He said upgrading transportation is crucial, not only for the industries, but to establish Saudi Arabia as a launching pad for 250 million consumers who are within a three-hour flight, and to make it easier for religious travelers to reach Mecca and other Saudi destinations.

Al-Dabbagh said 60% of the country’s population is under 25, and his group is trying to get those workers into knowledge-based industries, such as education, health care, life science, and information communication technology. “One of our new initiatives is to position Saudi Arabia as a data hub.”

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