Saudi Arabia's oil hub Dammam feels the pinch across all sectors
DAMMAM // The Al Khobar Water Tower serves as maybe too convenient a metaphor for the stalled development of the largest and most bustling of the tri-city conurbation of Dammam, the oil capital of Saudi Arabia’s Eastern Province.
The 150,000-square-metre project that is the focal point of Al Khobar’s seafront skyline has been a bone of contention for the local populace, who have complained that the long-delayed structure – in the shape of a 90-metre tall palm – has been a major inconvenience for businesses in the area rather than the tourist draw that was promised.
Instead of offering eight floors of attractions, including restaurants and a panoramic viewing deck, the construction site instead has become an unsightly impediment to people going about their business around the corniche.
But the delay to the 218-million Saudi riyal (Dh213.4m) project is more to do with local government red tape than the two-year slump in oil prices, according to locals, who are anxious to follow the government’s lead and develop local tourism as a way to move the economy away from its dependence on oil.
Dammam is even more reliant than the rest of the country on oil, being the corporate headquarters of state oil company Saudi Aramco, which employs the bulk of its 55,000 employees there and doles out most of the work in the area directly or indirectly, including supporting related industries in the industrial city of Jubail, 100 kilometres to the north.
The boom decade through 2013 generated a doubling in Saudi GDP and allowed the government to spend on health, education and other services, while also salting away reserves equating to 100 per cent of annual GDP.
In Al Khobar, the fruits of that wealth are on display in a 2km stretch of opulent mansions in various styles built along the King Salman Road since 2008, known colloquially as “the Golden ville”, with many owned by businessmen from non-oil industries.
Unlike the hardest hit parts of the oil industry – such as the US shale sector, Brazil’s offshore, the declining North Sea province – Aramco has kept spending on major projects in the province, although at a slower pace and pushing down suppliers’ costs.
Local businesses are feeling the effects.
“I’d say occupancy in general in Al Khobar is down 10 to 20 per cent,” said Hakim Karoui, a Tunisian manager at the Mövenpick, one of the newer hotels in town, many of which were built in the past decade to serve the growing number of business visitors. “Also, they are spending a lot less. Budgets are tighter and instead of expense accounts many now have daily allowances, which means they are looking to save and won’t add the extras.”
Tourism and hospitality, retail and wholesaling, and construction were identified by consultants McKinsey & Co in the government-commissioned Saudi Arabia Beyond Oil report a year ago as three of the eight sectors which hold the most promise to grow the non-oil economy and provide the 5 million to 6 million new jobs needed in the kingdom by 2030.
The McKinsey report is thought to be the blueprint for the deputy crown Prince Mohammed bin Salman’s transformation plan set out earlier this year.
In Dammam, one of the tourist draws has been the Mall of Dhahran, part of the Arabian Cities portfolio, which was a rare example of pulling visitors across the causeway from Bahrain (most of the traffic is in the other direction), mainly because of it is home to the only Ikea in the area.
But for the Swedish furniture store and other mall retailers costs have been rising and customer traffic has fallen this year because of both government reforms and belt-tightening.
“From March it has really started to bite,” says Ahmed Hassan Abdullah, a general manager for the Tarfeeh division of Sedco, the billionaire bin Mahfouz family conglomerate whose Tarfeeh unit includes the Applebee’s franchise in Saudi Arabia, with five of its 19 restaurants in Dammam, including one next to the Ikea.
“The food retailers have seen the number of guests fall by 12 to 15 per cent, but some of the non-food outlets have had it worse, maybe 30 per cent down,” said Mr Abdullah, who says the traffic to the Mall of Dhahran is perhaps half from Bahrain.
“Also, spend per person is way down. Families used to come maybe once or twice a week and spend 800 riyals, 1,000 riyals, no problem. Now it is maybe once every two weeks.” Shops have reacted to the cut in subsidies this year, which pushed electricity costs up by 5 per cent, by changing to cheaper lighting. Ikea moved to LED lighting to cut its bill from 290,000 riyals a month to 80,000 riyals and other retailers have followed.
But they are still under pressure and Mr Abdullah says the mall owner – Arabian Cities, part of the Fawaz Al Hokair group – has started discussing lowering rents for its retailers. The share price of Fawaz Al Hokair, one of the largest Saudi construction and retail developers, has tumbled in the past year by 67 per cent, to about 25 riyals.
A key goal for the government is to foster a new entrepreneurship among Saudis and a desire to work in the private sector, rather than rely on cushy government or state company jobs.
“I don’t know that it will change that quickly,” said Jamal Al Yafie, who has been working in sales for Abdul Latif Jameel, which owns the Toyota and Lexus franchise in Al Khobar, since he graduated in business from Cape Breton University in Nova Scotia, Canada, last year.
“People are taking [the government changes] in their stride. They’ve seen a lot of initiatives before and they’ve learn to wait and see, but maybe the new generation are ready for change,” Mr Al Yafie said.
One of the government initiatives showing signs of progress is the hard targets set for foreign companies to locate more of their business – including manufacturing – in the kingdom rather than outsourcing it.
“There is a huge talent pool here, with 70 per cent of the population below the age of 30 and one of the largest scholarship programmes in the world,” said Amal Jamil Fatani, head of a new all-women centre at Tata, which is repatriating business services – accounting, human resources, etc – which had previously been outsourced to India.
“There is a great entrepreneurial spirit here, especially among women,” she said. “Working from home has been transformed into a culture and mechanised. The healthcare sector is 50 per cent women, but has been moving into the private sector that has been a little bit timid.”
Ms Fatani, who worked in academia and the government for 30 years, says part of the process is evolving education from its history of British and American-type systems to an “industry-academic interface” system.
“Private sectors companies are pushing the boundaries and giving people new horizons to try something new,” she sa ys id. The process won’t will not be quick but “in every society, including the West, it starts with government mandates and quotas and then it can fly after that. We are all geared to what we do best but what we do best is always changing”.
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