Saudis unearth new prospects with desert city

MEDINA, Saudi Arabia — Clouds of yellow dust swirled in the air as tractors moved back and forth, leveling a huge, barren piece of land dotted with billboards announcing the city that will rise from the sand here.

Over the next few years, Saudi officials say, this stretch of desert will be transformed into a buzzing hub of scientific research and development, with cutting-edge universities, hospitals and housing for more than 130,000 people attracted by the idea of living in the city where Islam's prophet Muhammad is buried.

The project, called Knowledge Economic City, represents a serious step by Saudi Arabia toward building a postpetroleum economy. It is one of six major industrial centers planned to rise over the next 15 years. At a cost of more than $100-billion, the sites are expected to provide housing and jobs for the country's fast-growing population, half of which is younger than 21.

These cities-from-scratch are the most ambitious projects to date launched by a kingdom enriched almost entirely by oil since its disparate regions were unified into a state more than seven decades ago. In beginning to construct an economy to survive the end of its natural resources, the Saudi government is drawing on lessons learned during a previous oil boom when profits were squandered in part by spendthrift princes and short-term planning that emphasized infrastructure over education.

With oil prices peaking above $145 a barrel in recent weeks, the kingdom is reaping an unprecedented windfall from its vast reservoirs of oil, which represent a quarter of the world's proven reserves. Saudi Arabia reported oil income of $200-billion last year and projects $700-billion in revenue over the next two years.

But Saudi officials have long feared that too-high oil prices would push the world toward alternative fuels, a concern captured by one former oil minister's tart reminder that "the Stone Age did not end for lack of stone."

To meet rising demand, as well as to slow the world's rush to develop alternative energy sources, Saudi officials have raised oil production by 500,000 barrels a day since May. Though increased production means the Saudi reserves will be depleted faster, the government is using a burst of additional capital to develop an economy it hopes will eventually be untethered from the price of oil.

The new cities "are part of a broader effort to diversify the economy away from oil and away from its reliance on the public sector. The cities are intended to develop more of a non-oil economy, well before the oil runs out," said Jane Kinninmont, an analyst at the Economist Intelligence Unit, a research and advisory company that provides industry and management analysis of countries around the world.

Based on economic zones around the world, the cities aim to trade Saudi assets — plentiful and cheap oil and vast open spaces — for foreign expertise and training. The cities also have social aims, analysts said, including creating jobs.

Saudis unearth new prospects with desert city 07/17/08 [Last modified: Monday, November 1, 2010 4:18pm]

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