University of Surrey Multi-Disciplinary Design Project 2018/19
Saudi Arabia After Oil Final Report – Group 1
Group Members Supervisors Umar Ahmed Professor Jonathan England Faizal Mohammed Amin Professor Zoran Milosevic Daniel Caplin Amina Mohamed Osman Amr Mahmoud Soliman
Saudi Arabia After Oil Group 1
Executive Summary Due to the Kingdom of Saudi Arabia’s (KSA) significant oil reserves, it is currently the world’s largest exporter of oil. However, this position is proving to be unsustainable. There are numerous reasons for this unsustainability. Firstly, oil reserves are declining with only 266.2 thousand million barrels remaining, which according to the reserve to production ratio, will only be sufficient for 61 years. Secondly, the cost of production in the KSA is currently one of the lowest in the world, however, due to ageing oil fields, the low production cost may not continue. Moreover, the demand for oil will peak between 2035-40 making it no longer strategic for the KSA to be a lead exporter for a product with diminishing demand. Thus, it is essential the economy of the KSA undergoes diversification so that the nation does not continue to rely on oil revenue alone for economic growth.
The reliance on oil revenue poses a significant risk to the KSA as 44% of the nation's GDP is from the oil sector whilst also indirectly contributing to the entire economy. As a result of the dependence on oil, the government are the main employer of KSA citizens, which is unsustainable as the proportion of youth entering the workforce will increase in the future. Furthermore, unfavourable economy policy creates barriers for foreign investment and citizens are not taxed, decreasing the potential government revenue. From the evaluation of the current situation in the KSA, it can be concluded that there is an immediate necessity to reduce oil revenue dependant to prevent the circular economy from negatively affecting growth in the KSA.
In order to sustainably reduce oil dependence, new industries require developing in the KSA which will be economically sustainable for the countries long term future. Following an investigation into the existing and potential industries in the KSA, 17 possible solutions were chosen and applied to a decision matrix. The decision matrix had 12 criteria, encompassing economic, social, environmental and implementation aspects, with each criteria being assigned an importance factor. Each industry was given a score out of 10 for every criteria which were then multiplied by the corresponding importance factor, resulting in a final score for each industry. The top two industries which the decision matrix deemed to be most suitable for the future of KSA was the petrochemical industry and the tourism industry. These two industries then underwent further detailed design.
An implementation timeline was developed for KSA, briefly setting out development plans for the next 30 years. The timeline covers the period from 2020 to 2050, and in broad five-year periods establishes when development should begin on industries, and what that development entails. The most profitable industries, including petrochemicals and tourism, should begin development as early as possible, as well as the development and change of social policies which will add further benefit to the country. The implementation of the stated policies between 2020 to 2050 should provide KSA with a diversified economy by the time that oil demand is expected to start depleting in 2050.
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In order to develop the petrochemical industry in the country, refineries in Jubail and Ras Tanura will be expanded to increase production of more than 5 million tonnes of olefins and 2 million tonnes of aromatics. In Yanbu however, there will be a new crude oil to chemical complex greenfield site built, as opposed to an integrated expansion. The new complex will be the largest petrochemical producing site in the world built to cope with future demand, both locally and internationally. The combined cost of this expansion will be $34 billion and the overall payback time for the projects will not exceed 3 years and 10 months.
The tourism industry of KSA has two sectors, Islamic tourism and general tourism. Islamic tourism is generated by the millions of people who visit Mecca and Medina every year to participate in Hajj and Umrah. Through the further development of these two cities, including expanding the capacity of the two Holy Mosques, construction of more pilgrim accommodation and improvements to infrastructure, such as metro links and airport expansions, millions more pilgrims will be able to come to KSA every year. Furthermore, by increasing options for general tourism tourists by opening up ancient historical sites which currently lie deserted and developing upon the pristine beaches and coral reefs which lie just off its west coast, the Saudi Arabian tourist industry will be a thriving revenue generator for KSA.
Socio-economic issues are presented with Education, Women and Health being the topics of focus. A detailed recommendation and framework are made for the KSA to understand and follow. The aim is to boost the society’s productivity to contribute to the global economy. Not by copying foreign countries’ policies but by implementing successful methodologies of improvement. The framework acts as a guide to yielding successful education reform policies. The philosophy behind Islamic jurisprudence that restricts women’s contribution is revised and a simple health plan presents a solution to the KSA’s health needs.
Investment for the petrochemical sector will primarily be sourced from state-owned companies including SABIC and Saudi Aramco, the KSA’s largest petrochemical company oil company respectively. The Islamic tourism sector will require investment from the government in order to expand the current infrastructure to hold more pilgrims and improve efficiency. Venture capitalist and private companies will provide the majority of the investment needed for the non-Islamic tourism sector. The proposed tourism and petrochemical expansion projects have a combined net present of 120 billion and the payback times for the proposed projects under 31 months after completion of construction of each project. A sensitivity analysis was undertaken for the proposed projects and it was concluded that lower than expected industry growth rates and low-profit margins will not severely detriment the profitability of the project. The overall cost analysis indicates that the projects are viable.
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Table of Contents
Executive Summary...... 1
1 Saudi Arabia Oil Overview (AO, UA, AS) ...... 8
1.1 History of Saudi Arabia (UA) ...... 8
1.2 Analysis of Oil Reserves (UA) ...... 9
1.3 Cost of Production (AO) ...... 10
1.4 Effects of climate change and renewable forms of energy on oil peak demand (AS) .... 12
1.5 Outlook (AO)...... 14
1.6 Key Issues ...... 16
1.6.1 Economic (AO) ...... 16
1.6.1.1 Public Sector Reliance and Welfare State ...... 16
1.6.1.2 Employment: Private vs Public Sector ...... 17
1.6.2 Social (AS) ...... 17
1.6.2.1 Education (AS) ...... 17
1.6.2.2 Women’s Rights (AS) ...... 19
1.6.2.3 Health (AS) ...... 19
2 Analysis of Potential Industries ...... 21
2.1 Methodology (FA) ...... 21
2.2 Results (ALL) ...... 24
2.3 Justifications ...... 25
2.3.1 Petrochemicals (AO) ...... 25
2.3.2 Construction (AO) ...... 25
2.3.3 Transport (AO) ...... 26
2.3.4 Manufacturing (AO) ...... 27
2.3.5 Wholesale & Retail (UA) ...... 27
2.3.6 Real estate (UA) ...... 28
2.3.7 Utilities (UA) ...... 29
2.3.8 Electricity Export (AS) ...... 29
2.3.9 Shipping (AS) ...... 31
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2.3.10 Tourism (AS) ...... 32
2.3.11 Technology (FA) ...... 35
2.3.12 Mining (FA) ...... 36
2.3.13 Liquefied Natural Gas (FA) ...... 37
2.3.14 Communications (DC) ...... 39
2.3.15 Food production (DC) ...... 40
2.3.16 Education (DC) ...... 40
2.3.17 Banking and Finance (DC) ...... 41
2.4 Discussion (FA) ...... 42
3 Implementation timeline ...... 43
3.1.1 Timeline (DC) ...... 43
3.1.2 Discussion (FA) ...... 44
4 Petrochemical Design ...... 46
4.1 Petrochemical Design (UA)...... 46
4.2 Petrochemical Potential Feedstock (AO) ...... 46
4.2.1.1 Ethane Supply in the KSA ...... 47
4.2.2 Key Products (UA) ...... 48
4.2.2.1 Olefins ...... 48
4.2.2.2 Aromatics ...... 49
4.2.3 Further Processing (AO) ...... 49
4.3 Yanbu (AO/UA) ...... 50
4.3.1 SAMREF (AO) ...... 50
4.3.2 YASREF (AO) ...... 50
4.3.3 The Yanbu Refinery (AO) ...... 51
4.3.4 Design (UA) ...... 51
4.4 Ras Tanura (AO) ...... 54
4.4.1 Design (AO) ...... 55
4.4.2 Cost Estimate ...... 58
4.5 Jubail (UA) ...... 59
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4.5.1 Design (UA) ...... 60
4.5.2 Cost Estimate ...... 61
4.6 Environmental Problems with Petrochemicals (UA) ...... 63
4.7 Conclusion (AO) ...... 64
4.7.1 Map of Design (UA) ...... 64
5 Islamic Tourism Design (DC) ...... 65
5.1 Development of Mecca and Medina ...... 65
5.1.1 Hajj and Umrah (DC) ...... 65
5.1.2 Increase in Mosque Capacity (DC) ...... 67
5.1.3 Accommodation Expansion (DC) ...... 69
5.2 Improvement in Infrastructure (DC) ...... 75
5.2.1 Haramain High-speed Rail (DC) ...... 75
5.2.2 Metro Systems (DC) ...... 76
5.2.2.1 Mecca ...... 77
5.2.2.2 Jeddah ...... 77
5.2.2.3 Medina ...... 78
5.2.3 Airports (DC) ...... 79
5.3 Religious Tourist Visas (DC) ...... 79
5.4 Financial Breakdown (DC) ...... 81
5.4.1 Existing Revenue (DC) ...... 81
5.4.2 Proposed Revenue (DC) ...... 82
5.5 Conclusion (DC) ...... 83
6 General Tourism Design (FA) ...... 84
6.1 Historical Tourism ...... 85
6.1.1 At-Turaif District of ad-Dir'iyah...... 85
6.1.2 Al-Hijr Archaeological Site (Madain Salih) ...... 86
6.1.3 Rock Art of the Hail Region ...... 88
6.1.4 Historic Jeddah ...... 88
6.2 Coast and Waterfront Tourism ...... 89
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6.3 Financial breakdown ...... 90
6.4 NEOM Project ...... 92
6.5 Conclusion ...... 93
6.6 Map of tourism design ...... 94
7 Social Design (AS) ...... 95
7.1 A View on Competitive Economies ...... 95
7.2 Knowledge-Based Economies ...... 95
7.3 Global Educational Reform ...... 96
7.4 Finland’s Educational Philosophy ...... 97
7.5 Singapore’s Dogged System ...... 99
7.6 What the KSA Can Do ...... 102
7.7 Religious Policies ...... 105
7.8 Health Education ...... 106
7.9 Conclusion ...... 107
8 Risk Analysis (FA) ...... 108
8.1 Political ...... 108
8.2 Economical ...... 108
8.3 Social ...... 108
8.4 Technological ...... 109
8.5 Legal ...... 109
8.6 Environmental ...... 109
9 Cost Analysis (AO) ...... 110
9.1 Cost of Education and Return on Investment (AS) ...... 110
9.2 Net Present Value (NPV) (AO) ...... 110
9.3 Payback Period (AO) ...... 110
9.4 Sensitivity Analysis (AO) ...... 111
9.5 Investment Sources (AO) ...... 113
9.6 Evaluation of Project Viability (AO)...... 114
10 Sustainability Analysis (UA) ...... 115
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11 Conclusion (AO) ...... 120
12 Gantt chart ...... 121
References ...... 123
Appendix ...... 143
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1 Saudi Arabia Oil Overview (AO, UA, AS)
1.1 History of Saudi Arabia (UA)
Preceding the early 1930’s, the Kingdom of Saudi Arabia (KSA) consisted of a number of different regions, ruled by various tribes. The vast majority of these tribes relied on subsistence farming and agriculture as a means of income, with a few tribes participating in low level of foreign trade to neighbouring countries. The economy could certainly be described as a subsistence economy. This absence of a centralised state, inevitably, meant major powers of the world directed little attention towards KSA.
Forward to 2018, KSA is a unified country and arguably one of the most influential nations in the world. The primary factor responsible for this dynamical transformation in power is the discovery of oil. The search for oil was triggered by the Great Depression which began in 1929 [1]. Prior to this event, a key source of income for the ruler of the Hijaz region of KSA was the taxes and expenses paid by pilgrims as they visited the holy cities – Makkah and Madinah. Following the depression, the number of pilgrims decreased by 60% which inevitably had a significant effect on the economy [2]. Thus, in 1933, exploration for oil commenced, albeit with minimal success. However, with the introduction of improved structural drilling techniques and surveying instruments in 1938, this resulted in the first commercial quantities of oil being discovered. Subsequently, due to the political and economic events that have shaped the globe, KSA is currently the world’s largest exporter of oil. One such event was the 1973 Arab-Israel Yom Kippur war. With the USA being an ally of Israel, Arab countries participated in an oil boycott to a number of Western countries leading to the 1973 energy crisis [3]. Consequentially, once the war was over, the price
of oil increased drastically as is evident from the figure below.
Price Index Price Index
Figure 1-1: Effect of global events on the price of oil
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As a result, this allowed KSA to obtain much wealth and power. A position that it has maintained and now gives it considerable influence on the global stage due to the significance of oil in developed and developing countries.
Although oil has vastly improved Saudi’s GDP and political status, the consequence of having a natural resource as profitable as oil has resulted in the over-reliance of this valuable commodity. The significance of oil to KSA can be highlighted by the fact that it accounts for 90% of earnings from all exported goods and moreover, oil is responsible for 44.3% [4]. The extent to this over- reliance can be truly comprehended by observation of the second largest exporter of oil – Russia. Oil is responsible for up to 16% of its GDP, significantly lower than that of KSA [5]. This substantial dependency would be an inconsequential issue if oil was an infinite resource with minimal implications on the environment. Unfortunately, the reality is that oil is a major cause of ever-increasing environmental problems globally and more importantly, oil reserves in Saudi Arabia are depleting.
1.2 Analysis of Oil Reserves (UA)
Prior to providing an analysis of global oil reserves, it is important to note that it is not truly possible to provide an accurate estimation of how much oil is available. Values provided are established based on engineering judgement and estimates.
The phrase ‘oil reserves’ can be defined as the quantity of crude oil present underground that may be retrieved. Although, this is a broad definition that requires further explanation due to the variation in certainty with regard to the presence of oil within each reserve. Thus, it is necessary to categorise oil reserves into two types: proven and unproven. A widely accepted definition for the term proven oil reserves is: “the estimated quantity of oil which geological and engineering data indicate with reasonable certainty to be recoverable in future years from known reservoirs under current economic and operating conditions.” [6]. The term ‘reasonable certainty’ includes those reserves which have a minimum 90% confidence level [6]. At the end of 2017, world proven reserves had been declared at approximately 1697 thousand million barrels. KSA contributes to 15.7% of this value due to its proven reserve capacity of 266.2 thousand million barrels. Only Venezuela has more a larger availability amounting to 17.9% of world proven oil reserves. Currently, considering reserve to production ratio, KSA has 61 years left of oil, only 10.8 years more than the average of all countries: 50.2 years [7]. Although this value may seem surprisingly low considering KSA’s reserve levels, however - as alluded to earlier – KSA exports the most amount of oil and produces 10.3 million barrels daily which explains the estimate of 61 years. Predictably, relying on a reserve to production ratio is not an accurate method of estimating when
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KSA’s oil will be depleted. Thus, a more accurate timescale and estimate has been justified in section 2.5.
The second category of oil reserves is unproven reserves, which may be further classified into probable and possible reserves. Firstly, probable reserves can be defined as reserves that demonstrate a 50%-90% probability of being successfully recovered. A successful recovery is one that is technically and economically viable. Secondly, possible reserves which may be defined as those reserves indicating less than 50% chance of recovery [6].
Total amounts of unproven reserves are significantly higher than proven reserves with data indicating 3752 billion barrels of global unproven reserves [8]. With regard to KSA, sources have differed substantially with regard to the amount of unproven reserves. Values range from 120 billion barrels to 900 billion barrels [9] which highlights the inaccuracy with regards to estimating unproven reserves – a major source of technical uncertainty. Moreover, one should note that with increasing extraction difficulty leads to increasing costs. This reduces the amount of reserves that are technically and economically feasible for recovery, thereby reducing values for proven and unproven reserves as time passes.
1.3 Cost of Production (AO)
The cost of production is a factor that must be considered when analysing the outlook for oil in the KSA. Presently, a three-step process is used in the country to recover the large reserves of conventional oil. Initially, the oil is recovered using simplest and least cost intensive recovery phase where the oil flows to the surface under its own pressure flows. Then, secondary recovery takes place where the recovery is maximised by water injection into the field which maintains the flow rate and pressure. Approximately 35% of the oil can be recovered in the primary and secondary phases of recovery, however, over time the flow rate of oil falls because the pressure decreases. Furthermore, secondary recovery co-produces a significant volume of water causing the flow rate of oil decreases significantly as time passes. As a result, the economic feasibility of wells decreases because water is the major product produced.
Therefore, in the tertiary phase of recovery, methods to reduce the viscosity of the oil are used to prevent water production and ensure so that oil can be driven into the wells. These methods are called enhanced oil recovery, but the techniques vary in effectiveness and overall account for only 3% of the oil produced globally. The recovery factors are typically between 5-15% but can be as high 70% [10], though this is rare. Nevertheless, the cost of recovery during this stage can cause a considerable increase in the cost of production because of the specialised machinery required.
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As the use of specialised machinery increases, the energy cost of production becomes more of a factor when assessing whether recovery oil is a profitable endeavour because oil is used to extract oil. As time passes the cost of producing one barrel of oil will require the use of more than a barrel of oil. Hence, a time will arrive where the oil extraction will not be feasible due to the energy deficit regardless of the economic profitability.
There is a general misconception oil production and subsequent consumption will seize due to the depletion of oil. However, it can be concluded that as crude depletes the cost of production will increase and ultimately lead to a seize in production in each oil well. Therefore, oil reserves may not be the determining factor when assessing the future of the oil industry.
Due to the location and lack of taxes associated with oil production in the KSA, the cost of production is one of the lowest globally, and hence oil recovery is extremely profitable. As displayed in the figure below, in Middle Eastern countries, the cost of production is below $10 per barrel whereas in the USA it is over $20 per barrel. Therefore, the cost of oil extraction increases in step changes rather than incrementally. Oil fields throughout the country have peaked in recent years, with the largest oil field Ghawar, peaking nearly a dozen years ago [11]. As discussed above, the cost of production will increase and if the oil price does not match this increase, the lack of growth in profitability will mean that oil extraction will not be an attractive investment for the government or foreign investors. Therefore, the period of high profitability of the oil sector in the KSA may be coming to an end.
Figure 1-2: Global cost of producing a barrel of oil in 2016 [12]
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1.4 Effects of climate change and renewable forms of energy on oil peak demand (AS)
In 2015, KSA alongside 193 countries agreed to combat global warming and limit the increase of global average temperature by 2⁰C above pre-industrial levels. This agreement took place in a UN meeting in Paris, France and was called the Paris Agreement [13]. The Paris agreement requires all participating countries to report annually on their emissions and implementation efforts through Nationally Determined Contributions (NDCs). In order to veer off of our current path of self-induce natural disaster, a Business As Usual (BAU) mindset must be abandoned. A BAU project future energy systems on a trajectory similar to the past and present with very little change for the future. However, this is not the case. Solar PhotoVoltaics (PVs) and Electric Vehicles (EVs) are changing the global landscape for energy production and consumption. A study by Imperial College London [14] shows the economics of low carbon technologies and their effect on fossil fuel use.
They construct different scenarios by varying the intensity of 3 variable; Policy, Technology Cost and Energy Demand (explained in Appendix a) and predict the outcome of future oil demand and future modes of transportation. The most realistic scenario is one where the Policy meets the Paris Agreement’s standard of NDC, with continuously decreasing cost of solar PVs and EV vehicles and a Medium projection of future energy demand. For the sake of comparison, the same scenario with the exception of constant present cost of PV and EV is presented to contrast the potential of solar PVs and EVs disruption in the future.
Figure 1-3: 2050 Road Transport Mix [14]
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Figure (1-3) shows the road transport mix predicted to occur in 2050. It can be seen how if EVs were to remain the same price they would not be noticeable in the transportation market. Internal Combustion Engines (ICEs) account for about 73% of the transport mix with little implication on the demand as seen in figure (1-4). Compared to the realistic assumption of lowered PV and EV cost, ICEs account for around 12% of the road transport mix with considerable implication to the demand of oil.
Figure 1-4: Global Demand of Oil [14]
The potential shift from oil use in passenger vehicles accounts for 26% of global oil consumption as shown in figure (1-5), threaten Saudi Arabia’s oil-dependent economy. Keeping in mind that a 2% change in the global supply and demand of oil damaged KSA’s economy in the past 4 years [14].
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Figure 1-5: Global oil consumption by sub-sector (2015) [14]
1.5 Outlook (AO)
The outlook for the future of the oil industry in the KSA and the country as a whole is dependent on the three factors discussed above: cost of production, oil depletion rate and markets that compete with the oil sector. All of which contribute to the following question: when will demand for oil peak globally in the KSA and how will this affect the profitability of the oil sector? Peak demand per capita has already occurred in most developed nations, with the growth in the KSA oil sector coming from developing nations, primarily China and India. As these nations become more developed the growth in oil demand will lessen, placing the KSA in a precarious position. Particularly because China and India are the leading the shift to electric cars, and the transportation industry is the main consumer of oil [15].
The world’s leading oil consultancy, Wood Mackenzie, has estimated that the demand for oil will peak in 2036 [16], and OPEC has estimated that during the period between 2035-2040, the demand for oil will slow [17]. Hence, if oil prices do not increase to compensate for the decrease in demand, the KSA oil sector will not continue to grow beyond this period, regardless of their reserves oil.
Oil prices are dependent on several factors including level of demand, natural disasters and international war and so are enormously subjective. The increase in electric vehicles and the development of alternative forms of energy mean that after the peak demand occurs, it is improbable that oil price will stabilise because oil demand fluctuating negatively affect oil price. When demand for oil is too high and the supply is not able to meet the demand, oil prices increase. This causes the consumer to use oil more efficiently and reduce consumption oil, reducing the demand for oil.
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Therefore, once the supply can meet the demand, the demand is no longer present [18]. Due to the nature of crude oil production, there are no storage capacities for oil in most nations including the KSA, this means that if there is an oversupply, the oil price collapses. Hence, peak demand will be a challenging and unpredictable time for the KSA oil sector.
Overdependence of oil causes the KSA’s revenue to be vulnerable to large fluctuations and unpredictability for the nation’s economy. Therefore, urgent development is required in non-oil sectors to ensure the country is not left vulnerable when oil depletes, the cost of production is unfeasible and the demand for the commodity becomes non-existent. Due to conservative government spending and strategic positioning of assets, the KSA is in an exceptionally secure financial position. The government has reduced national debt and ensured their reserves are equivalent to 74% of the GDP at $510 billion [19] in 2018. Maintaining this level of financial security and continuing national economic growth requires the diversification and development of other industries to substitute for the dwindling revenue received from the oil sector. The non-oil economy is essential if the KSA is to continue to be one of the largest economies globally and ensure that there is compensation for the loss in government oil revenue.
As early as 2000, the KSA has recognised the economic vulnerability caused by heavy reliance on the oil sector [20]. However, the current global oil market is volatile and oil price has suffered as a result. The KSA previously held the status of “the swing producer” in the world and was able to manipulate oil price by altering their oil supply [21]. However, due to the discoveries of shale gas, this has changed in recent years. The country may even be overtaken by the USA as lead exporter in the 2020s because of the shale gas boom [22]. This reality has caused consequences to the KSA and the global market. In the years between 2014 and 2016, there was a plunge in oil prices, and in 2016 the oil price reached a low of $30 per barrel from highs of $111 per barrel in 2014 [23]. The price of oil has since recovered reaching $45 per barrel, nonetheless, it is still unable to meet the budgetary requirement of the KSA government which is around $88 per barrels [24]. Furthermore, the price of oil is predicted to remain low, and over the medium term it will only increase incrementally [25]. This triggers a renewed urgency to restart the efforts to diversify the economy away from oil. Absent of such diversification, the KSA could deplete their fiscal reserves before meaningful diversification of the economy is undertaken.
The position of lead exporter of a commodity with diminishing demand is not an appealing status for the KSA, hence strategically shifting from an oil-dependent in the year prior to 2036 is imperative. Reconstructing the KSA economy so that the key source of income is not oil will protect the economy from unstable oil prices and buffer the effect of the consequence of oil price drops. Consequences experienced by the nation in the period between 2014-2016 where government revenue declined. The country is still experiencing the effects of the oil price crash, even in 2017,
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GDP growth was -0.5% [26]. At present, 87% of total exports comprise of oil and diversifying the export sector will allow for the sustainability of the vast financial reserves and contribute to the increase in those reserves. The development will not only increase government revenue but create job opportunities for a growing and young population, over half who under the age of thirty [27]. Moreover, economic complexity in nations typically decreases their level of economic volatility. Hence, it is recommended that the KSA promote long-term financial stability through appropriate investment to develop non-oil sectors in the years preceding peak demand in 2035.
1.6 Key Issues
1.6.1 Economic (AO)
The KSA is home to one of the largest economies in the world but is a relatively new economic superpower. In the decade between 2003 to 2013, it virtually doubled in size due to the extended oil boom. This economic growth enabled modernization, causing prosperity and change to Saudi society. As a result, 1.7 million jobs were created, Saudi nationals saw an increase in their household income by approximately 75% (after adjustment for inflation) and $450 billion was invested in education, infrastructure and health, improving living standards in Saudi Arabia [28]. The Saudi economy improved to become the 19th largest in 2014, from the 27th largest in the world in 2003. To maintain this position and lifestyle the Saudi government must address issues related to the oversized public sector, taxation and lack of private sector employment.
The reliance on the oil sector pose a significant risk, as mentioned previously, the oil economy is 44.3% of the GDP and indirectly contributes to the entire economy. Domestic consumption is affected by the reduction in oil revenues because many jobs are either directly or indirectly dependent on the performance of the oil industry. When demand peaks, opportunities for job seekers may decrease and as a result household wealth will suffer. Furthermore, lower spending by the population will reduce economic growth in the short term and affect the economy in the medium-term.
1.6.1.1 Public Sector Reliance and Welfare State
The KSA face challenges caused by the heavy dependence of oil resources and the volatility of oil prices. The economic growth in KSA has been heavily dependent on government spending and oil exports. A substantial portion of employment in the KSA is supplied by the government, funded through volatile oil revenue. The public sector is the second biggest contributor to GDP and 90% of jobs in the public sector are occupied by Saudi nationals [29]. However, this sector is also funded directly from the volatile oil revenue. The depletion of oil demand, therefore, directly jeopardizes the sustainability of the public sector. The public sector is not the only industry that is heavily reliant on oil revenue, there is a linear relationship between oil revenue and the size of both the construction
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Saudi Arabia After Oil Group 1 sector and service sector [30]. Public sector spending has also caused growth in sectors such as restaurants, transport, retail and trade. Essentially, the oil revenue is recycled within the economy, causing an oversized public sector and without the development of other profitable industries, this will likely cause many issues in the long term.
The KSA also expanded the welfare state between 2003-13. During this period the contribution of public sector wages or social benefits grew from approximately 66% to 80% [28]. This also increases the burden on the Saudi economy and with oil revenue likely to deplete it is unsustainable to continue the high cost of maintaining the Saudi population.
1.6.1.2 Employment: Private vs Public Sector
Despite rapid economic growth, the employment of Saudi nationals remains a challenge for Saudi Arabia and proportion of youth entering the workforce every year will rise in years to come (51% of the population is under 25). Private sector jobs continue to be largely filled by foreign workers, with only 19% of private sector jobs occupied by KSA nationals [29]. Although the non-oil economy has grown by 7% each year from the year 2000-2014 and created 3.6 million private sector jobs, only 20% of these opportunities went to nationals. The public sector has only contributed to the growth of GDP by 15% however, 70% of the jobs created for nationals were in community service and the government [31].
As a result, the public sector and private sector are in direct competition, and the public sector hinders the private sector instead of enabling it. In the KSA job creation in the public sector may come at the price of a job in the private sector. A term named the “crowding-out effect” and occurs for three main reasons: there are incentives for individuals to take on a public sector job rather than a private sector job (the wage is 60% higher in the government), economic activity in the private sector is reduced, due to this higher incentive the skills acquired are tailored towards working in the public sector [32].
The oil revenue is not just the largest revenue for Saudi Arabia but it’s also its largest indirect employer and the oil sector cannot be a sustainable source of jobs to absorb the growing workforce. Hence, to diversify away from oil, enabling job creation is a key issue that needs to be addressed to sustain growth. The government's resources will reduce as oil income deplete and their ability to aid economic development will be diminished. When high government spending and investment cannot be maintained, a robust private sector should become the stimulus for growth.
1.6.2 Social (AS) 1.6.2.1 Education (AS) Education builds the foundation of a functioning society. A society that has learned to use knowledge wisely, speak their ideas and opinions thoughtfully and considerately. A society that
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Saudi Arabia After Oil Group 1 cares for the well-being of its constituent citizens. One that is equipped with a spectrum of skill sets to advance in the global economy. In this section we will see the key issues arising in KSA’s society.
Saudi Arabia is home of the two Holy Mosques. It is considered the birthplace and heartland of Islam. It is the focal point of the Islamic world. The Quran KSA’s constitution and Islamic law is the basis of the legal system. Therefore, for its citizens to understand the governing laws of the country, religious education plays an important role in the education system. [33]
KSA suffers from a growing youth population, underemployment, unemployment and a lack of qualified graduates for the private sector. Saudi nationals heavily rely on public sector jobs however the government cannot keep up with the growing population. KSA has been trying to force Saudi’s into the private sector through quotas and labour laws, and actions termed “Saudisation”, however expats are preferred due to Saudi’s underqualified education. “Expats occupy 9/10 jobs in the private sector.” said John Sfakiana chief economist of Banque Saudi Fransi, a figure who drafts government funding towards education [34]. Saudi Arabia will need to align its education system with the need of the private sector and create 300,000 jobs a year to move away from being an oil- dependent nation [34].
Issues in various levels of the education system lead to misalignment of qualifications with the industry, inefficient facility use and outdated pedagogical methods. For example:
• Women are not allowed to access King Saud University’s Entrepreneurship Center of Excellence that is partnered with Babson College (the top University in entrepreneurship in the USA). [35] • Tertiary education, i.e. University, curriculums are heavily theoretical with little practice- based pedagogical methods. Students require advanced training that is available internationally to reach acceptable international standards [34] • Primary and secondary education require development in technology, science, business, finance and entrepreneurship for University level. In the 2015 “Trends in International Mathematics and Science Study," [36] [37]produced by the U.S. National Center for Education Statistics, Saudi children ranked near the bottom of the 49 countries surveyed. • Early Childhood Education (ECE) availability is concentrated in urban areas while rural ones are in deficit. Even though the Gulf Girl Association and the King Saud University programs offer excellent training in ECE, graduates are not hired by preschools. Preschool polices need regulation in term of hiring and financing; a loose hiring system hires unqualified teachers and private pre-school charge large tuition fees due to a lack of experience in financing. ECE is treated like a business. [38]
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Saudi Arabia After Oil Group 1
1.6.2.2 Women’s Rights (AS) Saudi’s diversification of economy requires the entire population to contribute towards change. However, there are laws that potentially restrict around 43% of the population, women. Women’s lack of freedom, mainly from the existence of the guardianship law, completely cuts off their growth. The guardianship law, which is an extreme cultural law of the land and not the religion [35], is the root of the problem. The law states that a woman regardless of her age, education level or marital status, remains a legal dependent. She is required the consent of a male guardian, be it her father, uncle, husband, brother or son, for basic needs, such as:
• Education. Ministry of education requires a guardian to approve of a woman’s enrollment to school. If she is to go to school or university outside of her hometown, the guardian needs to approve of her travel and accommodation. If she gets granted a scholarship to study abroad, the guardian must approve her application from a passport and give consent for her departure to another country, usually accompanies by a male relative acting as a chaperone. • Companies and government offices generally ask women for the guardian’s consent for paid employment outside home, even though it is not required by law. • Placing women under house arrest if the guardian wishes to do so. • The ability to go to a hospital.
In addition, limited interaction between the sexes make it difficult for women to find work in Saudi Arabia. Women make up 16% of the workforce even though there are more female graduates than there are male. [39] [40]. It is not Islamic faith that represses women, it is outdated interpretations of Islamic law. 1.6.2.3 Health (AS) Despite the Kingdom providing free and accessible healthcare, three-quarters of Saudis reported never having a regular medical checkup routine. Institute for Health Metrics and Evaluation (IHME) finds high rates of chronic, non-communicable diseases such as obesity, diabetes, hypertension and hypercholesterolemia. Also, overall 21.5% of men smoke and 20.9% of men smoke shisha. Statistics collected in 2013 show [41]:
• Nearly half of women are physically inactive. 29% experience low levels of physical activity. 23% of men are physically inactive while 23% experience low levels of physical activity. 7.6% only consume five daily servings of fruits and vegetables. It is of no surprise to find that the prevalence of obesity is at 28.7%. Higher among females than males, 33.5% and 24.1% respectively. The prevalence also increases by age.
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Saudi Arabia After Oil Group 1
• Total prevalence of diabetes was found in 2013 to be 14.8% for males and 11.7% for females. Also increasing in prevalence with age. Borderline diabetes was found to be 17% of men and 15.5% of women. International Diabetes Federation estimates 50% will have diabetes by 2030. • The prevalence of hypertension was 17.7% for males and 12.5% for females. Increasing with age and found to be highest among the ages above 65 or older. Borderline hypertension was found to be at 46.5% for men and 34.3% for women. About 15.1% are hypertensive. • The prevalence of hypercholesterolemia found to be 9.5% for males and 7.3% for females. Borderline hypercholesterolemia found at 19.5% for men and 20.6% for women.
Saudi Arabian's general trends with their personal health shows a lack of health education and large governmental expenditure to sustain them. That being possible from the oil nations large revenue however is unsustainable if change is not implemented.
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2 Analysis of Potential Industries
2.1 Methodology (FA)
To converge the 17 initial ideas into 2 main focused solutions, a weighted decision matrix (WDM) was implemented. To suitably determine the solutions: a set of defined criteria and a set of important relative weights are needed. The defined set of criteria encompasses the Economic, Social, Environmental and Implementation aspects of the solution. These would be subsequently broken down further into more specific criteria. Associated with the criteria are the assigned values of the importance factor. The values were given based on conducted research and meetings with the client. Finally, a rating/value was allotted to each of the 17 industries, and these ratings multiplied by the importance factor to achieve an overall simplified score. The 2 industries with the highest score will be the beneficiary of a detailed financial, sustainability and risk analysis, whilst the remaining industries would be employed in the implementation timeline.
Criteria Importance Factor Capital/Investment -0.3 Payback time -0.1 Economic Profit +1 Volatility -0.5 Acceptance +0.4 Social Job creation +0.6 Risk -0.1 Sustainability +0.3
Environmental C02 Emissions -0.4 Other Emissions and Pollution -0.2 Suitability +0.7 Implementation Ease of Implementation +0.5 Table 2-1: Decision matrix importance factors
As the primary objective is to diversify the economy of Saudi Arabia away from oil, the reference factor of ‘profit’ was given a factor, thus having the most impact in the final score. The other importance factor scores were given as a reference factor between 0 and 1. The polarity of scores determine if the particular aspect of the solution has a positive or negative impact towards the objective. Breaking down the Economic factors; the sub-criteria’s are Capital/Investment, Payback time, Profit and Volatility. As explained above, profit is deemed to be the most important factor, thus was given a rating of 1.
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The capital required for an idea is the initial cost needed to successfully create the industry and is allocated a factor of -0.3 relative to profit. In terms of overall economic principles, lower staring investments are preferred, ergo the higher the starting cost, the more negative score the industry would incur. The current state of available resources were also taken into consideration when deciding this factor. For example, petrochemical infrastructure and feedstock, would lower the initial cost of building and expanding this business, hence lower the rating. Payback time is defined as the time taken for a specific industry’s profit to equal the investment. Whilst payback time is extremely important on a small scale, Saudi Arabia are in unique situation as they have access to several investment funds ascertained from the oil business which can be used to diversify their economy, thus payback time has little impact on the objective and is given a rating of ‘-0.1’ i.e. the longer the payback time, the lower the calculated score.
The aim is to diversify the economy preferably with industries that are not economically volatile to external factors from political issues to environmental laws. The chosen industries need to be independent of the several factors which affect oil such as supply and demand or depletion. As a result, economic volatility was given the highest negative importance factor in the WDM. The social structure of Saudi Arabia is different to Western culture, thus in the decision process, had to incorporate the views of both the general population, government officials and the Islamic religion. The criteria for Social Acceptance was given a weighting of ‘+0.4’, as the industries outlined should be accepted and in accordance with the social structure mentioned above. The unemployment rate of Saudi Arabia is a cause for concern as the rate is substantially higher than in developed countries, therefore the requirement of jobs for both skilled and unskilled workers are paramount. Based on this analysis, the importance factor score for job creation was ‘+0.6’, a relatively high value as any industry with job creation potential will be hugely beneficial for the Saudi Arabia population. Social risk refers to the safety of the workers within the industry. Safety is an extremely important issue, however with enforced rules and regulations, accidents can be easily avoided ergo a low negative score of ‘-0.1’ was given.
The impact any industry has on the environment could be detrimental towards both the long-term sustainability and profits, thus to ensure prosperity a positive score ‘+0.3’ is given to environmental sustainability. CO2 emissions have the strictest and the most financially burdening laws, thus in the interest of maintaining overall profits and functions of an industry in the long-term, it is extremely desirable to reduce and have low emissions in general. An importance factor of ‘-0.4’ for CO2 emissions was selected as this would impact the overall score, whilst the theme of economic dominance of the WDM is maintained. Furthermore, a score of ‘-0.2’ for Other Emissions and Pollutions accounts for any other environmental flaws an industry may have which are not as detrimental as CO2, but still could damage future revenue. Finally, the implementation is to analyse
22
Saudi Arabia After Oil Group 1 the effectiveness of each industry with respect to Saudi Arabia’s current resources, land availability and future sustainability in terms of expansion and maintenance.
For Sustainability a high factor of ‘+0.7’ is assigned. Any industry with a short life or frequent costly maintenance requirements are not suitable alternatives to diversify the economy from oil in the long-term. The Ease of Implementation factor is based on current resources which Saudi Arabia possess and how effortlessly, the suggested industries could be instigated with the use of these resources, without disruption of Saudi Arabia’s current projects. Their importance was decided and confirmed with the clients to ensure the direction of the project is agreed upon by all parties involved.
Industry Petrochemicals Tourism Mining Wholesale and Retail Shipping Real Estate Communications Banking and Finance Construction Education Technology Agriculture Transport Utilities Electricity Export Manufacturing Natural Gas (LNG) Table 2-2: Industries considered in the decision matrix
The figure above shows the 17 industries that needed to be analysed and rated. For each industry, preliminary research was conducted to determine the rating for each criteria. Metrics and data for current active industries in Saudi Arabia which require expansion or improvements were obtained by internal reports and research studies. The potential new industries which are to be introduced to Saudi Arabia were acquired from comparisons from similar countries such as Dubai and their successes implementing these ideas. For each allocated rating, reasoning and justifications with evidence are provided below to ensure the best options are selected.
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2.2 Results (ALL)
Economic Social Environmental Implementation
Criteria Capital/Investment Payback time Profit Volatility Acceptance Job creation Risk Sustainability C02 Emissions Other Emissions and Pollution Suitability Ease of Implementation Importance Factor -0.3 -0.1 1 -0.5 0.4 0.6 -0.1 0.3 -0.4 -0.2 0.7 0.5 Value 6 2 10 3 10 4 1 4 8 8 10 9 Petrochemicals 20.7 Factored Value -1.8 -0.2 10 -1.5 4 2.4 -0.1 1.2 -3.2 -1.6 7 4.5 Value 9 1 4 1 7 10 10 8 9 8 4 6 Construction 11.5 Factored Value -2.7 -0.1 4 -0.5 2.8 6 -1 2.4 -3.6 -1.6 2.8 3 Value 10 10 3 2 8 7 10 8 10 8 1 6 Transport 4.9 Factored Value -3 -1 3 -1 3.2 4.2 -1 2.4 -4 -1.6 0.7 3 Value 10 8 1 2 2 4 4 5 5 7 6 7 Manufacturing 4.8 Factored Value -3 -0.8 1 -1 0.8 2.4 -0.4 1.5 -2 -1.4 4.2 3.5 Value 9 2 9 1 8 8 2 9 4 6 9 2 Tourism 20.6 Factored Value -2.7 -0.2 9 -0.5 3.2 4.8 -0.2 2.7 -1.6 -1.2 6.3 1 Value 3 3 2 4 7 7 8 7 2 4 7 7 Shipping 13.9 Factored Value -0.9 -0.3 2 -2 2.8 4.2 -0.8 2.1 -0.8 -0.8 4.9 3.5 Value 4 2 8 10 7 5 2 5 7 7 8 4 Natural Gas (LNG) 12.1 Factored Value -1.2 -0.2 8 -5 2.8 3 -0.2 1.5 -2.8 -1.4 5.6 2 Value 6 9 1 6 8 1 7 7 2 3 5 3 Electricity Export 4.1 Factored Value -1.8 -0.9 1 -3 3.2 0.6 -0.7 2.1 -0.8 -0.6 3.5 1.5 Value 2 2 3 2 7 8 1 8 2 5 3 8 Wholesale and Retail 15.4 Factored Value -0.6 -0.2 3 -1 2.8 4.8 -0.1 2.4 -0.8 -1 2.1 4 Value 4 3 3 2 7 3 3 5 1 1 4 7 Real Estate 12.0 Factored Value -1.2 -0.3 3 -1 2.8 1.8 -0.3 1.5 -0.4 -0.2 2.8 3.5 Value 10 9 1 1 9 4 3 9 5 6 1 2 Utilities 3.5 Factored Value -3 -0.9 1 -0.5 3.6 2.4 -0.3 2.7 -2 -1.2 0.7 1 Value 2 7 4 1 8 3 2 8 1 1 0 7 Communications 12.3 Factored Value -0.6 -0.7 4 -0.5 3.2 1.8 -0.2 2.4 -0.4 -0.2 0 3.5 Value 1 9 1 5 9 2 2 10 1 2 1 2 Agriculture 5.8 Factored Value -0.3 -0.9 1 -2.5 3.6 1.2 -0.2 3 -0.4 -0.4 0.7 1 Value 8 8 3 2 7 7 1 10 2 2 0 3 Education 9.0 Factored Value -2.4 -0.8 3 -1 2.8 4.2 -0.1 3 -0.8 -0.4 0 1.5 Value 3 5 8 6 6 4 1 5 1 1 2 3 Banking and Finance 12.1 Factored Value -0.9 -0.5 8 -3 2.4 2.4 -0.1 1.5 -0.4 -0.2 1.4 1.5 Value 8 5 9 7 8 1 1 5 1 1 2 8 Technology 12.6 Factored Value -2.4 -0.5 9 -3.5 3.2 0.6 -0.1 1.5 -0.4 -0.2 1.4 4 Value 4 2 9 3 9 6 9 6 8 8 10 6 Mining 19.4 Factored Value -1.2 -0.2 9 -1.5 3.6 3.6 -0.9 1.8 -3.2 -1.6 7 3
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2.3 Justifications
2.3.1 Petrochemicals (AO) The petrochemical industry, which is the downstream processing of crude oil after refining, is the KSA’s largest industry in the manufacturing sector. Olefins and aromatics are the main products of the petrochemicals industry, which can be further processed to produce a variety of products including plastics, paints and fertilisers. Due to maturing oil fields, there is an abundance of heavy crude oil but this product is difficult to transport and expensive to refine [42], and as a result, there is a significant opportunity for downstream processing to further process refined products and increase profit margins. The KSA have the advantage of a low-cost feedstock, and 4th largest refining capacity in the world, hence, development of this industry would be relatively easy to implement [43].
The capital investment required would not be significantly large, the industry as a whole would require an investment of $60-100 billion, for building new plants and expanding current refineries [44]. The payback time for petrochemical complexes is very short, petrochemical complexes require a $12-15 billion investment for each plant, and expected annual revenues are $15-20 billion and, the payback time for a petrochemical plant at approximately 1-7 years [45]. Also, shifting to petrochemical production increases profit margins by 9% on average globally. The demand for petrochemicals is increasing and the domestic feedstock provides security, hence the volatility of this industry is relatively low, despite the dependence on oil price [42]. This is an established industry in the KSA, SABIC the government-owned petrochemical company is the third largest chemical company worldwide, [46] so social acceptance is not an issue, and the industry requires minimal social reform.
The industry has the potential to directly create hundreds of thousands of jobs, and further create four jobs for every employment opportunity in this industry [47]. The industry is relatively safe, though accidents can be catastrophic, safe design will combat this issue. The industry has the 4th highest volatile organic compound emissions in the world [48] and accounts for 16% of direct carbon dioxide emissions [49], nevertheless, the demand of petrochemicals is not set to diminish and the KSA have the means to ensure any petrochemical complexes built to be as sustainable as possible because they have the capital to invest in sustainable technologies. In summary, there is a significant opportunity for the KSA in the petrochemical industry, and it is a viable replacement for the diminishing oil revenue.
2.3.2 Construction (AO) To avoid duplication in the analysis, this section will only consider the construction for domestic and housing use rather than the construction for the expansion of industries such as retail and
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Saudi Arabia After Oil Group 1 manufacturing. The housing and domestic construction industry in the country is growing, as a result of the nation’s development. As development in western countries is slowing down, many of the leading companies from Japan and Europe are vying for the opportunity to gain business in the KSA. Therefore, construction as an exporting service is of minimal opportunity [50]. The domestic construction business requires an investment of approximately £110 billion, and the margins are healthy for the sector at 5-7% annually and the payback time is between 25-30 years [50].
As the construction sector is relatively established, economic volatility is low. A recent pattern illustrates that schedules can overrun, consequently many projects in the KSA have been abandoned before completion which has led to high economic losses. The construction industry’s main advantage is that it requires a large labour force and has the potential to hire up to 40% of the workforce. However, since construction is perceived to be a low-status profession by KSA nationals; many won’t be willing to work, therefore the sector may not reduce unemployment among KSA nationals. Moreover, the social risk is high, the construction industry is one of the highest contributors to workplace death worldwide, and social reform is needed to ensure that the KSA has safety laws in place, to protect the rights of employees. Also, economic policy has put restrictions on the number of foreign companies that can bid for jobs which has slowed down growth in this industry so economic reform is also required [50].
Although development of this sector will be relatively easy to implement, the industry is not sustainable, the energy requirement is high, and the industry produces high amounts of waste and emissions accounting for over 40% of total carbon emissions [51]. Overall, development of the construction industry is necessary, but it is unlikely to replace the oil economy since it is largely dependent on the oil economy for investment and growth and may not create viable jobs for KSA citizens.
2.3.3 Transport (AO) As the nation develops, there is an increasing need for transportation facilities including aviation, railway, and maritime transport. To achieve the necessary transportation links a capital investment of $160 billion dollars is needed [50], however, the payback period is approximately 30 years for most of the transportation projects due to the low-profit margins in the sector. The profits are dependent on the oil price however, relative to the other operating costs, it is not a significant value, hence, the volatility of the sector is low.
Transportation links will increase employment opportunities, it is currently the fourth largest hirer in the KSA [52]. Also, there are no foreseeable challenges regarding the implementation of expansion projects. It is a globally established industry with procedures for safety, so the social risk of the industry is low and requires minimal social reform. From an environmental perspective, the industry is one the largest contributors to carbon dioxide emissions accounting for 23% of
26
Saudi Arabia After Oil Group 1 emissions globally, and this is set to increase to 40% by 2040; the emissions of other greenhouse gasses are similar [53]. However, the country needs transportation links to develop other industries such as tourism. Overall, the sector is necessary for the development of the nation, nonetheless, due to the low-profit margins it is unlikely to be a viable replacement for the oil revenue.
2.3.4 Manufacturing (AO) While the petrochemical industry has occupied the lead position of the KSA manufacturing sector, other industries have also enjoyed growth. The food industry, building material sector and manufacturing of machinery and equipment have constituted most of the income gained from the non-petrochemicals manufacturing industry. The industry is vast and has seen rapid growth and an investment of $300 billion from 1974 to 2015. In this period, the number of operating industrial units in the KSA increased to over 7000 from less than 200 creating one million employment opportunities in the region [54]. However, only 20% of these jobs are held by KSA nationals [47].
There is a high capital investment of up to $1.5 trillion required for expansion of the industry in the next decade and the payback time for this investment will be approximately 20 years. The revenue projected from the leading three industries is approximately 70 billion. This will occur if the increased demand for cement and other building materials needed due to the expanding construction program is supplied and by maximising the halal food market and tourism. Many of the opportunities for manufacturing growth are found in products that are import-reliant, hence the customer base is established, and the risk of investment is minimal. This would create over 200,000 jobs but “Saudization” is required to ensure that it lowers unemployment for the KSA [55]. Since the industry has been growing, it is socially accepted, minimal social reform is required, and implementation would be relatively easy.
The manufacturing industry has the second highest CO2 emissions globally, however the other emissions of the industry are relatively low [53]. The KSA has the investment capital capacity to increase the sustainability of the regions and since most of the investment would be replacing imports, the reduced transportation costs ensure that it the more sustainable option. To summarise, there is a vast opportunity in the sector predominantly in the cement industry and the halal food sector however the industry requires significant investment.
2.3.5 Wholesale & Retail (UA) The wholesale and retail industry refers to the activity of marketing goods and services to consumers directly, whether in retail stores or online. Although there is a significant shift in standards in the retail industry with online shopping becoming more popular than ever before, 90% of worldwide retail sales are still performed in-store [56]. For a country that has a large population that is expected to reach 50 million by 2025, as well as an overwhelmingly young population, with 50% between the ages of 15 and 40 and 32% below the age of 15, this presents a significant
27
Saudi Arabia After Oil Group 1 opportunity for this industry [57]. This is reflected in the fact that 16% of Saudi’s non-oil GDP is due to wholesale and retail [4].
The capital investments involved in the retail industry are relatively low. As outlined in the PIF plan for Vision 2030, Saudi plans to invest £500 million by 2030 using government public investment funding [58]. This is a relatively low investment compared to other industries thus a value of 2 has been applied. Payback time for retail industries vary between 1-3 years, a very short period of time compared to other industries thus, a low value of 3 was applied. Although payback time and capital investments are low, so are the profit margins relative to other industries, with net profit margins often not exceeding more than 4%.
Although online shopping is becoming more popular, the volatility of the retail industry is still low, specifically countries like KSA, who are not as advanced with regard to online retail. Evidence for this is that online sales contributed to only 1% of the total retail market in KSA. Acceptance of the retail industry is generally high with the Saudi nationals and Expat population with malls often seen as social hubs for youth, thus a high value of 7 has been selected. Another value that justifies acceptance is the high level of job creation in the retail industry, reflected by a value of 8. Investment into the retail industry has minimal risks due to the young population and ever- improving lifestyles in general for the KSA population. Indications suggest that the retail industry will keep growing as time passes. This also justifies the high sustainability value – measured by the ability to maintain the industry at a certain rate.
Minimal CO2 emissions are involved with the retail industry, but other pollutants are considerable with much waste being produced. It also is likely to bring noise pollution. The suitability in terms of diversifying the economy is low due to the profit margins which will not be significant enough to replace the oil economy irrespective of how much is invested within retail. However, it is a simple solution to generate a source of income for the country and easy to implement.
2.3.6 Real estate (UA) Investing in real estate is important for an ever-growing young population, however, it can prove to be costly. Thus, a value of 4 was selected to reflect the fact that, currently, 500 million Saudi Riyals (approximately £100 million) are invested annually into the real-estate market [59].
Investments in real estate are based upon meeting demands, thus, generally a short payback time is expected. Profits in real-estate are considerable and are increasing due to the new housing tax employed by the KSA government, as well as the 2.5% white land tax on idle residential and commercial lands. This would encourage more building and usage of land and is expected to increase supply of residential units to 400,000 in Riyadh, Jeddah and the Eastern Province. The real estate market is not very volatile, except to major world events, thus a value of 2 has been applied. Generally, new housing projects are met with acceptance due to the wide amount of available free
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Saudi Arabia After Oil Group 1 land in Saudi which led to a value of 7 being selected. However, direct job creation as a result of investment in real estate doesn’t create a significant amount of jobs compared to other industries such as retail, thus a lower value was selected. As alluded to earlier, investment is based upon demand and thus, there is often a low risk associated with real estate managed by the government and thus a score of 3 was applied. Sustainability of the real estate market was given a median value, as demand for villas are considerably decreasing, but the demand for apartments and flats are considerably increasing. Minimal emissions are associated with the real estate market as is reflected in the results table. Moreover, the real estate industry in terms of ease of implementation, in a country where there is abundant land and demand, is relatively simple and thus obtained a score of 7.
2.3.7 Utilities (UA) Utilities in KSA involves the consideration of power and water. Capital costs involving power are numerous and costly as it relates to producing energy from many potential sources. Firstly, the continuation of production and use of oil and its constituents for electricity. Secondly, investing in renewable energy such as solar and wind. Thirdly, the possibility of investing in nuclear energy. With regard to water, the main investment is in water desalination plants. All these costs are highly significant and therefore a value of 10 was chosen. The payback time for these is slow depending on specifics, but considering the overall picture with regards to utility, a need that is not necessarily intended to make profit – reflected in the profit rating of 1 – and thus, a value of 9 was selected for payback time. Volatility overall is not significant for utilities. Improving power and water supplies generates good public acceptance, with low risk and are designed with the intention of being sustainable which is reflected in the high value applied. Emissions are significant with much CO2 emissions produced in power generation along with other pollutants due to water desalination, this is evident from the decision matrix values. The suitability as a means of generating profit is minimal due to the high capital investments, low payback times and low profit. Furthermore, it is not an easy solution to implement relative to some of the other industries that are available, although, it is one that is a necessity due to water shortages and oil reserves declining.
2.3.8 Electricity Export (AS) KSA has vague plans to invest USD 112 billion to build 16 nuclear reactors. The aim is to provide one-fifth of Saudi’s electricity generation for residential and industrial usage, including desalination by 2032. Nuclear power plants could also provide nuclear weaponry. KSA’s future plans of energy supply are highly political and are difficult to predict. KSA is experiencing an 8-10% increase in electricity growth and has oil providing 60% of its energy [60]. KSA is undergoing major developments to supply its growing energy demand. If solar power or nuclear power were to be used to export electricity to neighbouring countries, additional power plants or solar farms would need to be created. An economic study shows that the cheapest form of power generation is natural
29
Saudi Arabia After Oil Group 1 gas and solar power [61], as shown in figure (2-3). If the cost of natural gas increases substantially it would still be economically viable for KSA. If solar power cost reductions continue to decrease as they have been from 2003-2013, by the time the nuclear power station would have been built, it would be cheaper to supply electricity using solar power. If KSA were to be an exporter of electricity, 4 neighbouring countries (Egypt, Sudan, Eritrea, Jordan) are considered. However, energy exports and imports occur at times of excess demand beyond-capacity and an abundant oversupply available at the neighbouring country, hence it is difficult to predict such peaks. The required border infrastructure also needs to be built in both KSA and its neighbouring countries to allow transmission which currently does not exist. Germany is investing 21 billion USD for overland extensions and 23 billion total grid fees to establish a robust distribution system [62]. Even though power exports and imports between countries results in efficient use of power resources and the potential to save millions or even billions of dollars, such an integrated power grid can be depended on once all neighbouring countries have satisfied their growing energy demand and have built rigid power infrastructure. Almost all neighbouring countries are either developing, or in a political war with KSA (Yemen and Qatar). In Figure (2-1) it shows the most suitable areas for concentrated solar power in the Middle East Area (MEA) and Africa (AFR). It shows the superior CSP potential in North Africa and the potential for the countries within that region to establish their own CSP grid. Morocco’s Noor complex is offsetting 533,000 tonnes of CO2 per year, provided 1,000 jobs during its building phase and takes 60 people to run and maintain it. [63]
Figure 2-1: Map of the annual sum of direct irradiation for global CSP sites [64]
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Saudi Arabia After Oil Group 1
Lead Time Total Overnight Cost Variable O&M Fixed O&M Technology (Years) (2017 $/kW) (2017 &/MWh) (2017 $/kWh/yr) Nuclear 6 5,46 2.32. 101.28 Solar Thermal 3 4,228 0.00 71.41 Gas 3 1,026 3.54 11.11 Table 2-3: Cost of electricity production methods [65]
2.3.9 Shipping (AS) Capital/Investment: Based on the cost of constructing a new dry-dock within the premise of an existing shipyard in India, capital cost could amount to USD 268 million per dry-dock [66]. Dry- docking is considered because it acquires nearly twice the revenue of Repair and Maintenance (R&M) [67] Capital investment would be around USD 2.68 billion for 10 assumed docks.
Payback time: Using R&M and dry-dock cost figures compiled by Agamemnon in 2009 [67], it is shown in Table (2-5) that yearly revenues are estimated to be:
Average Number of potential Capacity in Average dry-docking Total ships/Year (10 Revenue/Year TEUs* R&M Cost cost docks)** < 1,000 $197,000 $515,000 $712,000 365 $259,880,000 1,000 - $263,000 $263,000 $526,000 365 $191,990,000 2,000 > 2,000 $470,000 $470,000 $940,000 365 $343,100,000 TOTAL REVENUE / $795,000,000 YEAR Table 2-4: R&M and dry-docking costs [67](* Twenty-foot Equivalent Unit, ** assumes 1 ship is repaired in 10 days [68])
Consequently, pay-back time is estimated to be around 4 years.
Profit: Labour and material cost are the main drivers of cost [69] and their effect on profit depends on salary rates accepted by Saudi locals and the negotiation power of the suppliers. It is estimated it will make a USD 17 billion impact on the economy by 2030 [70]
Volatility: Intense competition between established competitors exists within the shipyard industry [69] and hence the strong bargaining power of the buyers (i.e. the ship-owners) may cause an adequate degree of volatility.
Social Acceptance: There seems to be no resentment towards the shipping industry. Saudi Arabia locals acknowledge the opportunity of being situated between the Red Sea and Persian Gulf. [71]
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Job creation: Saudi mega-yard will contribute to 80,000 jobs directly and indirectly by 2030 [70]
Social Risk: In 2006 the metal industry, which includes the shipyard industry, demonstrated the largest percentage of accidents according to Turkish Security department, at 17% of the country’s economy. [72]
Sustainability: With increased globalization and the entry of a new industrial revolution, the demand for the shipping industry will increase by time. Life Cycle Analysis of ships shows that there is room for improvement in operational efficiency and integration of ship scrapping in ship design [73] [74]
C02 Emissions: The whole shipbuilding industry contributed towards an estimated 36 million tonnes due to the industry heavy-industrial nature of heavy fabrication and manufacturing processes that require tremendous power generation [75]
Other Emissions and Pollution: The argument used in CO2 emissions is applicable here.
Suitability: There exists two shipyards in KSA, one in Jeddah on the coast of the Red Sea and the other in Dammam on the coast of the Persian Gulf. Both locations considered to be strategic in nature due to the Suez Canal and the Ghawar oil field respectively.
Ease of Implementation: The existence of shipyards, large monetary funds and Saudi’s strategic position make this potential industry easy to implement.
2.3.10 Tourism (AS) Capital/Investment: $100 billion for expansion work in Mecca including construction, and transportation projects [76]. The Saudi Commission for Tourism and National Heritage received $296 million
Payback time: From Figure 2-2, with the trends of tourism revenues in Saudi Arabia, payback time for the expansion project alone could be within 7 years.
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16 13.4 14 12 11.2 9.3 9.3 10 8.4 8.7 7.5 8 6.7
6 USD USD Billion 4 2 0 Year 2009 2010 2011 2012 2013 2014 2015 2016 Year
Figure 2-2: Tourism revenues in Saudi Arabia [77]
Profit: Tourism’s contribution to GDP is shown in figure (2-4). Contributing to 9.4% of GDP. [78] Volatility: The amount of tourist arrivals in KSA can be subject to susceptible to the political environment. As shown in Figure 2-3, KSA experienced a reduction in arrivals during the Arab spring (around 2010/11) a decrease in tourists. However, the overall trend is an increase in arrivals.
20.0
15.0
10.0
5.0
Tourist Tourist Arrivals (millions) 0.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 Year
Figure 2-3: Tourist arrivals in Saudi Arabia [77]
Social Acceptance: A study shows that the social impact of tourism involves modernization, educational opportunities and the availability of recreational facilities for the locals as well as the tourists, as well as a positive relationship between perceived economic benefit and social attitude. [79]
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30.0 25.5 25.0 23.8 21.9 20.5 20.0 17.6 17.6 17.8
15.0
USD Billion USD 10.0
5.0
0.0 2012 2013 2014 2015 2016 2017 2018E Year
Figure 2-4: Direct contribution of Travel and Tourism to GDP [80]
Job creation: In 2017 Travel and Tourism’s direct contribution to employment supported 644,000 jobs, 5.3% of total employment. It is expected to rise by 2.4% in 2018 and rise 1.6% per annum to 749,000 jobs by 2028. Total contribution to employment was 1,116,500 jobs in 2017 (9.1% of total employment). It is forecasted to be 1,508,000 jobs in 2028. [80]
Social Risk: Social risk includes the hazards with construction. They are dependent on the level of safety management carried out through projects. It was assumed high safety management would be taken.
Sustainability: Tourism, especially religious, will live as long as the Holy Mosque stands, since it is one of the main requirements of Islam practised by 1.8 billion people [81] [82]
C02 Emissions: The carbon footprint of conventional tourism estimated to be the same as tourism in Barcelona because of the similarities in activities. Sun, sea, sand and land activities including transportation, accommodation and transportation. The average footprint of a tourist is 111.6 kg
CO2eq/day [83]. The carbon footprint of religious tourism in Saudi Arabia, i.e. Hajj, is 60.5 kg
CO2eq/pilgrim/day [84].
Other Emissions and Pollution: When measuring pollution caused by tourism, air travel is the largest contributing factor at 55% of GHG emissions. [84]
Suitability: Saudi Arabia has a massive Red Sea coast, beautiful beaches, ancient artefacts, religious sites and deep culture. [85]
Ease of Implementation: Sufficient monetary funds are available
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2.3.11 Technology (FA) As the world moves towards the digital age, countries are becoming aware of the potential of investing funds into the technology sector for extensive returns. Saudi Arabia have already been active and successful in this industry by substantial investments both within the country and globally. Through the SoftBank group, a company in which Saudi Arabia has invested $45 billion, most of the investments based in Silicon Valley, USA. Saudi Arabia have indirectly heavily invested already successful companies such as Uber (estimated at $3.5 billion), Virgin Atlantic (estimated at $1 billion) and Tesla (estimated at $2 billion stake) [86]. As a result of these investments, the profits of the SoftBank group profits have surged $4.8 billion in 3 short months of 2018, which in turn is profits for Saudi Arabia [87]. Saudi Arabia have also been active in investing in start-up companies within the country, which have low investment requirements, but if successful has the potential to be extremely profitable in the future.
Figure 2-5: Figure shows the extensive network of investments by Saudi Arabia within the country in an effort to diversify the economy of Oil. The economic principle behind this strategy is to increase the quantity of low-level investments and expect profits in the future [88]
Furthermore, the Public Investment Fund (PIF), the primary fund for technology is estimated to increase from $100 billion in 2018 to $2 trillion in 2030 as envisioned in Saudi 2030 report. The economic success of technology investment is evident, thus high importance factor is allocated to
35
Saudi Arabia After Oil Group 1 the profit criteria. Moreover, expanding and sustaining this industry with the current funds, income revenue from oil and structure already in place results in a high score in the Implementation criteria.
However, the initial cost required combined with the economic risk related to investment is taken into account by highly rating both Capital and Risk. The social and environmental aspect of this industry is very minimal as there are no physical products needed for the industry to be successful. Consequently, this industry scored very poorly in job creation. It is important to note certain Saudi Arabia’s actions could affect this industry such as the death of Journalist Jamal Khashoggi. The political and social issues of the circumstances of his death has impacted Saudi Arabia negatively. One such example is Tech leaders such as Steve Case, the co-founder of AOL, and Dara Khosrowshahi, the chief executive of Uber, declining to attend annual investment forum in Riyadh and the CEO of SoftBank declining to speak at the event [89].
2.3.12 Mining (FA) As well as vast oil reserves, Saudi Arabia have an estimated $1.3 trillion reserves of natural resources, the most prominent and profitable being Phosphate, Aluminium, Gold, Iron, Steel and Copper [90]. Moreover, due to the increasing industrialisation of major powers such as China and India therefore increasing global demand, these raw materials prove to be more profitable than ever as evidenced by 24.6% growth in market value in 2015 and a further 32.6% growth in 2016. Due to these demands, there is very little volatility with this venture, thus receiving a low score in the volatility category. Finally, the total exports of Aluminium, Alumina, Ammonium phosphate fertilizer, Ammonia, Gold, Industrial Chemicals was increased from 425 tons to 1271 tons from 2016 to 2017 [91]. Through the development of the mining sector, Saudi Arabia aims to increase the GDP of this business from $17 billion to $64 billion according to Khalid Al Falih, minister of energy, industry and mineral resources, and chairman of Aramco [92]. Further development of processing technology and equipment of the mining industry is planned to produce higher, more profitable products to be exported. For the reasons explained above, an extremely high rating of 9/10 was given to the profit criteria. Another benefit is the creation of jobs, both skilled and unskilled, the mining industry provides. By 2030 160,000 additional jobs are expected to be generated, ergo mining industry scores highly in the job creation criteria [93]. Over the next 3 years, the market value and profits of the mining industry are expected to steadily increase at an average rate of 2.9% under the current regime as shown below.
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Figure 2-6: A projection of the expected market value and % growth of the Saudi mining industry till 2021 [94]
The foremost disadvantage is the environmental and social impact of this business. Firstly, the extraction of ores and materials exhibit high C02 emissions and further refining of materials such as Bauxite Ore to Aluminium causes both C02 emissions and waste material. In addition, mining causes noise pollution, disruption of the natural habitat and possible disruption of human quality of life as the landscape is destroyed [95]. As a result, high negative scores were assigned to the environmental impact of this industry. Finally, in terms of implementation, mining exhibits similar traits to the technology industry as there is already a structure and business established in Saudi Arabia. With funding, mining can be expanded to create better profit margins and jobs, could potentially contribute to Saudi Arabia’s GDP as it starts to diversify from Oil.
Figure 2-7: Global average CO2 Emissions for mining Bauxite (Aluminium Ore), Copper, Gold and Iron [94] . In comparison Petroleum has 3.26 kgCO2/kgFuel
2.3.13 Liquefied Natural Gas (FA) Natural Gas is first purified to remove the following components: dust, acid gases, helium, water and heavy hydrocarbons and then condensed into liquid form. When in Liquid form (LNG) the volume is 1/600th the volume of its gaseous state, ergo safer and easier transport, especially long distance. LNG is currently seen as a petroleum alternative providing 76% of the energy to residential and commercial sectors in the US [96]. The financial opportunity to be gained from LNG is exporting to countries without Natural Gas as a resource. With transport links established, global transport is extremely feasible and profitable; as proven by Qatar, the leading exporter of LNG, exporting to the majority of Asia [97]. In comparison with Saudi Arabia, Qatar has three times more
37
Saudi Arabia After Oil Group 1 natural gas reserves but still ranks 5th globally in reserves and therefore the prospect of Saudi Arabia profiting from this industry and as a result scores an 8 in the profit criteria.
Figure 2-8: LNG demand and share price till 2020 [98].
The figure above estimates the increasing supply globally, but also general share price increase as the world moves towards a gas dominated energy source system. However, Qatar started the LNG development in 1996 and have multiple functioning plants in the country. Saudi Arabia have existent Natural Gas production, however its purpose is to provide and be the sole supplier of Saudi Arabia. For the reasons of constructing LNG plants and transport links to global markets, the initial capital and investment is high. There are current aims to expand the LNG portfolio expressed in the 2030 vision report “strengthening the position of oil by diversifying our investment in oil and gas. Going down the value chain, getting into more integrated petrochemicals, adding more and more value to our products” evidenced by business venture in Russia’s Novatek group [99]. The primary economic crisis with LNG industry is competition. Whilst demand for LNG as an energy source is steadily increasing, other countries are much better established to supply those demands. The US has more natural gas reserves and are researching into US shale gas, which could undercut the Saudi Arabia’s market and reducing profit long term. Moreover, the natural gas could be used as feedstock in the much more profitable petrochemical industry. For the reasons explained, a rating of 10 is given to the economic risks associated with LNG as a profitable industry. Other advantage of LNG is the job creation within the skilled and unskilled sectors. The major disadvantage is the CO2 and pollutants emissions associated with LNG, for production, manufacture of machinery and transport links. To set up a structure to achieve positive revenue will take extended time and partial environmental destruction [100]. During this extended time, environmental laws and constraints could strain production and profits; high scores of 8 were given to both environmental sub-sections
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Saudi Arabia After Oil Group 1 in the WDM. Finally, the suitability of a prosperous LNG industry is extremely high. Due to the large reserves in areas without human population nearby means free and easy access to extract the gas, however new infrastructure would need to be set up, such as refineries and transport links, to fully utilise the LNG for profit purposes, hence scoring a 7 in suitability and low 4 in ease of implementation.
2.3.14 Communications (DC) DSL (Digital Subscriber Line) connections are the main method of internet access in KSA, with over 72% using this as their method to connect to the internet. [101] The ‘Transformation program 2020’, as part of Saudi Arabia’s Vision 2030, aims to improve internet connectivity by providing fibre optic cables to at least 88% of houses in high-density neighbourhoods [102]. Fibre optic cables can provide internet speeds over 150 times faster than DSL and are not affected by the distance from the internet service provider. DSL uses existing telephone lines to transmit data, whereas fibre optics requires the laying of new underground cables, making it expensive to implement.
The cost of installing fibre optics across KSA will require large capital investment and be a time- consuming process, particularly in the busy cities with existing infrastructure to work around and will have a long payback time. 5G networks will also require installation. 5G connectivity will provide much faster internet speeds than current 4G connections provide and much shorter latency in data transfer. 5G networks will have much higher capacities and will give way to Connected Autonomous Vehicles (CAV) and the internet of things; allowing connectivity between many everyday items.
There are few social challenges to the improvement of the communications industries as most people will be happy to have faster, more reliable internet connections. However, significant infrastructure improvement will be required, including the laying of underground fibre optic cables, and 5G transmitter stations. Once constructed there will be minimal harmful emissions and pollution from the new communication networks.
Communications is a profitable industry, but much of the direct income made is then returned and used to install, maintain and improve the networks and cables. Improving the communications industry would allow for faster network speeds which would improve efficiency in other industries, and therefore indirectly produce revenue.
The improvement of the communication industry is important to allow for the future development of KSA. Fibre optic installation can begin as early as 2020, however as 5G is still in development, the installation of this should be stalled until 2030, at which point the technology will be readily available to be rolled out across KSA. Communications is not the most profitable industry and is not vital that improvement begins immediately to replace oil revenue.
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2.3.15 Food production (DC) In 2014, Saudi Arabia imported over 80% of its food requirements from foreign countries [103], and in 2017 spent SAR 72,096 trillion (£15.2 trillion, $19.2 trillion) on food and live animal imports [104, p. 59]. A lack of arable land due to poor soil conditions, a lack of water and severe weather conditions make it a hostile environment for most agricultural development.
KSA has the perfect environment to grow dates, and it is one of the world leaders in date production [105], while other food grown includes wheat, fruits, vegetables and flowers, as well as the rearing of livestock, poultry and fish.
Only 1.5% of KSA is arable land [106], which means little can be grown, and since 2008, KSA has abandoned its plan to become self-sufficient with wheat, due to a large amount of water required for it to grow [107]. Increasing food production in KSA would reduce the amount of food imported from foreign countries, thereby saving money, however, the cost of increasing food production would be enormous. An increase in traditional agricultural methods of growing food and rearing animals requires enormous amounts of water. According to Allan [108, p. 6], annually one individual needs 1 m3 of drinking water, 50-100 m3 of water for domestic uses, and over 1000 m3 for the growth and production of food. Moreover, it requires 1000 m3 of water to grow one tonne of wheat, and 16,000 m3 of water to produce one tonne of meat [109]. Due to the large water requirement and the lack of water availability in KSA, traditional agricultural methods would not be a profitable industry to develop.
The continuation of food importation will be required to provide food for KSA, however innovative food production methods could reduce this requirement. Greenhouses and vertical farming could provide a solution to KSA’s food shortages. Hydroponics, aquaponics, and aeroponics can be used to grow food and fish inside a contained environment, using 90% less water than traditional farming [110].
Existing farming food importation should be continued for the foreseeable future, alongside the research and development of new farming techniques by using hydroponics, aquaponics, and aeroponics.
2.3.16 Education (DC) Religion plays a significant role in the education of Saudis, to establish a thorough understanding of their way of life, however, this often comes at the detriment of other parts of their education.
76% of jobs in KSA are filled by foreign nationals [111] and only 19% of private sector jobs are filled by KSA nationals [29]. This is mostly due to an unwillingness to work, or a lack of qualifications by KSA nationals to work in the private sector jobs. A deficit in areas requiring engineering, sciences and social sciences is often found.
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Saudi Arabia After Oil Group 1
Change is required to the education system, to allow KSA to compete on a global scale. The current curriculum is heavily theoretical with minimal technical expertise development. For example, medical doctors require advanced training that is only available internationally to reach acceptable international professional standards [112].
Reform is required at all levels. Early childhood education should be readily available across the whole country, not just in urban areas [38]. The pre-university education curriculum requires development in technology, science, business, finance and entrepreneurship, as the 2015 “Trends in International Mathematics and Science Study" produced by the U.S. National Center for Education Statistics placed Saudi children near the bottom of the 49 countries surveyed for maths and science [113]. At higher level education, improvements are required to increase standards, provide a wider range of subjects and reformation regarding the education of women.
Educational reform which balances Islamic education as well as meeting high quality international educational standards is needed to prepare the next generation of Saudi workers.
A high-quality education sector will require high investment costs, with minimal direct return income. However, as the next generation of student pass through the reformed system and enter the workplace, they will inadvertently benefit the country by working and producing revenue for their country.
Socially and environmentally there are minimal downsides to an improved education sector. It would release minimal CO2, emissions or pollutants and is unlikely to have much social opposition from KSA residents.
2.3.17 Banking and Finance (DC) Islamic banking follows different rules to traditional western banking. Islamic banks follow Shariah law, which does not allow the payment or receipt of interest, gambling or excessive uncertainty. For banks to make money through loans, they charge fees for lending out money and paying commission on deposits. They also use equity partnerships, in which a business will pay back a loan without interest but will instead give the bank a share in any profits made.
KSA is already the world leader in Islamic banking, with 31.7% of the global share of Islamic banking assets [114], and in 2017 made a net profit of $11.982 trillion, an 8.7% increase on the previous year [115, p. 11]. Further development in the KSA banking industry would provide larger profits and make KSA the world headquarters for Islamic banking.
To generate large sums of money, high capital investment is typically required to be able to give high-value loans and to make high-value investments. As the banking industry is already successful, the money already generated can be invested back into the finance sector.
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As was shown by the 2008 global financial crash, the financial market can be a volatile one, however an IMF survey [116] found that Islamic banks showed a stronger resilience during the global financial crisis, and international rules to prevent such a crash happening again have since been implemented.
The introduction of a 5% VAT on 1st January 2018 [117] is expected to produce a revenue of £2.4 billion (SAR 11.5 billion, $3.1 billion) by the end of 2018 [118]. The success of VAT in KSA will provide a small but reliable income for the nation, which should increase as general spending increases. The implementation of an income tax or a higher VAT value could be attempted, however, this is likely to be met with much hostility from the Saudi population.
2.4 Discussion (FA)
The calculation of the final score (SUM (rating * importance factor)) has determined the 2 most important and profitable industries to diversify the economy away from oil in the shortest time possible are: Petrochemicals and Tourism. Both these industries have similar traits in that, both have the potential to be extremely profitable in the long term. Saudi Arabia has infrastructure in place to accommodate an exponential increase in refining oil into high-grade products with excellent profit margins. Moreover, the availability of feedstock and existing machinery can expedite the petrochemical process to a world-leading level and compete with countries such as Japan and Korea to dominate this market.
Mecca, the religious site, located in Saudi Arabia, contributes to virtually all tourist entering the country. These tourists spend money on accommodation, food, travel and necessities; accounting for business for the Saudi populous in the micro-economy. With the expansion of Mecca and other commodities, the profit potential is vast and easily sustainable over a long period of time. Furthermore, the potential of gaining additional tourists to visit the coast and historical sites within Saudi Arabia is one of the reasons the tourism industry was successful in the WDM.
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• Petrochemicals: Begin development of 3 Implementation timeline petrochemical industry. • Oil exportation: Optimise oil usage
3.1.1 Timeline (DC) within KSA and increase oil exportation. • Tourism: Develop Islamic and general 2020 tourism by developing Mecca and Medina, as well as tourist sites outside of the holy cities. • Social: Develop social policies for education and healthcare, and promote policy reform framework including • Shipping: Develop ports on the east taxation, privatisation, foreign investors and west coasts for docks, maintenance and women in the workplace. and cargo transfer. • Agriculture: Maintain expected • Retail: Develop the sector to encourage agricultural growth, and food security tourism and generate revenue. 2025 with foreign trading partners. • Water: Continue the expansion and improvement of water networks and construction of desalination plants.
• Natural Gas: In preparation for peak oil demand in 2035, increase extraction of natural gas, and facilities for Liquefied 2030 Natural Gas (LNG). • Communications: Develop KSA communications facilities, including 5G networks and fibre optic cables.
• Peak oil demand will be reached. • Mining: Following extensive research and surveying, the type and location of materials within KSA should be known. 2035 Begin the construction of mines, refining facilities, and transportation links for this industry. • Military: Economise on military spending.
• Energy: Increase in population and energy demands will require an increase in electricity generation and 2040 supply. Construct electricity generating facilities, including solar farms and Fission Nuclear Power Plants to satisfy • Diversified Economy: Petrochemical demand and expected growth. and tourism industries will be well established and generating a high revenue, along with mining, retail and shipping to provide a diversified and sustainable economy. • Electricity exportation: Establish power grids between KSA and neighbouring 2050 countries. • Real Estate: High tourism and thriving economy will provide a boost to the growing real estate industry. • Oil: Whilst profitable, continue oil production to supply global demand. 43
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3.1.2 Discussion (FA) The 17 initial industries combined with social changes and improvements in quality of life are implemented at three succinct time periods in parallel with the oil economy. It is much more efficient to introduce and act changes in manageable phases so as not to interfere with current life and projects undertaken by Saudi Arabia. The initial period of change will be 2020-2035, when global oil demand and Saudi Arabia’s production will be steadily increasing resulting in growth of Saudi GDP and potential investment money. The second phase is 2035-2050; at 2035 Oil demand is at a historical peak and will slowly plateau by 2050 to a negligible level. During this period, the industries established at 2020 onwards will be profitable and would have helped diversify the oil economy and Saudi Arabia will be impacted far less from the decline in demand. Consequently, this will allow Saudi Arabia to focus more on expanding industries and commodities to further improve life for the population. The final period will be the year 2050 and onwards. This period will focus on new technology investments, research and production as well as further diversifying the economy and improving political standing globally.
The timeline above outlines the industries and social changes to be made at specific time periods. Focusing on the 2020-2035 timeline, this is the period which the implemented solutions will greatly benefit the objective of diversifying the economy away from oil. Therefore, implementing and expanding petrochemicals and the tourism industry, frontrunners of the WDM, is a priority. Petrochemicals and tourism will generate the future revenue needed as capital for industries to be implemented at a later date. Moreover, the current social laws and misunderstandings need to be addressed, before further changes can successfully take place, such as improvement in education to create the next generation of national skilled workers, healthcare reforms, education to inform the populous of better standards and policy reform framework. Most notable policy reforms include adjustments in tax, privatisation of companies, encouraging foreign investments and increasing women in the workplace. Finally, it is critical the current relationships with Africa and neighbouring countries are maintained to ensure food and military security as Saudi Arabia undergoes diversification. Once these policies are underway, Saudi Arabia should be able to focus on utilities: Water and Gas to improve the quality of lives for the people. Additionally, the continuation of communication network improvements should be maintained. Due to the changes in both incoming personal and increasing workforce, the ability of easy communication will be vital in ensuring successful management and progress, thus the communication project is tackled relatively early. Establishing these industries now would allow Saudi Arabia to combat a growing population both nationals and foreigners seeking to live in the country. Whilst these changes occur, expanding the tourism industry with developing retail to maximise revenue, create jobs and ensure a successful micro-economy within areas near Mecca and Medina. Lastly, Saudi Arabia is the third largest consumers in military and currently the largest arms importer in the world. By 2035, Saudi Arabia
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Saudi Arabia After Oil Group 1 will have accumulated a suitable amount of weaponry, thus limiting this budget in favour of more profitable industries will be greatly advantageous for the future.
Once these initial ideas to diversify the economy are in place and thriving, the revenue streams from these industries will be used in moving towards the next generation of energy; both solar and nuclear fission. These energy sources have the most potential to thrive in Saudi Arabia, as there is sufficient sunlight for solar and enough isolated space to set up nuclear plants safely. The financial strain caused by these extra industries is balanced by attaining revenue and profits from the mining industry. The large, valuable reserves ensure a quick turnout of export revenue which can then be used to fund maintenance and expansion of the active industries at that time. This industry can further improve profit margins by refining the ore into high-grade valuable metals such as Bauxite Ore into Aluminium, however this can be time and energy consuming.
Finally, the 2050+ period is to invest in new technology and start instituting any new industries which become profitable at that time. Moreover, set up financial and banking systems in accordance with Islamic laws for the benefit of the population. Any excess funds should target new technological markets to ensure good returns in the future. With regards to oil, the demand is predicted to be at a low level and cost of production is set to increase, thus Saudi Arabia will produce the necessary amount to supply the demand until profitability is zero. The ideal target for 2050+ is to reduce and replace the contribution of Oil with the industries mentioned to Saudi Arabia’s GDP. Additional targets would include cash reserves in foreign bonds for economic safety.
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4 Petrochemical Design
4.1 Petrochemical Design (UA)
Petrochemicals are chemical products derived from petroleum and fossil fuels. The products are present in everyday life and are integral to modern society. The petrochemical industry is currently very profitable with predictions of demand growth. Access to a lower costing feedstock relative to the rest of the world gives a significant advantage to KSA in generating maximum revenue. It also places KSA in a better position to cope with decline in prices and demand weakness compared to global competitors. Moreover, a global economic recovery has occurred within recent years with the IMF estimating that global GDP would increase by an average of 4.7%. Significant contributors to this increase in GDP are China and India, two growing economies that have a high demand for petrochemicals. Factors including an improvement in living conditions due to a rising disposable income are likely to enhance the demand further. Consumption of plastics in India is approximately 6 kg per capita which is largely lower than the universal mean of 24.6 kg per capita [119]. This leaves large potential for sales to India, particularly considering its relatively close location to the KSA. Although China and India are improving their own petrochemical production facilities, the capacity additions will not be able to meet the demand growth. Thus, investment in this industry will be essential to diversifying the economy for KSA and providing a steady source of income capable of reducing the demand on crude oil sales alone. In this design, some of the major refineries in the KSA were analysed to determine whether the current refineries could be adapted to increase petrochemical production.
4.2 Petrochemical Potential Feedstock (AO)
The starting point to produce petrochemicals is the feedstock, and there are principally two types: liquids and gas. Typically, naphtha or liquefied petroleum gas (LPG) including butane and propane are used as liquid feedstock. The gas feedstock is usually ethane or sometimes methane. Ethane can be extracted from associated gas, a by-product of the crude oil production process: natural gas found in a reservoir in association with oil or from non-associated gas (natural gas found in a reservoir with no oil). Liquified petroleum gas can be derived from associate gas and naphtha can be derived directly from crude oil refining.
In the KSA, ethane has been the main feedstock of choice because of the cost advantage. The cost differential when compared to naphtha or natural gas liquids is substantial due to the subsidised for domestic petrochemical companies. Previously the price of ethane was fixed at $0.75 per million British thermal units (BTU), but in 2016, the government increased the price to $1.75 per million BTU. The price of ethane in the USA is $2.38 per million. Hence, the 2016 rise in the price of
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Saudi Arabia After Oil Group 1 feedstock, has decreased the cost advantage, though not totally eroding it [47]. In Europe and Asia, feedstocks rely on the crude oil derivative naphtha as the petrochemical feedstock. This meant that the lower cost of ethane in comparison to crude oil that the cost advantage was significant and particularly widened in 2010-2014 when crude oil was extremely expensive and reaching record levels. During this period, petrochemical companies have a $1000 per ton cost advantage for every ton of ethylene in comparison to their counterparts in Asia and Europe. This, however has diminished in recent years due to the oil price crash at the end of 2014. The cost advantage is now $620 per ton of ethylene produced [120].
The KSA also subsidise domestic prices of naphtha, butane and propane, but not at a fixed rate. The government instead use a discount system whereby the price of butane and propane is 20% the export price of naphtha and naphtha is 11% less than the price of exporting it. Costs therefore fluctuate according to the crude oil process, but the domestic and export price differential has lessened, in 2009, the domestic price was 28% less than the export price of naphtha. As with ethane, the KSA still have a cost advantage compared to their global competition [47].
4.2.1.1 Ethane Supply in the KSA
Although, there is clearly apparent cost advantage to using ethane compared to the use of naphtha and liquified petroleum gas, there some issues with using ethane. Ethane is scarce. A plateau in the production of crude oil and ageing oilfields have limited the growth in production capacity for ethane. Also, Saudi Aramco have no major plants to expand their crude oil capacity, so the prospect of higher ethane supply is unlikely. In 2008, Saudi Aramco produced enough ethane to exceed demand, but the demand has steadily and as of March 2009 the demand for ethane exceeded the supply and the KSA were driven to import fuel oil to use as power station feedstock [120]. Some petrochemical companies have an allocation of ethane supplied to them, so they will continue to receive ethane and enjoy the cost advantage. Nevertheless, companies looking to enter the petrochemical market will not be so fortunate and even though Saudi Aramco are attempting to extract more gas from their reservoirs, the maturing reservoirs mean that there is no guarantee there will be an increased supply of ethane.
Another disadvantage of using ethane as the petrochemical feedstock is that it yields a low value and limited slate of products. Ethane can only produce basic olefins, primarily ethylene. The low cost of ethane offset the limited variety of product yielded but as supply dwindles, naphtha is becoming more advantageous.
Since naphtha is produced in crude oil refining, there is a relatively abundant supply of it in the KSA. Saudi Aramco produced naphtha at a rate of approximately 124 thousand barrels per day, but domestic use of the product was relatively small [47]. Naphtha has more versatility as a feedstock because when it cracks it can yield both olefins and aromatics expanding further processing
47
Saudi Arabia After Oil Group 1 opportunities for aromatics. The increased chemical product will create new downstream and conversion industries. These further processing opportunities will create increased amounts of job opportunities for the young population in the KSA. A job created in the petrochemical industry has the potential to create four addition jobs indirectly and 30% of these jobs are typically obtained by KSA nationals, larger than the 20% of KSA nationals in the rest of the manufacturing industry. Nevertheless, the return of investment for the more sophisticated products yielded from naphtha is less than the returns from the basic products derived from ethane [47]. This is due to the increased operational cost including the higher labour requirement but is also due to the higher capital investment associated with building a complex with a liquid feedstock. Also, the products being more specialised are difficult to market. Along with the dependency on crude oil prices, foreign investors have historically been discouraged from entering the market. However, in comparison to global competitors, there are still cost advantages with investing in a naphtha plant and significant profits can still be obtained.
In addition, there is also potential to use an integrated feedstock. In petrochemical production, steam cracking is used to produce olefins and aromatics. Many of the current plants in the KSA have crackers that can only use ethane, nevertheless, there are crackers that are able to switch feedstocks. These offer advantages over naphtha only based crackets because they can benefit when ethane is available.
As a result, it is recommended that future petrochemical plants in the KSA to use naphtha as a feedstock to maintain feedstock security and to expand processing to aromatics. Nonetheless, to maintain feedstock flexibility, crackers that have the capacity to use both ethane and naphtha as a feedstock should be used.
4.2.2 Key Products (UA) 4.2.2.1 Olefins The global olefin market size is estimated to be worth $9,163 million in 2018. Olefins are unsaturated hydrocarbons that are an essential petrochemical product. Olefins are popular due to their reactivity and versatility. Light olefins such as ethylene and propylene considered as the most vital olefins in the market with ever-increasing demands that are likely to outpace the current production rate leaving a shortage of supply. The process of production for light olefins consists of pyrolysis – the single most energy consuming process in industry. A schematic representation of the process is below.
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Figure 4-1: Block diagram of pyrolysis process
4.2.2.2 Aromatics The two most common petrochemical categories are olefins and aromatics. The prominent members of the aromatic group and the most popular are benzene, toluene and xylene. They are colourless liquids that are essential ‘building blocks’ which may be converted to a wide range of polymers that are used in everyday life. Common uses are polystyrene, nylons and detergents. The diagram below shows the manufacturing process for aromatics.
Figure 4-2: Block diagram of Aromatic production process
4.2.3 Further Processing (AO)
The plastics industry also benefits from the expansion of the petrochemicals. The plastics and rubber industry are the largest non-petrochemical exporter constituting to 74% of non- petrochemical exports. The KSA is already the leader in plastic production in the Gulf Coast Countries (GCC) controlling 64% of the total production of plastics in the region. The KSA annually consume 3.5 million tons of plastic and export around 13 million tons [121]. The plastics market is set to increase by 7% between 2016-2021 and this primarily due to the improved supply of raw materials [122]. The design of the plastics industry should be integrated with the petrochemicals to improve efficiency. The plastics industry, however, must undergo development
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Saudi Arabia After Oil Group 1 due to the introduction of environmental policies affecting the main product of the plastics industry – single-use plastics. These products must be oxo-biodegradable [123] and so, they must be manufactured with the addition of salt and other compounds that accelerate the rate of degradation [124]. Though the focus of the section will be the petrochemical industry, during the project design, further processing opportunities will be taken into consideration when making design decisions.
4.3 Yanbu (AO/UA)
Three of the ten domestic refineries in the KSA are bases in the western red sea coast in Yanbu. Saudi Aramco own two joint venture full conversion refinery complexes, with Exxon Mobil (SAMREF) and China Petrochemical & Chemical Corporation (YASREF) and have the capacity of 400,000 billion barrels per day (bbpd) and 20 million tonnes per year. They also own an independent refinery in Yanbu that has the capacity to refine 240,000 bbpd of crude oil.
4.3.1 SAMREF (AO)
SAMREF was constructed in 1984 and was upgraded in 2014 to ensure it would meet the cleaner fuels and the low sulphur standards in Europe (10 parts per million of sulphur in gasoline and diesel). It processes Arabian light crude supplied from the Yanbu Crude Oil Terminal, which receives the crude through a pipeline from oil fields on the east of the country [125]. The upgrade is estimated to be $2.5 billion. Over half the output is consumed domestically and is the main supplier of gasoline to the western region of the KSA [126]. The production products and their outputs are shown in the table below.
Product Production Capacity (%) Gasoline 35 Jet Fuel 15 Diesel Fuel and Heating Oil 30 Marine and Other Fuel Oil 17 Liquified Petroleum Gases (LPG) and Other 3 Table 4-1: SAMREF Production Breakdown [125]
4.3.2 YASREF (AO)
YASREF was constructed to take advantage of the emerging markets in Asia, Middle East and Africa while maintaining their current customers in Europe and the US, opening in 2016. Similar to the other joint-venture refinery in Yanbu it satisfies the low sulphur specification that exist in the European and US product specifications. Since transportation of heavy crude is difficult and expensive to refine, the KSA have focused their refinery capacity to export price flexibility. The refinery supplies both international and domestic markets. Due to the location near the coast and
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Saudi Arabia After Oil Group 1 shipping port, the primary customers of the diesel and gasoline are European [127]. The refinery has been designed to refine the heaviest crude oil in the KSA, a feedstock that is becoming more common as oil fields age. The plant primarily makes two refined products, gasoline and low sulphur diesel as shown in the table below. The crude is from the Manifa offshore fields, a new field, that became operational in 2014. The project cost Saudi Aramco $12 billion [128].
Product Production Capacity (%) Gasoline 23 Ultra-Low Sulphur Diesel 66 Coke 9 Sulphur 2 Table 4-2: YASREF Production Breakdown [127]
4.3.3 The Yanbu Refinery (AO)
The Yanbu Refinery was constructed in 1983 to meet domestic demand and still supplies the majority of its services to the domestic market [129]. The refinery produces liquified petroleum gas (LPG), gasoline, jet fuel, diesel oil, fuel oil and base oil [130]. The refinery is associated with a lubricant facility and so the main product produced is base oil (the main feedstock for lubricant production) at 710,000 tonnes per day [131] and 56,000 bbpd of gasoline [132]. The refinery also produces by-products including naphtha, diesel oil and drilling fluid. The refinery configuration is shown below.
Figure 4-3: The Yanbu Refinery Configuration [132]
4.3.4 Design (UA)
The KSA government has keenly expressed its desire for opening a new integrated industrial complex converting base crude oil to a number of different chemicals. It has recently been concluded that the site for this complex is Yanbu. Although details of this new construction are
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Saudi Arabia After Oil Group 1 limited, an allowance of 400,000 bpd of crude oil has been granted for this new site. This will allow the production of approximately 9 million tonnes of petrochemicals annually. Moreover, it will create up to 30,000 jobs directly and up to 100,000 indirectly. The project aims to convert 45% of each oil barrel into petrochemicals. However, this company recommends that this figure be increased to up to 75% in order to maximise profits that can be attained.
This crude oil to chemical complex (COTC) will consist of various plants including crude distillation units, vacuum distillation units, hydro-treaters, vacuum gas-oil hydrocracker, residual fluid catalytic cracking units, a mixed-feed cracking unit along with olefin and aromatic recovery units.
The project intends to implement technology that converts crude oil to petrochemicals at record- breaking conversion rates. The refinery intends to refine crude oil and utilise three different steam crackers in the production of petrochemicals:
1) A naphtha steam-furnace cracker 2) A fuel-oil cracker 3) A natural gas liquids (NGL) cracker
All three will have olefin and aromatic petrochemical units integrated within to maximise efficiency. Products produced will vary from typical olefins and aromatics to speciality chemicals. The estimated completion time of this complex is 2025.
In the SAMREF refinery, half of the gasoline produced is currently used domestically while half is sold to Europe. In order to maximise profits, the half sold to Europe will begin to be converted into petrochemicals once the COTC complex opens. Instead of opening a separate integrated plant to convert the gasoline/fuel-oil into petrochemicals, it would be more cost-efficient if transport lines and routes are designed so that the fuel oil/gasoline can be routed to the new COTC complex, and the complex should be designed to accommodate the required amounts. Likewise, the Saudi Aramco Yanbu refinery also produces naphtha that can be routed to the naphtha steam-furnace cracker once the COTC complex has been completed as a means of increasing revenue also.
Estimated costs for the new complex are substantial with initial figures reaching $15-20 billion. Although, the company recommended a 30% increase in the number of petrochemicals produced, this may cause the costs to rise as much as $25 billion as vessel capacities will need to be increased. The costs are so high as it is a greenfield site, with state-of-the-art technology, the largest and most efficient complex that has ever been built. With the suggested integration allowing other refineries to benefit from the COTC, it is estimated that this figure will increase, however not considerably and overall, the integration work would not exceed more than $1 billion, especially considering the close locality of the plants.
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Capital Costs (billion $) 30 Net profit (billion $) 7.8 Payback time (months) 46 Table 4-3: Costs
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4.4 Ras Tanura (AO)
Ras Tanura is on the eastern region of the KSA, next to the Persian Gulf and is home to the country’s largest and oldest oil refinery. The 7th largest oil refinery in the world is owned independently by Saudi Aramco and is one the most important refineries in the country. The oil refinery began operations in 1945 and had a production capacity of 3,000 barrels per day (bpd), since then it has undergone several expansions and now has a crude distillation capacity of 550,000 bpd [133]. The refinery is part of the largest complex not only in the KSA but the entire Middle East producing liquefied petroleum gas (such as ethane and propane), naphtha, kerosene, jet fuel, fuel oil, diesel, gasoline and asphalt. It is the largest producers of asphalt in the country. Most of the refined products are supplied to domestic customers, meeting 31% of domestic demand of refined product [134], but the naphtha is largely sold to international markets [135].
The complex has three main operations: the refinery, a natural gas liquids (NGL) and oil processing unit and a utilities unit. The NGL and oil processing unit has a combined capacity of 1.2 million bpd including of 960,000 bpd for oil processing and 305 bpd of NGL processing. The purpose of this unit is to ensure that the oil from the oil wells are initially stabilised before being exported internationally. The utilities plant ensures that the complex is self-sufficient in utilised and supplies the power, water, steam and compressed air requirements [136]. The refinery processes light crude that is mainly supplied by pipelines joined to the major oil fields.
Ras Tanura is also a major port for crude oil and refinery products, some of the largest crude tankers are loaded at the port. The crude is imported to countries such as Japan, China and India [137] and more than 75 per cent of the KSA’s oil exports are loaded in the complex [138].
The main facilities at the refinery complex include a crude distillation unit, hydrocracker (a unit that takes gas oil and heavier hydrocarbons and cracks them to make gasoline) and a gas condensate distillation unit, a catalytic reforming unit (which converts naphtha to aromatics and products used in gasoline blending) [139]. The capacities of the units are shown below:
Capacity (barrels Unit Function per day) Crude Distillation Separate crude oil 325,000 Gas Condensate Separates gas condensate 225,000 Distillate Converts naphtha into aromatics and products Catalytic Reforming 107,000 used for gasoline blending Hydrocracker Converts heavier molecules to gasoline 50,000 Table 4-4: Capacities for Refinery Units [139]
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4.4.1 Design (AO) The Ras Tanura Refinery produces the largest volumes of naphtha in the country, producing 42,000 bpd in 2017, accounting for 23% of naphtha sales for all refineries in the KSA. However, less than 5,000 bpd were sold domestically in 2016, the rest was sold to the international customers [7]. This leaves an opportunity for the KSA to use this naphtha for downstream processing and increase revenue. In addition, production has decreased in recent years, there was a 13% reduction in naphtha produced from 2016 to 2017 [7], and an 8% reduction from 2015 to 2016 [140]. Hence, the refinery is not producing naphtha at full capacity, as a result the maximum revenue is not achieved. An increase production of naphtha on site to make more petrochemicals would not only increase overall profits but maximise the use of facilities. Since the Ras Tanura refinery is the largest producer of naphtha, with some capacity to produce petrochemicals, expanding the refinery to produce petrochemicals would minimise the feedstock transportation costs. Furthermore, the location of the Ras Tanura refinery holds a strategic advantage; it is a major port and hence petrochemicals could easily be transported to the main potential customers in India and China where consumption of petrochemical products is growing.
Expanding the refinery to produce aromatics will allow the country to leverage existing assets and increase the profitability of the products that currently produced, thus the Ras Tanura plant is a refinery that is ideal for petrochemical production.
The main aromatic products produced in catalytic reforming are benzene, toluene and xylenes. The reformer mode can be modified to increase production of any of these products. Approximately 47% of toluene is used to make benzene and xylenes, therefore to minimise further processing, this product should be minimised. Thus, the process should either increase production of xylenes or benzene.
Generally, paraxylene constitutes 80% of xylene production and the global paraxylene industry is worth $67 billion and has a growth rate of 3% a year [141]. However, there is a risk of oversupply because both China and India have increased capacity to produce this product. The benzene market is $44 billion globally and has an annual growth rate of 3% [142] but due to shale gas discovery in the USA, petrochemical plants in the region have shifted to using ethane as a feedstock, consequently, there is a shortage of this product in some regions. Although growth in consumption has slowed in China, the country still is the lead importer of the product. Also, in the USA 1.8 million tonnes of benzene was imported in 2014 [143]. Thus, the demand for this product is growing and the benzene market is less competitive than the paraxylene market. On the other hand, the market price for paraxylene is higher at $1315 per metric tonne whereas benzene is $866 per tonne [144]. Therefore, although there may be oversupply issues with paraxylene, it will yield a higher profit margin and so paraxylene should be the primary product of the catalytic reforming.
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There are two modes for catalytic reforming (the process used to produce aromatics), the first is the middle severity mode that produces high octane gasoline that has an aromatics content of 70%, the second mode is the higher severity mode produces mainly produced 80-90% aromatics [145]. The former mode is of catalytic reforming takes place in the refinery at present, but the aromatics produced are not sold, instead they are blended into gasoline to meet gasoline specifications. Hence, the mode of the catalytic reforming should be shifted so that the aromatics produced can be sold.
After changing the mode of catalytic reforming, the resulting aromatics need to be separated to produce benzene, toluene and xylene as well as isomerate and heavier aromatics. The separation of these products requires three key units, a unit to separate the benzene, toluene and xylene, xylene fractionation units (to further separate the xylenes and produce p-xylene) and an isomerization unit that would produce isomerate (a product that would be ideal for gasoline blending because it does not contain benzene).
The capacity of the naphtha catalytic reformer is 107,000 bpd or approximately 4600 kilotons per annum (kt/a) of naphtha. To ensure that there is still aromatics for gasoline blending only 20% of the feedstock of the catalytic reformer will be used to produce benzene, toluene and xylene. In order to achieve this, a temperature above 110°C should be used to ensure that the majority of the product produced is p-xylene and heavier aromatics, because at higher temperatures, reactions to produce xylenes and heavier aromatics are favoured [146]. Based on the typical yields of the process, the proposed production of the new products will be [147]:
Para-Xylene (kt/a) Benzene (kt/a) Toluene (kt/a)
1400 200 40
Table 4-5: Catalytic reformer product flow rates
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The design is displayed in the block flow diagram below:
Figure 4-4: The proposed design, the orange units represent the additions to the refinery (not to scale)
Nevertheless, the increased production of aromatics does not utilise the naphtha produced in the refinery. To further increase profit margins, a steam cracker that can produce olefins should also be introduced instead of selling the majority of the naphtha to international customers.
Naphtha is produced from the distillation unit, and the gas stabilisation unit on the complex. The output from the distillation unit is not known but the gas stabilisation unit produces 90,0000 bpd of naphtha. If the feedstock for this steam cracker is the naphtha produced in the gas stabilisation unit at 90,000 bpd or 3.89 million tonnes per year of naphtha, this process will produce 1400 kt/a of ethylene, 620 kt/a of propylene, a total of over 2000 kt/a of olefins as shown in table below:
Ethylene (kt/a) Propylene (kt/a) Other (kt/a)
1400 620 1870
Table 4-6: Steam cracker product flow rates
The rest of the products produced in the steam cracker include pygas, fuel oil and crude C4s. Due to the aromatics production, there is reduced availability for gasoline blending feedstocks, to ensure that the gasoline is still produced at current rates, the pygas and the C4s will be used in gasoline along with the pygas transported from Jubail. However, gasoline usage is set to decrease [148], and it is proposed that in the future a pygas hydrotreating plant is added to increase the benzene production when the market becomes less profitable.
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A diagram of the proposal is shown below:
Figure 4-5: The proposed design, the orange units represent the additions to the refinery (not to scale)
4.4.2 Cost Estimate The expansion of the Ras Tanura refinery will require a combined cost of $2.5 billion. The aromatics unit construction of the splitter, separation and xylene separation unit will cost 500 million and the steam cracker and olefins unit will cost 2 billion dollars. The production cost per tonne of olefin is $600 using naphtha and an average price of $1300 per tonne of ethylene or propylene and therefore the annual production cost will be 1.4 billion dollars. Therefore, there is the payback period will be 14 months for the steam cracker. The production cost for profit yield for benzene is $130 for benzene and $580 for para-xylene, therefore the annual gross profit will be 0.8 billion per year and the payback time will be 8 months. The total profit of the plant is estimated to be 2.2 billion. The costs are summarised in the table below:
Aromatic Unit Olefin Unit Total
Capital Cost (billion $) 0.5 2 2.5
Net profit per year (billion $) 0.8 1.4 2.2
Payback time (months) 8 18 14
Table 4-7: High-level cost estimates for the expansion of the Ras Tanura Complex
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4.5 Jubail (UA)
Jubail is a city in the Eastern province of KSA which overlooks the Arabian Gulf, home to the largest city in the Middle East. Also, a world-renowned city amongst engineers for being the largest industrial city in the world. The industrial area in Jubail consists of 19 primary industries along with 136 secondary industries and 100 ancillary industries. The result of which was the creation of 100,000 jobs by the turn of the millennium. The reason for its high level of success as an industrial city is primarily due to its geographical position. Situated on the East Coast, it provides easy access to the Gulf. Moreover, the city is situated less than 250 km away from the largest oil field in the world – Ghawar. This oil field accounts for more than 50% of cumulative production of oil in the country. Thus, making it an optimum location for an oil refinery. The construction of the SASREF refinery in Jubail began in 1982 and in 4 years, it was commissioned with a capacity of 262,000 bpd. In 1988, optimisation of the refinery via debottlenecking occurred such that the refinery capacity increased to its current day level of 305,000 bpd.
The main units present within the current refinery are detailed below:
Unit Function Capacity (barrels per day) Crude Distillation (x2) Distil crude oil 136,000 (each) Vacuum Distillation Unit Secondary processing units 69,000 that helps to produce petroleum products out of heavier distillants Desulphurisation Unit Unit that desulphurises oil 100,000 constituents Hydrocracker Converts heavier molecules 40,900 to gasoline Isomerisation Unit (x2) Unit where isomerisation 1) 14,422 2) 9370 reactions can occur Visbreaking Units Reduce quantity of residual 30,000 oil Catalytic Reforming Unit Unit that converts petroleum 16,000 refinery naphtha to reformates Table 4-8 Main units present within the Jubail refinery
The principal products manufactured at the facility include gasoline, diesel, kerosene, fuel oil, naphtha and liquefied petroleum gas.
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4.5.1 Design (UA) In 2017, there was 34,000 bpd of naphtha produced in the SASREF refinery. The vast majority of which is sold internationally as SASREF was built with the main purpose of it being an export refinery. As a means of increasing revenue and diversifying the economy, it is essential that this naphtha is utilised more efficiently. One such way is to use it as a feedstock in the production of petrochemicals. The demand for petrochemicals is increasing as countries like India and China develop more rapidly than before. Thus, by maximising the amount of petrochemicals that are produced, it allows more revenue.
In order to utilise the naphtha as a petrochemical feedstock, the refinery would require expansion allowing it to become an integrated refinery complex. The main petrochemicals that will be produced from this refinery will be ethylene and propylene.
Naphtha is formed via the crude oil distillation unit. In order to convert the Naptha into olefins, it must first undergo cracking via pyrolysis – the thermal cracking of petroleum hydrocarbons with steam. Thus, this requires an integrated furnace steam cracker as pictured below:
Figure 4-6: Diagram representing thermal cracking process
The steam requirement required in pyrolysis depends on the feedstock. For naphtha the value varies between 0.4-0.8 kg steam/kg hydrocarbon. The specific energy consumption for the production of olefins via naphtha is 3050 kcal/kg. The cracking reaction is highly endothermic and thus, high energy rates are required. Cracked gases exit the furnace at high temperatures ranging from 750C. Therefore, the gases need to be cooled to preserve the composition of gas and stop any undesired (secondary) reactions occurring. The equipment required for this is a quench tower. After the gas cools in the quench tower, a turbine driven centrifugal compressor is utilised for compression. The
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Saudi Arabia After Oil Group 1 compression typically requires 4-5 stages. This is generally the most expensive equipment on the plant.
In order to convert naphtha into olefins, an acid gas removal system is required. The acid gas removal should be situated upstream of the drying unit to prevent the formation of ice and hydrates. Also, to prevent the formation of ice and hydrates, moisture should be removed via a dryer. Water is present due to the saturation that occurs before compression stages and after intercooler stages. The compressed gases are then received by a distillation column where the gases can be fractionated into required products. A flare system is also important however, due to the fact that this the ethylene section of the plant will be integrated, connections can be made to the main flare stack.
The overall yield of the steam cracker in terms of composition is typically as follows:
Ethylene Propylene Crude C4s Pygas Gas oil Hydrogen Fuel Oil
0.35 0.16 0.10 0.20 0.03 0.01 0.14
As is evident from the table, the yield of the two main desired products (ethylene & propylene) is 51%.
A significant percentage (20%) of the cracked products is pygas. A product with high aromatic content, that after purification, contributes to approximately 36% of global benzene production. Overall, the amount of pygas formed amounts to 6,800 bpd from the naphtha cracking process. It would not be viable to create a pygas hydrotreating plant for a relatively small amount of pygas, thus, it is proposed that the pygas be transported to Ras Tanura (80 km) where more pygas is produced due to it being the largest producer of naphtha in the country. Here, the pygas may be treated to produce desirable aromatics.
The other significant constituent formed is fuel oil. 4760 bpd of fuel oil will be formed as a side product. Along with this, 38,000 bpd of fuel oil is formed by the refinery and is currently sold internationally. This fuel oil currently undergoes desulphurisation in order to alter the high sulphur oil into a low sulphur oil so that it meets regulation requirements. It is suggested that the 4760 bpd of fuel oil produced should be routed to the desulphurisation unit also and sold internationally. This would not require any additional units as the capacity of the desulphurisation unit is 100,000 bpd.
4.5.2 Cost Estimate The cumulative cost of all the equipment required for olefin production is estimated to be $1.5 billion. The operating costs for the production of ethylene is estimated to be $600/tonne. Only the desirable products will be considered for the profit made, thus, the selling price of ethylene and
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Saudi Arabia After Oil Group 1 propylene averages to $1300/tonne. As 17,000 bpd of olefins are produced, this generates a profit of approximately $514 million/year.
The costs are summarised in the table below:
Capital Costs (billion $) 1.5
Operating Costs ($/tonne) 600
Selling Price of Olefins ($/tonne) 1300
Revenue Generated (billion $) 0.955
Net profit (billion $) 0.514
Payback time (months) 34
Table 4-9: Summary of Costs
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4.6 Environmental Problems with Petrochemicals (UA)
Although petrochemicals give countless benefits and products, there are negative impacts as petrochemicals are formed via the manipulation of fossil fuels, this has a negative impact on the environment. Atmospheric emissions in a petrochemical plant may arise from a number of sources [149]:
1) The exhaust of generators, pump engines and compressors. 2) Fumes, odours and dust from cementing units. 3) Evaporation of crude oil in form of vapours during production testing 4) When combusted, most chemicals release harmful toxins and greenhouse gases. 5) Discharge of natural gas directly to the atmosphere 6) Suspended particulate matter
The vast majority of climate scientists are in agreement that the main cause of the increase in global warming is as a result of greenhouse gases. The most common greenhouse gases are carbon dioxide, methane, nitrous oxide and CFCs. The greenhouse gases in the atmosphere prevent heat from escaping resulting in un-natural warming [150]. Aromatic petrochemicals are dangerous pollutants to the environment, they are generally exposed from emissions, waste and spillages.
Areas within close proximity to petrochemical plants and industries suffer from other forms of pollution. Contamination of soil is common from residuals of the production process. Soil contaminants are mostly generated from sludge from the desalting of crude oil. The effect of the contaminants is alterations to soil conditions that result in secondary impacts, such as alterations to surface hydrology and patterns with drainage, increased siltation and damage to habitats. These factors reduce the capacity of the environment to support vegetation and wildlife [151].
Effluents released from petrochemical production facilities have even proved to have negative effects on nearby water sources due to inefficient purification systems causing water pollution. Water pollution can be defined as the presence of solid, liquid or gas contaminants in concentrations above acceptable levels, thereby altering the quality of water. Polluted water contains toxins that accumulate in bodies of water which is harmful to both humans and marine life. The principal sources of water pollution results more from exploration of oil and from drilling fluids. In production, after the development of oil wells, the primary effluent produced is water. Produced water substantiates to over 98% of exploration waste. Also, the potential of large oil spills is a possibility which would cause widespread and often irreparable damage to the aquatic environment [152].
Another common form of pollution present around petrochemical plants is noise pollution. This can affect both animal habitats and human life as plants are often running continuously throughout the week.
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4.7 Conclusion (AO)
There are many opportunities for the KSA to invest and expand their petrochemical industry to take advantage of a lower cost feedstock compared to their competitors. Subsequent to the evaluation of the refinery capacity of the nation, the expansion of three key domestic refineries have been designed to produce petrochemicals and increase profit margins by $10.5 billion.
4.7.1 Map of Design (UA) The map below illustrates and summarises the main changes that will occur due to the petrochemical design. The key locations of the map have been identified and annotated.
Figure 4-7: Map indicating current and newly planned petrochemical refineries
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5 Islamic Tourism Design (DC) Millions of tourists visit KSA every year, most of whom are Muslims visiting the country to participate in Hajj and Umrah. These tourists tend to only visit Mecca and Medina to participate in their pilgrimage, and although the tourism industry is not well established, due to the millions of pilgrims who come to KSA every year tourism is a key revenue generator for KSA, contributing a total of 9.4% of the Saudi Arabian GDP in 2017 [153]. The development of the tourism industry in KSA has immense potential; further developing Mecca and Medina to allow more pilgrims to come for Hajj and Umrah will further increase the revenue generated by Islamic tourists. By also developing general tourist sites around the country, it would encourage Islamic tourists to explore more of KSA, outside of Mecca and Medina, and increase tourism of non-Muslims to KSA.
Up until now, tourism has not had the required investment which would maximise revenue in this sector. Developing Mecca and Medina by increasing the capacity of the two holy mosques and expanding hospitality will allow more pilgrims to come to Hajj and Umrah every year. The infrastructure supporting these millions of tourists will also need improving by the development of transport systems. As well as the tourism industry in Mecca and Medina, there is potential for tourism in other places outside of the pilgrimage sites. There are many historical sites in Saudi Arabia which will be of interest to pilgrims and non-pilgrims, as well as many untouched beaches and coral reefs which could offer a wide range of sea activities. Finally, by allowing visas to be more accessible to allow pilgrims to stay in the country longer and have access to the whole country, the Islamic tourism industry will be a key revenue generator for Saudi Arabia.
5.1 Development of Mecca and Medina
5.1.1 Hajj and Umrah (DC) Hajj is one of the five pillars of Islam that all Muslims are required to undertake at least once in their lifetime. It is an annual pilgrimage to Mecca lasting five days, taking place from the 8th day to the 12th day of Dhu al Hijja, the last month of the Islamic calendar, and gathers millions of Muslim worshipers together at the same time at the Holy Mosque in Mecca. As the Islamic calendar is lunar based, unlike the traditionally used Gregorian calendar, each year Hajj occurs 10 to 12 days earlier than it did the previous year. Umrah is also a pilgrimage to Mecca undertaken by many Muslims. Unlike Hajj, Umrah can take place at any time of the year and is not obligatory within Islam. The length of Umrah is entirely down to the individual; some will only visit Mecca for a day, whilst others may spend over a week in Mecca on their pilgrimage.
Millions visit KSA every year to participate in the Hajj and Umrah pilgrimage. In 2017, official figures state that over 2.3 million people descended on Mecca to perform the 5-day Hajj pilgrimage, of which over 1.7 million were foreign nationals [154]. This huge gathering of people over the five
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Saudi Arabia After Oil Group 1 days makes Hajj the single largest gathering of people on the planet. Throughout 2017, over 19 million people participated in Umrah, of which over 6.5 million were foreign nationals [155, p. 15]. This puts the total number of religious tourists for KSA at over 8 million people per year. The enormous number of foreign visitors who travel to KSA every year for religious reasons means that there is a large audience for Islamic tourism, which has so far been an undeveloped industry.
In Saudi Arabia’s Vision 2030, KSA aims to increase the total number of foreign Hajj and Umrah visitors from 8 million to 30 million by 2030. To be able to cope with this annual capacity, many improvements will be required to the infrastructure which is needed to support so many people. The two Holy Mosques will require an increase in size, as they are currently at full capacity, as well as other improvements in infrastructure around Mecca, Medina and Jeddah.
A pilgrims Hajj trip is usually organised through a Saudi government approved travel agency, where Hajj packages can range from $800 to $11,000 [156]. It has been estimated that during the 5 days of Hajj, the average foreign pilgrim spends a total of SAR 17,381 ($4,633) on their trip, including the cost of their airfare, transportation, food and accommodation. A domestic worshiper spends an average of SAR 4,948 ($1,319) [157]. The total revenue generated from Hajj and Umrah, including worshippers’ fees, money spent on food, transportation and accommodation can generate over $12 billion [158]. A further increase in pilgrim numbers, as well as a general increase in tourism across KSA, would significantly increase the revenue generated by tourism and make it a key industry in giving KSA a sustainable economy in the post-oil era.
The following proposed revenues can be estimated for Hajj and Umrah between 2020 to 2030 and then from 2030 onwards. Firstly, it can be assumed that between 2020 to 2030, pilgrim numbers should stay around the number they are currently at, whilst improvements are made to the infrastructure systems of Mecca, Medina and Jeddah, then after 2030 when improvements are complete, pilgrim numbers will be increased to the levels started in Vision 2030. The average spend per person is based on the average spend of a pilgrim during Hajj, which will also increase after 2030 when more tourist options and activities are available.
Hajj 2020 to 2030 Average Spend per pilgrim Number of pilgrims Revenue Foreign Pilgrim $4600 2,337,047 $10,750,416,200 Domestic pilgrim $1300 662,953 $861,838,900 3,000,000 $11,612,255,100 Worker Remunerations $-2,322,451,020 Operating Expenditure $-5,806,127,550 Profit $3,483,676,530 Table 5-1: Annual revenue generated from Hajj between 2020 and 2030
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Umrah 2020 to 2030 Average Spend per pilgrim Number of pilgrims Revenue Foreign Pilgrim $4500 10,200,000 $45,900,000,000
10,200,000 $45,900,000,000 Worker Remunerations $-9,180,000,000 Operating Expenditure $-22,950,000,000 Profit $13,770,000,000 Table 5-2: Annual revenue generated from Umrah between 2020 and 2030
Hajj 2030 onwards Average Spend per pilgrim Number of pilgrims Revenue Foreign Pilgrim $5500 5,700,000 $31,350,000,000 Domestic pilgrim $1500 1,000,000 $1,500,000,000 6,700,000 $32,850,000,000 Worker Remunerations $-6,570,000,000 Operating Expenditure $-16,425,000,000 Profit $9,855,000,000 Table 5-3: Annual revenue generated from Hajj from 2030 onwards
Umrah 2030 onwards Average Spend per pilgrim Number of pilgrims Revenue Foreign Pilgrim $5700 24,300,000 $138,510,000,000
24,300,000 $138,510,000,000 Worker Remunerations $-27,702,000,000 Operating Expenditure $-69,255,000,000 Profit $41,553,000,000 Table 5-4: Annual revenue generated from Umrah from 2030 onwards
5.1.2 Increase in Mosque Capacity (DC) KSA is home to the two Holy Mosques: The Sacred Mosque (The Al-Haram Mosque) in Mecca and The Prophet's Mosque (Al-Masjid An-Nabawī) in Medina. Hajj and Umrah are pilgrimages to the Sacred Mosque in Mecca, although many pilgrims also visit the Prophet’s Mosque as part of their pilgrimage. Increasing the capacity of these mosques will allow more people to go on a pilgrimage and will, therefore, result in larger tourist numbers for KSA.
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Figure 5-1: The location of the two Holy Mosques within KSA (Google Maps)
Each year the Saudi government set quotas for the maximum number of citizens from each country who can go to Hajj and Umrah, with each country’s quota based on their percentage of the global Muslim population.
There is not a lack of people wanting to attend Hajj. As it is a requirement of the Islamic faith, countries have very long waiting lists of people wanting to attend; Indonesia, the country with the largest Muslim population, has a waiting list of up to 17 years for a Hajj visa [159]. Hajj attendance peaked at over 3 million in 2012 before stricter quotas were introduced to allow construction work to begin on the two Holy Mosques.
The Sacred Mosque of Mecca currently has a capacity of 600,000 people but will be increased to 2.2 million people through the construction of six new prayer floors at a cost of $26.6 billion [158]. The Prophet’s Mosque in Medina, which can currently hold up to 1 million people, is under construction to increase its capacity to hold 1.6 million people [158], costing $6 billion [160]. The increase in mosque capacity will allow for quotas to be lifted, permitting more people to safely attend Hajj and Umrah and increasing religious tourist numbers for KSA, thereby increasing revenue generated by religious tourists.
To prevent overcrowding whilst construction is ongoing throughout Mecca, Medina and Jeddah, pilgrim numbers should be kept at the current level until after 2030. After 2030 all infrastructure will have finished construction, allowing pilgrim numbers to be increased to 30 million per year, up from the 8 million which currently attend.
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5.1.3 Accommodation Expansion (DC) A report by CBRE, a real estate and investment firm, states that there are currently 45,000 hotel rooms in Mecca, with an additional 35,000 expected to be constructed by 2022 [158]. Even with the additional hotel rooms, there will still be a deficit in sleeping accommodation for pilgrims, especially with the increase in pilgrim numbers in the coming years.
During Hajj most pilgrims stay in Mina, also known as ‘The City of Tents’. Over 100,000 air- conditioned, fireproof tents cover an area of 20 km2 which can house up to 3 million pilgrims. As Hajj attendance increases, Mina will require extending, as even with the use of bunk beds in tents, Mina has reached its capacity. Mina is built in a valley, surrounded by mountains with the neighbouring towns of Al Jamiah and Aziziyah to the south. To extend Mina outwards would either require the construction of tents on the hillside, or the destruction of the existing villages to build more tents. Neither of which would be a suitable option. For Mina to grow, it will need to extend upwards.
Figure 5-2: Mina, the City of Tents in Mecca [161]
For Mina to extend upwards tents will need replacing with multi-storey structures, however, the structures should be such that they still produce a similar atmosphere as is provided by the tents. Replacing the tents with high-rise apartment blocks would not be appropriate as it would ruin the communal feel and spirituality of the camp.
Each tent in Mina should be replaced by a modular, prefabricated building, of a size which is similar to the existing tent and shall be known as an MMU (Mina Modular Unit). Each MMU can be built off-site so that upon arrival in Mina, the existing tents can be dismantled and the new MMU can be quickly erected to replace the tents. Currently, Mina is only occupied during Hajj. This will make the removal and replacement of the tents much easier as demolition and construction work can be undertaken without needing to work around any existing occupants. In Mina, each tent has air
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Figure 5-3: Aerial view of Mina (Google Maps)
The MMU will be constructed from a rectangular steel frame, with timber flooring and a timber roof. The walls of the MMU will be a fibreglass fabric coated with Teflon to ensure fire resistance. The fibreglass fabric coated with Teflon is the fabric currently used for the existing tents [162]. Using the same material will give the new buildings a similar look and feel to the existing tents, as well as allowing air to flow in and out of the MMU. Furthermore, a fabric removable wall will allow for erection or removal of internal walls between each MMU, so that sleeping areas can be increased in size or so that partitions can be erected to create segregated sleeping spaces. Wiring and plumbing will easily be able to be attached and passed through the timber flooring, to provide lighting, air conditioning, alarm systems and sprinkler systems in each MMU. Most of the MMUs will be used for accommodation, however, some will have toilet and washing facilities installed within. Others can be used for services, such as shops and food preparation areas. Most MMUs will be a basic sleeping unit consisting of 14 bunk beds, although there will be a range of units available, from the most basic with 14 bunk beds to private blocks with only one bed and an inbuilt toilet and shower. Once complete, Mina will be able to be used all year round for Umrah pilgrims as well as Hajj pilgrims.
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Each MMU will be a rectangular, 2.6 m tall by 8 m long by 5 m wide, as shown in Figure 5-4.
Figure 5-4: A basic MMU block
Figure 5-5: A basic MMU with fabric walls and bunk beds
Due to the simple modular design, MMUs can be attached together to create a larger sleeping block, as shown in Figure 5-6, and the fabric walls can be attached to protect the sleepers from the elements, as shown in Figure 5-7.
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Figure 5-6: Four modules attached together
Figure 5-7: Four modules with outside walls (One wall not included to see inside the block)
Figure 5-8: Inside the block of four
The existing tents can be removed in their blocks and replaced with the new MMU. The units can be placed back to back, and side by side to form a large block of sleeping areas, just like how the current tents are set up, with gaps in between every six MMUs to allow for vehicle access.
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Figure 5-9: Units placed together and with gaps for general access
To further increase capacity in the camp, units can also be placed on top of each other to create a two-storey camp, with the upper story having an external balcony and a spiral staircase to provide access between floors.
Figure 5-10: Two storey sleeping block
The two storey blocks, much like the one-story units, can be arranged together to form larger blocks.
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Figure 5-11: Two storey blocks placed together
If required, a third floor can be added above to further increase the maximum sleeping capacity.
Figure 5-12: Three storey blocks
Each storey of MMUs will have 180,000 units, covering 7.2 km2 of space, and providing accommodation for 3 million people, as well as facilities including shower and toilet units, food units and catering units. Initially, two storeys of MMUs will be constructed. If at a later date the capacity required exceeds 6 million, a third storey can be added to increase capacity to 9 million, but no more than three storeys should be added for structural safety.
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The budget for the Mina development will be $10 billion. The cost of one MMU is estimated to cost around $20,600:
Material Cost per unit [163] Amount required Total cost Concrete Foundations $125 / m3 16 m3 $2000 Steel beams and columns $1900 / tonne 3.5 tonne $6650 Timber floor and roof $90 80 m2 $7200 Fabric Walls $6.50 67.6 m2 $440 Bunk bed $65 / bed 14 beds $910 Mechanical, electrical & plumbing $600 per MMU 1 $600 Labour $200 per worker 6 $1200 Machinery $800 per day 2 $1600 Total $20,600 Table 5-5: Estimated cost of a single MMU
This will put the cost of one storey of MMUs at $3.708 billion.
5.2 Improvement in Infrastructure (DC)
The existing infrastructure in KSA is already at maximum capacity, particularly during Hajj. A significant increase in Hajj attendees would require improvements to the transport systems around Mecca, Medina and Jeddah. Through Saudi Vision 2030 much development is now being undertaken to improve the infrastructure in and around Mecca to accommodate the increase in pilgrim numbers.
5.2.1 Haramain High-speed Rail (DC) The Haramain High-Speed Rail line opened in September 2018, linking Mecca and Medina, via Jeddah, King Abdulaziz International Airport (KAIA) and King Abdullah Economic City (KAEC), at a cost of $16.5 billion [158]. The line will significantly reduce the time taken to travel between cities, particularly during Hajj when roads are a lot busier. Most visitors who arrive into KSA for religious tourism enter through KAIA. The Haramain rail will provide a 30-minute link between KAIA and Mecca and significantly reduce the strain on the overburdened ‘Makkah-Jeddah Highway’, for which the drive can easily take over three hours during busy periods.
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Figure 5-13: The Haramain High-Speed Rail line (Google maps)
The predicted revenue of the Haramain High-speed rail link is as follows:
Initial construction cost $-16,500,000,000 Average ticket cost $70 Average Daily Annual Usage 50,000,000 Income Annual Standard Income $3,500,000,000 Participants using Metro during Hajj 2,000,000 Hajj Income Days used during Hajj 2 Income during Hajj $280,000,000 Total Income $3,780,000,000 Total Annual Expenditure $-3,250,000,000 Total annual Profit $530,000,000 Table 5-6: Annual revenue from the Haramain High-speed rail link
5.2.2 Metro Systems (DC) The three main cities used for religious tourism, Mecca, Medina and Jeddah, have all planned to build new metro systems to ease the transit of its visitors, but as of January 2019 work has not begun on any of them.
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Mecca’s existing metro line, the Al Mashaaer Al Mugaddassah Metro line, which runs between Mina and Arafat, can be used as a design reference for all proposed metro lines in KSA. It took two years to construct, starting in 2009 and fully opening in 2011. The line is only used during Hajj, with a cost for a metro ticket lasting the duration of Hajj is SAR 250 ($67) for the five days. The proposed metro lines will be used all year round once opened.
For further comparison, in the 2017/18 fiscal year, the London Underground had a total direct operating cost of £3,277 million ($4,172 million) [164, p. 210]. The total length of the London Underground is 402 km [165], putting the operating cost at $10.4 million per km. This operating cost per km shall be used to estimate the operating costs of the proposed city metro links.
5.2.2.1 Mecca The Mecca metro will consist of four new metro lines, with a total length of 182 km, connecting 88 stations across the city, with a construction cost of $16.5 billion [158]. Construction tendering for the project should begin in early 2019 so that construction can commence in 2020. The project should be conducted in phases, with each line being constructed separately. Line B will be constructed first, linking Mina and Mecca, followed by Line C which links the west of Mecca to Mina, then Line A, then finally Line D. The total construction should be expected to last ten years, to be fully opened in 2030, with each line taking around two and a half years to build and become operational.
Using the assumption of $10.4 million per km, the total annual expenditure for the Mecca metro will equal $1.9 billion, and an annual revenue of $3.27 billion, as shown in Table 5-7.
Initial construction cost $-16,500,000,000 Daily ticket cost $20.00 Average Daily Average daily passenger usage 400,000 Income Daily income $8,000,000 Annual standard income $2,920,000,000 Participants using metro during Hajj 3,500,000 Hajj Income Days used during Hajj 5 Income during Hajj $350,000,000 Total revenue $3,270,000,000 Total annual expenditure $-1,900,000,000 Total annual profit $1,370,000,000 Table 5-7: Annual revenue from the Mecca City Metro
5.2.2.2 Jeddah Currently, only 2% of all trips made in Jeddah are by public transport; the Jeddah Public Transform Programme (JPTP) is aiming to significantly increase this value. JPTP consists of 4 metro lines of total length 161 km [166], a light rail transport, a tram line, bus routes and ferry services. The transport programmes for Jeddah was originally estimated at $12 billion [167], but has since risen
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Saudi Arabia After Oil Group 1 due to changes in plans [168]. The new cost of the Jeddah transport system can be estimated at $18 billion.
The design of the JPTP is mostly complete. With a little more design work, the project can begin the tendering process in 2020, ready to begin construction in 2021. The JPTP is the most complex of the three transport systems with numerous transportation methods. Therefore, it shall take the longest to complete, at 12 years, to be fully operational by 2033. Construction shall be done in phases so that the metro, rail and tram lines shall be constructed sequentially so that when one line is complete it can be opened and used by the public to begin generating revenue whilst construction begins on the next line.
Initial construction cost $-18,000,000,000 Daily ticket cost $15.00 Average Daily Average daily passenger usage 700,000 Income Daily income $10,500,000 Annual standard income $3,832,500,000 Participants using metro during Hajj 1,400,000 Hajj Income Days used during Hajj 5 Income during Hajj $105,000,000 Total revenue $3,937,500,000 Total annual expenditure $-2,000,000,000 Total annual profit $1,937,500,000 Table 5-8: Annual Revenue from the Jeddah City Metro and transport system
5.2.2.3 Medina The Medina metro line will consist of three lines totalling 94 km of track and is expected to cost $11 billion [167]. Of the three metro systems, it is the least designed, and so further design is required before going out to tender. The design of the metro system should be completed by the end of 2021, ready for tendering to occur during 2022, so construction can start in 2023. The three lines will be built sequentially, allowing just over two years per line. The Medina metro system should be up and running by the start of 2030.
Initial construction cost $-11,000,000,000 Daily ticket cost $12.50 Average Daily Average daily passenger usage 300,000 Income Daily income $3,750,000 Annual standard income $1,368,750,000 Participants using metro during Hajj 1,000,000 Hajj Income Days used during Hajj 5 Income during Hajj $62,500,000 Total revenue $1,431,250,000 Total annual expenditure $-900,000,000 Total annual profit $531,250,000 Table 5-9: Annual revenue from the Medina City Metro
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5.2.3 Airports (DC) In 2017, 88% of foreign Umrah attendees came into KSA through one of two airports. 62.5% entered through King Abdulaziz International Airport (KAIA) in Jeddah, and 25.8% came in through Prince Mohamed bin Abdulaziz Airport in Medina [155]. A three phases expansion project is currently underway to increase the capacity of KAIA. The first phase of the project was completed in 2018 and increased capacity from 13 million to 30 million. Phase two will expand airport capacity to 43 million annual passengers, and phase three will increase capacity to 80 million passengers, with construction of phases two and three set to finish by 2025 and 2035 respectively. $7.2 billion will be spent on the expansion of KAIA [158]. To expand and improve religious tourism in KSA, the expansion of its main airport used by pilgrims is vital to be able to allow more flights and therefore more religious tourists to come into the country.
5.3 Religious Tourist Visas (DC)
For all non-Saudi nationals, a visa is required to enter KSA, and for religious tourists, a specific visa is required to attend Hajj or Umrah. Since October 2016 visa fees have been introduced. For first time Pilgrims Hajj and Umrah visas are free, after which they cost SAR 2000 ($533) for each pilgrimage [169]. The fees have not deterred pilgrims, as both Hajj and Umrah attendance for foreign pilgrims has been increasing annually since 2016 [154]. With the increase in each country’s visa quotas, pilgrim numbers are expected to rise, regardless of fees.
The Umrah visa allows a person to stay in KSA for two weeks, whereas the Hajj visa forbids pilgrims remaining in KSA following Hajj. Both visas only permit the holder to travel to and from the vicinities of Jeddah, Mecca and Medina. If visas were changed to allow pilgrims to stay in the country longer and visit locations outside of these cities, it would give rise to a nationwide tourist industry for religious tourists, instead of just having the focus in Mecca, Medina and Jeddah.
Changes in visa laws would be the first step to an increase in tourism revenue. Allowing different Hajj and Umrah visa options, which give the holder a choice for the duration of their stay and the locations they can visit would open nationwide tourism opportunities. Increasing the duration of time a visa allows an individual to stay in KSA would further allow visitors to explore and spend more time and money in KSA. Two new visas should be introduced, the Hajj Plus and the Umrah Plus. These visas would grant the holder an additional two weeks in which they can stay in KSA, and throughout their stay, they have access to travel around the whole country. Table 5-10 shows a cost breakdown for new visa proposals.
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Cost – First Cost – Returning Visa type Visa duration time Pilgrims Pilgrims SAR $ SAR $
Standard Hajj visa, access to Mecca, Hajj 0 0 2000 533 Medina and Jeddah only.
Two-week extension past end of Hajj, Hajj Plus 500 133 2500 666 travel access to the whole country.
Standard two-week Umrah visa, access Umrah 0 0 2000 533 to Mecca, Medina and Jeddah only.
Extended four-week Umrah visa, Umrah Plus 500 133 2500 666 travel access to the whole country.
Table 5-10: New visa proposals It has been estimated that 90% of Hajj attendees are first-timers [170], and in recent years the number of domestic pilgrims has remained at around 600,000. As capacity increases, domestic Hajj and Umrah attendees will not be expected to drastically rise. The increase in domestic Hajj and Umrah attendees should be expected to increase in proportion to the increase in the population of KSA. The maximum domestic Hajj attendees should be capped at 1,000,000 people, which will mean around 2.5% of the population attending Hajj each year, up on the current 1.8% of the KSA population.
Duration of stay for foreign Umrah pilgrims
Four weeks 588841
Three weeks 1277421
Two weeks 3475061
One week 851245
Less than one week 339506
0 1000000 2000000 3000000 4000000 Number of Pilgrims
Figure 5-14: The duration of Stay for foreign Umrah pilgrims in 2017 [155, p. 17]
Figure 5-14 shows that in 2017, 1,866,262 people (29%) stayed longer than two weeks during Umrah, therefore they would have required the Umrah Plus visa. The basic assumption that 90%
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Hajj and Umrah visitors are first-timers, and that 30% of all people who visit require the Visa or Hajj plus can be used to estimate the income gained from the new visa proposals.
Between the years 2020 to 2030, the total foreign visitors should be capped at 20 million. As some infrastructure projects will be complete, including the expansion of KAI Airport, an increase in the size of the two holy mosques and the Haramain High-Speed rail link, there will be more infrastructure in place to accommodate an increase in tourist numbers.
First Timers Returners Regular Visa Visa + Regular Visa Visa + Attendance % share 90% 10% Application number 18000000 2000000 Cost $0 $133 $533 $666 % share between visas 70% 30% 70% 30% Visa application numbers 12,600,000 5,400,000 1,400,000 600,000 SUM Income from visa $0 $718,200,000 $746,200,000 $399,600,000 $1,864,000,000 Table 5-11: Annual income from visas between 2020 to 2030, when maximum foreign tourist numbers are capped at 20 million.
In 2030 the three cities metro lines, the Mina redevelopment and phases two of the KAIA expansion will be complete. This will, therefore, allow for the maximum number of foreign pilgrims to be increased to 30 million, as is stated in the Vision 2030.
First Timers Returners Regular Visa Visa + Regular Visa Visa + Attendance % share 90% 10% Application number 27,000,000 3,000,000 Cost $0 $133 $533 $666 % share between visas 70% 30% 70% 30% Visa application numbers 18,900,000 8,100,000 2,100,000 900,000 SUM Income from visa $0 $1,077,300,000 $1,119,300,000 $599,400,000 $2,796,000,000 Table 5-12: Annual income from visas 2030 onwards, when maximum foreign tourist numbers are capped at 30 million.
5.4 Financial Breakdown (DC)
5.4.1 Existing Revenue (DC) In 2017 the World Travel & Tourism Council reported that the tourism industry contributed $64.2 billion to the KSA economy, equalling 9.4% of the national GDP [153]. Meanwhile, the Saudi Arabia General Authority for Statistics reported that in 2016, KSA generated an operating revenue of $34.3 billion [171], while worker remunerations and operating expenditure, were equalled $5.87 billion and $16.2 billion respectively, as seen in Table 5-13. This puts the worker remuneration value at around 17% of the total operating revenue, and the operating expenditure at around 47%
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of the operating revenue. This can be used to estimate the total income from religious tourism going forward.
SAR $ Total operating revenue 128,650,216,000 34,297,581,524 Worker remunerations 22,014,255,000 5,868,903,520 Operating expenditure 60,879,099,000 16,230,099,925 Table 5-13: KSA tourism revenue 2016 [171]
5.4.2 Proposed Revenue (DC) A total revenue can be estimated for the industry of Islamic tourism and the relevant infrastrure it requires as has been discussed. Between 2020 to 2030, the following revenue will be generated:
Initial Annual Operational Annual Operational Annual Construction Cost Expenditure Revenue Operational Profit Sacred Mosque Expansion $-26,600,000,000 Prophets Mosque Expansion $-6,000,000,000 Visa fees $-2,300,000 $1,864,000,000 $1,861,700,000 Hajj $-8,138,130,000 $11,625,900,000 $3,487,770,000 Umrah $-32,130,000,000 $45,900,000,000 $13,770,000,000 Total $-32,600,000,000 $-40,270,430,000 $59,389,900,000 $19,119,470,000 Table 5-14: Total annual Islamic tourism revenue between 2020 to 2030
From 2030 onwards, when construction projects are completed, and quota numbers are lifted to allow up to 30 million Islamic tourists, the following revenue will be generated:
Initial Annual Operational Annual Operational Annual Construction Cost Expenditure Revenue Operational Profit Sacred Mosque $-26,600,000,000 Expansion Prophets Mosque $-6,000,000,000 Expansion Visa fees $-2,300,000 $2,796,000,000 $2,793,700,000 Mecca Metro $-16,500,000,000 $-1,900,000,000 $3,270,000,000 $ 1,370,000,000 Jeddah Metro $-18,000,000,000 $-2,000,000,000 $3,937,500,000 $1,937,500,000 Medina Metro $-11,000,000,000 $-900,000,000 $1,431,250,000 $531,250,000 Haramain High $-16,500,000,000 $-3,250,000,000 $3,780,000,000 $530,000,000 Speed Rail Mina Upgrades $-10,000,000,000 Airport $-7,200,000,000 Expansion Hajj $-22,995,000,000 $32,850,000,000 $9,855,000,000 Umrah $-96,957,000,000 $138,510,000,000 $41,553,000,000 Total $-111,800,000,000 $-128,004,300,000 $186,574,750,000 $58,570,450,000 Table 5-15: Total annual Islamic tourism revenue from 2030 onwards
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From 2030 onwards a revenue of almost $186.6 billion will be generated by Islamic tourism alone.
5.5 Conclusion (DC)
Through investment and development, Islamic Tourism will be a key contributor to the economy of Saudi Arabia. Being the birthplace of the Islamic religion, millions of tourists already travel to KSA every year for the Hajj and Umrah pilgrimage, but through improvements the Islamic tourism industry will provide economic sustainability for a post-oil Saudi Arabia by producing a constant revenue of over $180 billion through the millions of pilgrims who will visit every year.
The religious commitment of over 8 million foreign pilgrims in 2018, which is set to rise to over 30 million by 2030, makes Islamic tourism a trustworthy, stable investment for KSA which can guarantee an income, because of the religious requirement of these pilgrims to visit KSA. By expanding the existing infrastructure to allow more pilgrims to visit and giving pilgrims the chance to travel outside of the holy cities, more revenue will be generated, and Saudi Arabia will become the world leader in Islamic Tourism.
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6 General Tourism Design (FA) Whilst Saudi Arabia tourism industry is predominantly based on Islamic tourism, Saudi Arabia plans to take advantage of its many historical sites and natural landscapes to increase and sustain non-religious tourism. There is currently a government body, ‘Saudi Commission for tourism and national heritage (SCTA)’, dedicated to improving historical tourism and Saudi Arabia have been marginally successful in domestic tourism. In 2016, Saudi Arabia spent $14 billion USD in an effort to increase domestic tourism and generate revenue within the country and the expected income generated is estimated at $23 billion USD. This measure is to counteract the fact that the majority of the Gulf populous choose to holiday aboard spending $9,900 USD per trip [172]. Furthermore the SCTA employ a recruitment drive promising jobs within the tourism industry for graduates in that field of study as well as supporting handicraft individuals with training courses to create a sense of heritage for visitors. These proposals create employment and entice domestic tourists to visit and spend within their own country, however the commission is only recently active and has not proven to be a driving force in obtaining investments and exacting change for the global market [173]. In comparison with Dubai which receives an annual estimate of 16 million visitors, Saudi Arabia have been unhurried in capitalising and generating revenue from this industry. Moreover, the attractions and services are provided by Dubai are suitable for everyone. The unique selling point of Dubai can be characterised as ‘world’s’ in terms of: world’s largest shopping mall, world’s biggest skyscraper and world’s longest metro. From the ground up, with oil revenues, Dubai have managed to create a distinctive and desirable destination, proven by the fact that tourism contributes approximately 20% of the GDP [174]. Dubai have built the Dubai Frame and are in the process of building a new ‘smart mall’, named Dubai Square, set to be the world’s largest shopping mall. Ergo the objective for Saudi Arabia’s non-religious based tourism is to mimic this ideology of USP (unique selling point) and gradually develop the industry to prosper long term.
The three areas for improvements have been identified: historical tourism, NEOM project (smart city) and waterfront holidays. Saudi Arabia have the natural structure needed to facilitate these and market these holiday destinations globally.
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6.1 Historical Tourism
Saudi Arabia has a rich, deep and well recorded history dating back to the 7th century, less than 1% of the people undertaking the pilgrimage explore the historical sites located within the country. Boasting 4 UNESCO heritage sites, beautiful Mosques and culture, one can immerse themselves and learn about Arab history in a way that is not currently possible. The policies and ideas that will be covered aims to increase the number of tourists, their length of stay and general expenditure during the visit. In terms of attractions, Saudi Arabia should build this industry around these 4 UNESCO attractions:
• At-Turaif District of ad-Dir'iyah • Al-Hijr Archaeological Site (Madain Salih) • Historic Jeddah • Rock Art of the Hail Region 6.1.1 At-Turaif District of ad-Dir'iyah
Figure 6-1: Photo of the old ruins of the House of Saud [175]
The image above depicts the At-Turaif District located northwest of Riyadh. Whilst there is a small community based near this attraction, the majority of tourists stay in the city of Riyadh, and travel to the site. Within the nearby area, an oasis and small gardens are located for personal use. Initially, the capital resource will be used for: service fees, procedure fees, tax, construction cost, installations and operating costs. The capital required will be obtained from these 4 funds according to the commission: Saudi credit & Saving Bank, The Centennial Fund, Saudi Industrial Fund, Public Investment Fund and Human Resources Development Fund [176]. In order to improve this site, Saudi Arabia should implement a fee based system for entrance and general participation of any facility, to generate revenue but also create a micro economy for the local population directly
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Saudi Arabia After Oil Group 1 creating 3,000 jobs from tour guides to maintenance staff. This in turn would generate jobs for locals in the service industry, such as tour agency/guide. For example, if the site charged $20 USD per adult entry for an estimated 50,000 annual visitors, the income generated would be $1 million USD. This revenue could be placed back into the historical site as maintenance, whilst the rest considered as profit. To generate more business, it is imperative to increase the number of nights guests spend in the country. Addition of Museums and Educational facilities can be built to further improve the tourist experience, accommodating for all ages. To further increase the number of tourists, advertising and subsiding the high-speed trains to the Riyadh will encourage tourist of all economic background to explore this historical site. Finally there is a train station in Riyadh home to the new SAR trains, allowing for fast comfortable travelling within Saudi Arabia as the figure below shows.
Figure 6-2: Map for the new Sar high-speed trains across the country. The route map provides the journey time, stations and expected destinations yet to be constructed [177]
6.1.2 Al-Hijr Archaeological Site (Madain Salih) This sandstone monument represents the Nabataean civilisation that occupied this Arabian region two millennia ago. The site is a combination of more than 100 tombs with inscriptions and facades dedicated to prominent members of the Nabataean kingdom. It is considered to be the second capital, behind Petra, Jordan and thus the monument shares similar design and historical traits with the monument in Petra, recognised as one of the new Seven Wonders of the World [178]. Due to the accomplishment of the attraction in Jordan Petra, Saudi Arabia should implement similar ideas to the Al-Hijr to set-up a thriving tourist economy.
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Figure 6-3: Al-Hijr Archaeological Site (Madâin Sâlih) (Saudi Arabia) [179]
The image above depicts one of the many tombs in the vicinity of Al-Hijr and shows one of the defects in this site. The site is largely uncontrolled by the government and as with the same situation as At-Turaif District fails to generate substantial revenue from visitors. During recent years, there has been some progressive changes in law to allow tourists easier access to the country such as the new 14-day tourist visa instituted in 2018 [180] and less strict control measures within the sites themselves, however there was only a small increase in foreign non-religious tourism. Another issue in Al-Hijr becoming a prosperous is the location of the site. Based in Madain Saleh, the only possible solutions for non-religious visitors is to travel by car from Jeddah, a 7-hour journey or from Tabuk. The small towns located nearby currently do not have the infrastructure to accommodate guests. Thus for visitors to travel comfortably and explore this monument, it will be time consuming and arduous. In an effort to rectify this problem, Saudi should put forward Capital to expand the neighbouring towns in terms of hotels for accommodation, housing for workers in this trade and general modern-day amenities to ensure thriving population. Addition of better transport links both roads and railway for better access to these sites would massively increase the number of tourists. Moreover, the fact that this site is located in the middle of the country is a perfect spot for a small break, while tourists travel the country. An example route would be starting in Jeddah/Riyadh and working along the coast to Tabuk and the wildlife sanctuaries located in the North of the country. During this extensive travel period, communities near Al-Hijr could act as an overnight destination and generate income. Finally adding additional attractions such as desert safaris and museums/guides could augment the profits because the guests would spend additional nights in this area.
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6.1.3 Rock Art of the Hail Region The Rock Art of the Hail Region was recently inducted into the UNESCO world heritages sites in an effort to market this destination for tourism. Located ideally in the middle of the country in a big town with a population of 400,000 means plentiful accommodation, amenities and extra attractions. Moreover, this region is easily accessible by either air or railway, ergo little capital investment is needed for transport expansions. Apart from the Rock Art attraction, Hail contains museums, beautiful Mosques, forts and palaces, extinct volcanoes and desert related activities such as desert rally [181]. Unlike the other projects mentioned thus far, Hail already has a suitable infrastructure to accommodate small levels of tourism, however if the revenue generated from non-religious tourism is to reach a successful and worthwhile standard, capital is required to construct more hotels and attractions. The investment needed can be obtained by a combination of government investment and private companies such as a hotel chain or tour agency. Ideally the government can focus on the maintenance and upkeep of the Rock Art and museums, whilst the companies can turn a profit by providing accommodation.
6.1.4 Historic Jeddah Of all the historical sites that were analysed for potential tourism, Jeddah is by far the most suited and developed for Tourism. Ideally located, the combination of the western coast, 55 miles from Mecca Medina and desert nearby is unique in that it can provide entertainment for all tourists. Saudi Arabia have been investing and promoting Jeddah as a destination since the diversification from oil project started. Evidenced by the Saudi 2020 and 2030 report, the expected contribution to the tourism industry from Jeddah will be $31.5 million USD, hotel accommodation will increase from 5,000 to 17,000 rooms and provide 300,000 jobs by 2030 [182]. Furthermore, Jeddah was ground- breaking in acquiring foreign investments from global companies such as Radisson hotels, Rocco Forte Hotel group and hiring the foreign consulting firm Deloitte to gain insight into Market performance and trends [183]. In order to develop within Jeddah, the key is further collaboration with foreign companies. If established corporations invest and provide services in Jeddah, it will give some sense of familiarity and incline to potential tourists to explore Saudi Arabia. The government is also increasing the appeal of Jeddah by renovating and repairing old buildings, Khuzam palace and the Nasif house. Transport links are already in place: airport, Jeddah Central train station and multiple tour agencies providing long distance car journeys. The primary focus for Saudi Arabia is to increase beach and coast tourism within Jeddah. Whilst some resorts do exist and very few nationals occupy these available rooms, due to laws limiting women’s clothing, laws of segregation between the genders and the western perception of this type of a holiday [184]. The primary method to achieving the objective is to raise awareness especially with Saudi citizens by advertising and marketing on popular platform. Dubai employed a successful campaign called ‘Visit Dubai’ with a series of adverts and reports on all the attractions and tourist information to
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Saudi Arabia After Oil Group 1 convince foreigners of the newly adopted western attitude Dubai has undergone in order to generate revenue from tourism [185]. Jeddah should endorse their unique selling point of beach holiday, culture and deserts in an effort to achieve similar results to Dubai.
6.2 Coast and Waterfront Tourism
Whilst Jeddah and other coastal communities have some beach tourism, Saudi Arabia has largely failed to monetize and profit from this section of the tourism industry. Saudi Arabia already have several advantages that will make beach tourism successful: Saudi Arabia have an array of beautiful beaches along the western coast facing the red sea which are unspoilt by any previous developments, the weather is ideal throughout the year and there is plans for development for high end resorts which are acclimated to a more western culture. Furthermore the expected development of the coast line is set to be 34,000 square kilometres, including 50 islands creating 35,000 jobs and contributing $3.8 billion USD to Saudi Arabia’s GDP by the year 2022 [186]. This ambitious project will adhere to international laws, thus actions such as the consumption of alcohol and the mobility and dress of women will be unrestricted. The government itself is extremely interested in profiting from this industry, and with funds obtained from the Public Investment Fund, construction is expected to start in 2019 of resorts and water-based activities such as coral reef diving. In addition, Saudi have welcomed capital from the Virgin Group, to transform the Red sea stretch, with the CEO Richard Branson quoting “This is an incredibly exciting time in the country’s history and I’ve always felt that there’s nothing like getting a first-hand impression” and applauding the recent law to allow women to drive as a “welcome sign of progress” [187]. However due to the detrimental actions of Saudi Arabia with regards to the murdered journalist Jamal Khashoggi, the prominent companies and individuals set to distance themselves from any connections with the country. As a result, the aforementioned investment plans for the red sea project by the Virgin group have been suspended [188]. The importance of global image is vital to secure capital, have a dependable import export market and increase the number of visitors to the country, ergo the final recommendation is Saudi maintain the relations with other countries and actively stop any actions that could damage its image. Whilst these resorts and coast transformation are expected to generate revenue and tourists, the focal point of this venture is the NEOM Project.
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6.3 Financial breakdown
To estimate the investment required, revenue generated and general operating costs for the sites and destinations mentioned in the previous sections, certain parameters are set as a constant: the number of foreign visitors and the number of domestic visitors. The pilot visa program from 2006 and 2010 allowed 25,000 foreign visitors per year and due to the success of this program, the new easily attainable tourist Visa was introduced in 2018. Thus for the fiscal year of 2019, the estimated number of tourists will be vary from 25,000 – 40,000 visitors depending on the current condition of the sites and the number of domestic tourists is calculated as 32,000 – 53,000 as 56.6% of visitor spending was by Saudi nationals [189]. Saudi Arabia nationals spend an average of $5700 USD per getaway abroad and this will be the value used in the financial breakdown generated per person for both domestic and foreign visitors [190]. The 5 criterions for the model is: operation cost, Maintenance cost, Accommodation cost, Infrastructure and Revenue generated per year.
Operation cost is determined by the number of employees the specific destination will employ multiplied by the average national wage in Saudi Arabia for the tourism industry, estimated at $12,432 USD [191]. Maintenance cost is determined by multiplying the base cost with the square foot area of each site along with other related buildings such as museum. The accommodation value is calculated by the number of hotels needed multiplied by the average price of a 1-5 star hotel, $125,000 USD [192]. The cost of accommodation will all be covered by companies building their own hotels and profiting from the business. Saudi Arabia will profit from selling the required land and taxation, general and value added. Finally the revenue generated is the number of expected visitors multiplied by the $5700 USD average spend per person per getaway. All the data given below is in USD in millions.
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Operation Maintenance Accommodation Expected Revenue No. of (millions) (millions) (millions) (millions) visitors (thousands)
At-Turaif 37.296 7 62.5 25 142.5 District of ad- Dir'iyah
Al-Hijr 62.16 7 25 30 171 Archaeological Site
Historic 124.32 N/A 0 82 228 Jeddah
Rock Art of 12.432 10 125 70 399 the Hail Region
Coast and 43.512 N/A 1250 93 530.1 Waterfront Tourism
Based on these preliminary calculations, Saudi Arabia will generate approximately $1.47 billion USD from non-religious tourism per year. This low revenue compared with other gulf countries can be attributed to the fact that Saudi Arabia is still in an infant stage of non-religious tourism. During the next few years when Saudi is effectively marketing itself as a destination, the coast project are completed and functional and the necessary infrastructure is built, Saudi Arabia should be able to actively compete with other GCC countries as the dominant destination.
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6.4 NEOM Project
This ambitious project will be the cornerstone of Saudi Arabia development. NEOM project will act as both act as the new futuristic city and a potential destination for tourists and foreign employees. The city is to be built in Tabuk, connecting Saudi Arabia with the borders of Egypt and Jordan. At the Future Initiative Conference in Riyadh, NEOM was introduced in an effort to reduce the dependence on oil and generate capital for the project. The ideal location allows for coastal tourism and an increasing in Egyptian and Jordanian visitors.
Figure 6-4: The location of the NEOM Project in the North West of Saudi Arabia. The project will cover an area of 26,500 km2 and 460 km along the coastline [193]
It is estimated the entire project will cost $500 billion USD, with $300 billion USD of the cost raised by the IPO and share selling of the state controlled company Saudi Aramco [194]. The city will focus on 9 key sectors:
• Energy and Water • Mobility • Biotech • Food • Advanced manufacturing • Media and Media production • Entertainment • Technological and digital sciences • The future of living The importance of this project is evident as Saudi Arabia are finally willing to sell shares in Saudi Aramco to raise capital, and if the NEOM project is constructed and implemented correctly, it will usher in Saudi Arabia becoming leaders in engineering and technology [195]. Furthermore the attention and publicity generated will be hugely beneficial and profitable to the tourism industry. Saudi aims to complete this project by 2025, however this can be deemed as too ambitious, especially since the Saudi Aramco IPO was set to be in late 2018 and now has been delayed [196]. In order to ensure the NEOM project is a success, firstly the completion deadline should be
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Saudi Arabia After Oil Group 1 extended, the IPO should be conducted as soon as possible with the initial capital being spent on construction and framework. Whilst the construction is proceeding, secure further investments until the $500 billion target is reached. The combination of these process will make the NEOM project a success and even though the capital will high, the potential of this project could be key in diversifying the economy from oil.
6.5 Conclusion
Whilst non-religious tourism is currently under developed, there is massive potential and scope for revenue, employment opportunities and long-term economic sustainability. The key for this industry to be successful is increasing the number of visitors, both foreign and domestic, via developing the sites mentioned above and market Saudi Arabia as a destination smartly. The NEOM project due to the scale, complexity and engineering will set Saudi Arabia as a viable tourist destination. Furthermore the recently passed law allowing women to drive and the proposed alcohol unban in certain tourist sites are just examples of how Saudi Arabia can attract visitors. Even though religious will dominate the tourism sector, the suggestion of Hajj+ and Umrah+ visas can encourage pilgrims to explore the rest of the country, ergo general tourism can complement and augment this industry, and assist in diversifying the economy from Oil.
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6.6 Map of tourism design
Figure 6-5: Map of Tourism locations across KSA (Google Maps)
The figure above indicates all the potential sites to be developed for the tourism industry. The pinpoint icons represent the historical tourism sites and the NEOM project location. The grey area along the Western coast of the country is the ideal location for beach and coast tourism. As mentioned previously, the proximity to Jeddah and untouched natural habitat is the perfect location for resorts and water activities for tourists. The Islam icons represents the two main Mosques that are to be expanded. Focusing on these sites and projects is the most effective method to grow and profit from the tourist industry.
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7 Social Design (AS) “Education is not preparation for life; education is life.” – John Dewey The approach taken to social design was to first understand the underpinnings of a prosperous economy and how education drives the economy. Then, the global trends of educational reform are analysed and the philosophy of their methodology is contrasted with both Finland and Singapore’s. A framework is then presented for KSA to follow to achieve an improved educational system. Religious policies affecting women in the work place and education are highlighted. Following a simple set of health policies to improve the well-being of the youth. This design section mainly acts as a persuasive text for the Kingdom to understand how education can be understood to fit in today’s global economy.
7.1 A View on Competitive Economies
Commonly, economic competition is understood to be the country’s share of products and services in the global markets. Such a definition usually leads to subsides, reduced local wages, and devaluation of a nation’s currency all in hopes of increasing exports and attracting foreign investment. The cost of being competitive becomes a reduced standard of living, and inefficient use of a country’s natural resources. In order to arrive at a more appealing and engaging definition of competitiveness, we must understand the underpinnings of a prosperous country.
Michael E. Porter, one of the world’s most influential thinkers on strategy and management, argues that productivity determines a nation’s standard of living [197]. He defines its measurement by the “value of goods and services produced per unit of nations’ capital, natural and human resources” and that it depends on both “the value of the product and service that is demanded in the open market, and the efficiency of production.” Productivity allows for a country to support high wages, strong currency, and attractive returns on capital, culminating a high standard of living. It is easy to see that the crux of the matter becomes attaining a high level of productivity. When productivity becomes the core, a high market share of exports consequentially occurs.
7.2 Knowledge-Based Economies
Flourishing economies have always been knowledge-based economies. Economies that are quick to adjust and adapt to technological advancements, while emphasising and implementing innovation and research [198]. Modern history tells us of three industrial revolutions. The steam engine kicked off the First industrial revolution. Machines used the power of water and steam to increase production. The Second revolved around mass production using oil and electricity as much larger and versatile power sources. The Third had information technology and electronics automate and boost production rate. Now, we are entering a Fourth Industrial Revolution (4IR); one where
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Saudi Arabia After Oil Group 1 hyperconnectivity and artificial intelligence will expedite productivity. One of the unique features of the fourth revolution is that it does not change the level of productivity as much as it’s proven potential to change the human being. The integration of digital, physical and biological systems allows for humanity to intrinsically benefit from technology [199]. The question now lies within how we can adjust the KSA to a shifting industrial trend.
The Economic Growth Competition Index [200] is used to compare the competitiveness of economies by assessing their institutions’ policies and structures. The index is based on three central ideas [198].
• Economic growth can be analysed within the macro-economic environment, the quality of public institutions and technology. • Technological advance is the ultimate source of growth, but its origins may differ across countries • The importance of determinants of economic competitiveness varies for core and non-core countries.
As we are entering the 4IR it is consensually agreed upon that education holds the key to technological advancement. Hiroaki Nakanishi, chairman of Hitachi, expresses that from a labour and job point of view, the globe is in dear need of a new education system [201].
7.3 Global Educational Reform
Since the 1980s a Global Education Reform Movement (GERM) emerged and has been adopted and regarded as the educational reform doctrine of global leaders like the U.S, England, Australia and several transition countries. International development agencies and private enterprises usually advocate GERM when intervening in national education reforms and policy formulation [202]. GERM possesses 5 global common features of education policies and reform principles in attempts to improve the quality of education.
1. Standardization of Education. Outcome-based education reform policies that focus the attention on student learning and school performance. Setting clear and high-performance standards for schools, teachers, and students and enforcing external testing and evaluation system in attempts to improve quality of expected outcomes. After the 1980’s the world has experienced a homogenised educational system consisting of a centrally prescribed curriculum, with detailed performance targets, frequent testing of students and teachers, and test-based accountability. A system that promises a low-cost solution to improve school’s quality and effectiveness.
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2. A focus on core subjects. Basic student knowledge in reading, writing, mathematics and science are targets and indices for education reform. International student assessment surveys such as Programme for International Student Assessment (PISA), Trends in International Mathematics and Science Study (TIMSS) and Progress in International Reading Literacy Study (PIRLS) have been accepted as good criteria of educational performance, reading, mathematical and scientific literacy. 3. The search for low-risk methods to reach predetermined standards. Such methods minimize experimentation, reduces use of alternative pedagogical approaches, and limits risk-taking in schools and classroom. 4. Use of corporate management models. Instead of moral goals of human development, concepts from the business world such as national hegemony and economic profit find their way to educational reform. 5. Test-based accountability policies for school. Meaning that the success or failure of schools, students, teachers and entire education systems are determined by standardised tests that narrowly focus on core subjects.
However, these changes rarely relate to what students and teachers are doing or are in need of in schools [198]. GERM can easily find its way as becoming a system that produces robotised students rather than educated humans. Governments of developing countries often become fixated on issuing a cost-effective, universal curriculum and method of teaching that can yield the best results in international assessments. A result that can be misrepresentative of learning and human development.
7.4 Finland’s Educational Philosophy
Pasi Sahlberg, a Finnish world-renowned education expert, identified four key conditions that make teaching compatible with the needs of the economy. These key conditions are present within the Finnish education system. A system that has ranked top in PISA and TIMSS and has been an outstanding example for countries to follow [203]. They are:
• Rethinking innovation. • Revisiting the conception of knowledge. • Focusing on interpersonal skills. • Enhancing the will and skill to learn.
Rethinking Innovation
Adaptation and innovation to technological advancements have been the drivers of economic growth since the first industrial revolution. To contribute successfully in a knowledge-based
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Saudi Arabia After Oil Group 1 economy, the teachers and student must work with and learn from innovations. Innovations linked to economic development possess three characteristics that are relevant to educational reform. The first is the non-linear nature of the process of innovation. Teaching and learning in educational institutes is a linear and deterministic process. Along a line, one chapter must be completed before the next regardless of the student’s individual learning needs and practical application. A linear curriculum that revolves around a standardized test and does not emphasise practical use of the knowledge. As a hypothetical example, secondary students who complete all concepts and laws of algebra prescribed in the math curriculum do not necessarily know when or how to apply their knowledge to a problem found outside of an exercise booklet. Non-linear learning involves learning through application, dealing with matters as they arise and discovering what is most important at different times. A very subjective and individualistic process. Second, innovation is more often than not a process that involves collaboration and teamwork. Shared knowledge and complementary skills complete a project. Education that has learning through co-operative and productive group work encourages collective and creative qualities. Third, the knowledge and skill required for innovation are gained through construction instead of instruction. A process which Sahlberg describes as “complex or even chaotic process of self-organization”. Therefore learning should incorporate the principals of active participation, social interaction and reflection.
A New Concept of Knowledge
It is not the quantity of what is known or the wealth of knowledge that will directly lead to economic competitiveness. Having a mental library through rote memorisation does not create the next generation of electric cars or cure for a chronic disease. Having students that gain skills from obtaining, applying, diffusing and creating knowledge achieves economic progress and social change through the constant engagement of the mind through logic, sense, trial and error. The construction and transformation of knowledge are fundamental processes in successful knowledge- based economies, not the transmission of knowledge alone. The concept of knowledge should move away from being static, eternal and never-changing. If the adopted mindset of freeing one’s self from critically analysing knowledge based on subjective values and interpretation continues and grows at a large scale, in-depth learning and advancements will never be achieved. Unfortunately, global education reform specifically values conventional knowledge in core subjects that can be reproduced in tests using lower level intellectual processes.
Focusing on Interpersonal Skills and Changing the Habits of the Mind
Economic competitiveness requires collaboration and strategic alliances rather than raw competition for markets and clients. Economic competitiveness requires strong interpersonal skills learned throughout education. Emotional intelligence plays a key role in labour productivity and personal relations. Alongside cognitive intelligence, it is important to learn self-awareness,
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Saudi Arabia After Oil Group 1 emotional control, judicious and empathetic modes of conduct. Rarely do education systems emphasise such characteristic traits. After all, with a world projected to have 9.8 billion people in 2050, it would be difficult to avoid interaction with them.
Enhancing the Will to Learn and Skill to Change
Economic development is dependent on the human capital’s will and skill to continuously learn about themselves, others around them and the world around them. Excessive insistence on standards and accountability has led to dull teaching environments, decreased freedom for teachers to exercise their judgment and depreciated the meaningfulness of learning between students. Instilling a love of learning into students is very important.
It is extremely difficult to design a universal set of educational reform policies for every educational institute in the world to implement. Macro-economics, quality of public institutions and advanced technology noticeably differ from country to country. It is evident that every country must tackle its unique complex group of growth constraints independently [204]. Every educational strategy should be tailored to the country’s citizens, culture and global status.
7.5 Singapore’s Dogged System
Having understood some of the philosophies behind Finland’s education system and policy formation, Singapore sets another excellent example of how it tackled its own unique set of educational issues.
In Singapore, Professor Sing-Kong Lee, Director of Education at Nanyang Technological University, describes key features in the Singaporean Education System to explain their consistently high performance in both PISA and TIMSS. [205]
The Singaporean education system recognizes that students innately have different learning preferences and therefore provide different learning pathways to cater to their different learning profiles, as shown in (Appendix C). The educational journey begins with 6 years of elementary school and then 4 to 5 years of secondary school. Afterwards, they are given the choice of a vocational path provided by Polytechnic route or an academic route through Junior Colleges. Both pathways lead to University education if pursued. Singapore’s statistics are impressive, from its annual student cohort, 30% enter university, 48% pursue Polytechnic education while the remaining students pursue technical education at the Institute of Technical Education. A strong emphasis is placed in foundational knowledge in students at a young age. Great effort in mathematics and science is witnessed in young students, to equip them with the essential tools for their educational journeys. A journey that is unpredictable but best taken prepared.
Adapting to Change
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The Singaporean Education system is a dynamic system, adapting to the global change of landscape. Between 1965, when Singapore gained its independence, and 1978, to combat its social and economic problems, Singapore taught foundational knowledge of literacy and numeracy to a population that was highly unemployed and illiterate. However 440 out of 1000 students reached secondary school and Singapore was faced with another problem, high attrition rate. Between 1979 and 1997, a new phase of education began with the aim of producing a skilled workforce and reducing attrition rates. After conducting an extensive study on high attrition rates, results showed that many students could not cope with the national curriculum and hence dropped out. As a solution, three pathways for different profiles of students were implemented so that each pathway offers a suitable pace for the students’ academic ability. Some primary schools could be completed in 8 years instead of 6. Some secondary schools could be completed in 5 years instead of 4. This new education system yielded great results. By 1986 only 1% of the total school population below the age of 16 left school without having at least 10 years of education. [206] Between 1997 and 2012, the world shifted from an industrial-based economy to a knowledge-based economy. Every child’s ability was, and still is, an asset that creates value when appropriately applied. Therefore, education was oriented towards empowering children (boys and girls) to develop their individual talents, and opportunities were created for children to exhibit their creativity and innovative spirit. Enter the present, Professor Lee describes the 21st century as a VUCA (Volatile, Uncertain, Complex and Ambiguous) environment. While the academic potential of every child is important, other attributes and characteristic are noticed to be important to weave a student’s way through such a VUCA environment. Through education four outcomes are deemed important; 1) a confident person 2) a self-directed learner 3) an active contributor 4) a concerned citizen [205].
Communication
Singapore’s responsive education system is evident from its history of iterations and initiatives. The initiatives are clearly articulated throughout all levels of the education system so that all parts are aligned and in tune with one another. The outcomes are constantly measured so that when gaps appear they can be bridged to achieve desired end goals. The level of articulation of the desired outcomes is very important. It paves the way to understanding what needs to be done to achieve the required result. Be it the support of different pedagogical methods, development of the national curricula, refinement of assessments, professional development of teachers or the training of new teachers, everything must be in line with the vision of new and improved generations of students.
Alongside articulation, communication to every educator is essential. There often exists a disconnect between the conceptualisation of policies and their implementation at the school and classroom level (An issue also highlighted by Sahlberg). The philosophy and logic behind the
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“new” education system must be clear to the educators for the improved educational programmes and activities to be coherent with the national goals.
Singapore splits its entire picture of education into three portions. Policy, Practice and Preparation (PPP). Each with a stakeholder. Ministry of Education (MOE) is responsible for policy development, schools transform policy into practice and the National Institute of Education (NIE) educates and trains all the teachers for the system. All must be aligned coherently to achieve the desired level of national education.
During formulation and development of policies, the ministry does so with a committee that involves the views and opinions of industry leaders, university academics, school leaders, principals, parents, teachers, and even students. The Policies involve curriculum content, pedagogical practices and assessment models. Not only does this create an environment where the collective wisdom is efficiently put into practice but it also creates a platform where the involved parties can communicate and clearly understand each other’s visions, potential, challenges and limitations that end up shaping the policies to be implemented. The MOE also does not go short of recognizing that when policies are put into action, it is the teachers who have the crucial role of implementing them. Therefore the ministry facilitates human resource policies that provide professional development programmes for the teaching profession. One of them being that all teachers are heavily or fully subsidised to participate to 100 hours per year of professional development. Furthermore, policies are drawn up to facilitate the allocation of resources to the institutions in need. A holist education approach in achieving defined education outcomes is experienced.
Schools receive such policies and the teachers translate them into practices to achieve the desired outcome of education. It is crucial that school leaders work with their teachers to identify the professional development needed to foster the professional competence to best deliver the national curricula. School policies must be flexible as well to adapt to change in educational policies. Examples include classroom configuration or achieving a learning environment outside of the classroom to aid students in learning in a way best suited to their learning profile. Freedom of creativity and reduced bureaucracy is necessary for such an effective learning environment.
In order to for any of this to happen, teachers must be prepared to teach in the educational system. Teacher educators must equip and train young teachers with the theoretical knowledge of education as well as the approaches, practices and pedagogical methods that will result in desired outcomes of education. Teacher education aligns with the policies of the Ministry through close partnership with the MOE and schools. Furthermore, weekly meetings are set up with the director of NUI alongside senior management members, chaired by the Minister of Education, where the
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The intermingling tripartite relationship and partnership is essential to conceptualising, delivering, communicating and implementing educational reform policy. With the web of communication between these three entities, efficient use of resources and time occurs. Within four decades, Singapore has not failed to be in the top 5 performing countries in the world educationally.
7.6 What the KSA Can Do
An image of the groundwork required for a successful education system can start to form by understanding Finland’s philosophy behind education and Singapore’s integrated educated system. It heavily depends on the continuous self-assessment and self-evaluation of the existing system and continuously bridging gaps that show up in the system. Trial and error is the nature of improving a complex, unpredictable system that involves elements of cognitive learning and human character. It would be farfetched to create educational policies in this report. A lack of hands-on experience with the education system, teacher, students and culture would yield irrelevant policies. It would require a research team living in KSA. Every country must develop its own unique set of solutions and policymakers should be cautious of imitating policies from other countries. However, a framework, iterative in nature, can lead to the fruition of educational reform policies.
A series of action points highlights what KSA’s education system needs:
• Firstly, since the KSA is a non-core country in terms of innovation, it is recommended that the new education system emphasizes learning the innovations created by core countries. Understanding them and learning from them to shorten the gap between KSA and global technological advancement.
• KSA must acquire Education knowledge from core developed countries. Annually advertise and recruit the most cognitively and emotionally intelligent students and professionals with strict barriers of entry to be educated on Education, they are to be called Teaching Generations (TGs). Appendix d shows a collection of Master’s degrees to demonstrate the content of various Education degrees required for implementation. • Teachers must be receiving deep respect from the government for their service and academic accomplishments. Teachers can earn 80-85% the amount of those who do not go into the teaching profession and can be discouraging for potential teachers [207]. A salary must be provided to them for comfortable living. • Initiate an Education Research Centre in Universities to collect data, conduct experiments, undergo research and publish results.
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• The Ministry of Education must revise its policies and methods of communication with the Industry, Universities and Schools to achieve a more transparent and coherent channels of communication. • Upon annual completion of the TGs education, they are to be sent into the school system to observe schools and communicate findings with University Research teams and the MOE. • Changes to be made to Ministry and School policies to allow for lenient and easy change wherever needed. • Design and introduce Education Majors and Minors curriculums in Universities for students to take on in their degree. • Design and introduce Education as a Masters course for Saudi Education undergraduates to partake and hence establishing an institute that produces qualified Saudi teachers • An annual Teaching Conference is to be established to communicate research findings and suggested improvements to teachers across KSA. • Professional developments programmes are set up to improve teachers who are already in the education system based on KSA’s education research. • With all aspects of the Primary, Secondary and Tertiary education scrutinised, MOE may proceed with policy formulation with inputs from the Industries, Universities, Schools, Teachers, Parents and Students. • Constant iteration of Primary, Secondary and Tertiary curriculums and pedagogical methods to align with student’s and industry’s’ needs • Create multiple pathways for differently abled students to partake the journey of education where they can be nurtured and given what they need to learn like Singapore. • Critical engagement, communication and education of parents of the changes in the educational system
To help better represent what has been described above, Table (7-1) shows a suggested 12-year plan for improving the educational system.
Academic Year Actions Recruit and Send Teaching Generation 1 (TG.1) Establish Education as Minor in Universities [curriculum design] 2019/20 Initiate Education Research Centre in Universities Ministry of Education begin to inform and change school policy
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1st Year of Educ. as a Minor in Universities 2020/21 Recruit and Send (TG.2) Contact with University Research Team and Ministry of Education
(TG.1) returns and are sent to schools 2021/22 Recruit and Send (TG.3) Cntd. Contact with University Research Team and Ministry of Education
(TG.2) returns and are sent to schools Recruit and Send (TG.4) 2022/23 Establishing a 2-year Masters programme for education [curriculum design] 1st Annual Teaching Conference Cntd. Contact with University Research Team and Ministry of Education
(TG.3) returns and are sent to schools Recruit and Send (TG.5) First Generation of University Students with a Degree involving education 2023/24 1st Year of Masters course 2nd Annual Teaching Conference Cntd. Contact with University Research Team and Ministry of Education
(TG.4) returns and are sent to schools Recruit and Send (TG.6) 2024/25 2nd Year of Masters course 3rd Annual Teaching Conference Cntd. Contact with University Research Team and Ministry of Education
(TG.5) returns and are sent to schools Recruit and Send (TG.7) 2026/27 First generation of KSA graduate teachers 4th Annual Teaching Conference Cntd. Contact with University Research Team and Ministry of Education
(TG.6) returns and are sent to schools 2027/28 Recruit and Send (TG.8)
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5th Annual Teaching Conference
(TG.7) returns and are sent to schools Recruit and Send (TG.9) 2028/29 6th Annual Teaching Conference Cntd. Contact with University Research Team and Ministry of Education
(TG.8) returns and are sent to schools Recruit and Send (TG.10) 2029/30 7th Annual Teaching Conference Cntd. Contact with University Research Team and Ministry of Education
(TG.9) returns and are sent to schools 2030/31 8th Annual Teaching Conference Cntd. Contact with University Research Team and Ministry of Education
(TG.10) returns and are sent to schools 2031/32 9th Annual Teaching Conference Cntd. Contact with University Research Team and Ministry of Education
Table 7-1: Year-by-year plan for improving education.
7.7 Religious Policies
In Islam, there exists the Quran and the Hadith (recorded sayings of the Prophet PBUH). They contain the philosophy, creed and essence of Islam. In addition, there exists within them laws that conduct social, economic and personal behaviours. However, not all possible scenarios of human interaction are present within them and that is where Islamic Jurisprudence becomes a field of study. If an issue or argument were to arise with no clear Islamic action, a solution would be derived from the Quran and Hadith [208]. This derivation follows a set of principles in tackling these situations and scholars who have studied for decades draw wisdom from the Quran and Hadith alongside their own understanding and awareness of the situation to act accordingly as the judge. There exists four schools of thought named after the influential heavy-weight scholars whose wisdom and knowledge were recognised by the Islamic nation of their time and continue to be till today. They are, in chronological order, Imam Abu Hanifah, Imam Malik, Imam AlShafii and Imam Ahmad ( Appendix e shows them in red and who their teachers were and how they were connected to the Prophet (PBUH)). Different regions of the world follow different schools of thought. KSA follows
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Imam Ahmad’s school of thought. It is important to note that it does not mean that their creed is different; the distinction lies within following a set of principles when tackling an unusual situation. They do not offer opinions on matters of faith since these matters are solidly defined by the Quran and Hadith. When it comes to Islamic law derivation, it is important to remind KSA of a specific event in history. Imam Ahmad’s direct and indirect teachers were the other three pioneers of the other schools of thought. Imam AlShafii changed 60 of 80 Islamic rulings he authorized in Iraq when he moved to Egypt around 817 CE. The rulings in Iraq were tailored to Iraq’s philosophical culture, people and unique situations. They were not applicable in Egypt. This form of blind, unthinking appliance of rules was never heard of by the four scholars or the Prophet (PBUH) himself. The difference between Iraq and Egypt in 817 CE would be significantly less than the difference between Saudi Arabia and America now for example. So it up to the reading to think how many rulings would the Imam AlShafii change if he were to be present today. Context is crucial and it must be considered. [208]
In order for KSA to undergo full development as a country, the strict Wahhabi interpretation of Islamic law that governs the country and constricts growth need to be revised and adjusted to today’s context. It is recommended that a board of today’s scholars meet and study the present global context and authorize new rulings within the guidelines of Islam. This will also preserve KSA’s image of being the centre of Islamic devotion. The authorisation of the rulings should be publicly transparent for the Muslim world to see and understand.
This consequently entails the guardianship law that constricts women heavily. It is very well known throughout the Muslim world that the Prophet’s (PBUH) first wife was a very well-known businesswoman [209] [210]. Consequently, KSA’s Islamic law is riddled with contradiction regarding women’s interaction in society.
7.8 Health Education
Prevention of non-communicable diseases described in KSA’s key issues disease is simple. Physical education during the years of Primary, Secondary and Tertiary education alongside available sports facilities is all that is needed for a healthy, active society. Preventative methods [211] such as:
• Tobacco control through increased tobacco tax • Salt reduction by reformulation of processed food and salt substitutes • Dietary education at an early age for students and their parents • Introduce labels on the front of food product packages referring to the content of calories and negative nutrients to increase healthful awareness. The format of the label should
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include the percentage of guideline daily amount, colour coding schemes similar to that of the UK’s traffic light system and text describing low, medium or high content. [212] • It is recommended for young people (5-18 years old) to participate in physical activity of at least moderate intensity for 1 hour daily to optimize current and future health. [213]
7.9 Conclusion
Solutions to societal problems can paradoxically be simple and extremely difficult. It is important to not lose sight of whether the method of implementation and what is being implemented is successful or not. And in the case it is not, the environment needs further analyses and the fear of trial and error should not exist. Transparency and communication are key. The more the public understands what it is the government is doing and why, the more the public will align. Foreign educational policies are tailored to their respective countries and copying them will not yield expected results of improvement. Saudi’s know Saudi’s best. With knowledge of their own people and the global economy, a solution doubtlessly exists.
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8 Risk Analysis (FA) This section focuses on the potential actions that could pose a threat to the object of diversifying the economy of Saudi Arabia. Due to the large number of solutions suggested that are to be implemented in a relatively short time, it is important to predict any problems that could affect the success of these industries. A PESTLE (Political, Economic, Social, Technological, Legal and Environmental) analysis of the various problems is completed below.
8.1 Political
The most evident political threat is the global perception of Saudi Arabia due to their own actions. The recent death of the journalist Jamal Khashoggi has brought into question the political morality of Saudi Arabia, and as a result many foreign investors and personnel have cut ties and affiliations. Moreover the actions of Saudi in the Yemeni Civil war with regards to an increase in civilian deaths and destruction in property has led to this situation being declared a humanitarian crisis. Finally the internal political system and their own actions, such as imprisonment of over 200 Saudi princes and businesses men, questions the legitimacy of the ruling body [214]. These actions create a negative reaction towards Saudi Arabia and limit their economic opportunities.
8.2 Economical
Saudi Arabia currently and until the suggested industries become profitable are heavily dependent on oil, ergo any fluctuation in share price, demand or supply will massively damage the economy. Whilst Saudi Arabia have little control over oil price, not over producing barrels can ensure export costs do not decrease substantially. If certain industries do not perform as expected and the development plans exceeds the predicted timeline, the oil revenue at that point in time might not be able to economically provide for developing the other industries. However this can be considered a small risk as a majority of the solutions are focused on generating maximum amount of profit, thus only a few need to be entirely successful.
8.3 Social
The primary social risk is whether the Saudi population will accept some of the solutions that are focused on bringing foreign and western influence. Saudi Arabia is an Islamic country and is governed as such thus policies such as unbanning alcohol in certain areas or the women’s dress code might not be accepted by the population. As many of the solution require foreign investments, it is important to make sure any social changes are implemented with caution.
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8.4 Technological
The biggest threat to Oil is Electric cars becoming commercially dominant. 60% of oil is used for transportation, thus the market for Oil could virtually disappear due to electric cars. The estimated 300 million electric vehicles on the road by 2040 could reduce demand by 3.3 million bpd as estimated by the International Energy Agency (IEA) [215]. The reduction in demand could be amplified if there are technological improvements in the efficiency of the automobiles. Moreover the emergence of US shale production and Liquefied Natural Gas as an alternative source could further harm demand. However, the advancements described above are counteracted by the growing petrochemical, trucking and aviation industries which rely on oil, thus is the biggest growing markets for Oil [216].
8.5 Legal
Any legal repercussions Saudi Arabia might have will be from their own actions. The Gulf Cooperation Council (GCC) and other international bodies could impose sanctions and trade bans. Members of the government could be indicted for allegedly violating the international humanitarian law, however Saudi Arabia have denied these claims. Even these allegations are damaging to the economy, as it deters the much needed investments.
8.6 Environmental
The negative environmental harm caused by extracting, cracking and emissions force international governing bodies to institute laws. These laws could impact the profit margins of oil, as more capital is required to make sure the guidelines are met. One such law is the Arctic heavy oil ban, which bans any vessels carrying Heavy Fuel Oil (HFO). HFO produce higher levels of pollutants, are more toxic and harder to clean up. These attributes of HFO causes irreparable damage to the polar environment. As more environments become damaged due to oil, the more the regulations will reduce oil profitability.
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9 Cost Analysis (AO)
In this section, the viability of the proposed project is assessed by analysing the cost of the project. The operating and capital cost for the project were combined to calculate the value of the project and determine project sensitivity to uncertainties.
9.1 Cost of Education and Return on Investment (AS)
KSA has been spending 53.3 billion and has a budget of 51.1 billion USD on education in 2017 and 2018 respectively [217] [218]. KSA is determined to tackle the problems associated with education. Education is KSA’s second largest expenditure after the military. Calculating the social rates of return on such an expenditure is very difficult. Such returns are called externalities or spillover because they spill over to other member of society and the society as a whole. Some studies estimate externalities in the form of individual’s human capital enhancing the productivity of other factors of production through channels that are not internalised by the individual. Some studies show a negative return while others show a positive and overall the results are inconclusive [219].
9.2 Net Present Value (NPV) (AO)
Due to the reasons stated above, only the petrochemical and tourism projects where combined and evaluated. The value of the combined projects were calculated over two-decades, this twenty-year time period was evaluated to both encompass the time period before and after peak oil while still ensuring that the projections were relatively realistic.
The net present values (NPV) for individual projects was calculated because the projects are in different industries and therefore have different discount rate and growth rate values. The range for growth rates for oil, gas and chemical companies is 2-4%, hence a value of 3% growth rate was taken to calculate the NPV [220]. The growth rate for the tourism industry is 4%-6% and a value of 5% was used [221]. Typical discount rate values of 10% [222] and 9% [223]were taken for the petrochemical project and tourism projects respectively.
The combined net present value of the project is estimated at approximately $120 billion.
9.3 Payback Period (AO)
Upon completion of the initial project, the combined payback time for this petrochemical project will be around four years or more specifically thirty-one months. Individually, the payback time for Ras Tanura has the shortest time period of eight months and the larger project in Yanbu has the longest payback time of forty-eight months.
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For the tourism project, the combined payback time is eleven and half years, this is due mostly the large time period for the expansion of Islamic tourism facilities. The payback period occurs within two years upon completion of facility construction. A smaller investment required in the non- Islamic tourism and there will be a two-year payback period for this non-Islamic tourism. The payback times for all the projects are displayed below.
Project Payback Period upon completion of construction (months) Non-Islamic Tourism 15 Islamic Tourism 23 Petrochemicals 31 Table 9-1: Payback periods for projects
9.4 Sensitivity Analysis (AO)
A sensitivity analysis was carried on the petrochemical industry to assess the risk outlined in the previous section. Historically drops in oil prices have caused issues with KSA economic development. The profit margin for petrochemical products is dependent on oil price, therefore the analysis focuses on potential losses or gains within profit margins to assess the sensitivity of the NPV on the price of oil. As shown in the following figure, even if the profit margin decreases by 90% or increases by 100%, the NPV only changed by $20 billion. This illustrates the project is not sensitive to low-profit margins.
Profit Margin Sensitivity Analysis $80 $75 $70 $65 $60 $55 $50 $45 NPV @10% $40 $35 $30 $25 $20 $15 $10 $5 $- 0% 50% 100% 150% 200% 250% CHANGE IN PROFITS MARGINS FOR PETROCHEMICALS
Figure 9-1: Project sensitivity to change in profit margins
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A sensitivity analysis was undertaken to assess the value of the project if the growth rate in the industry is negative or higher than expected. As it stands, the growth rate of the industry is 3% annually. The results, as seen on the graph below, indicate that the project will maintain profitability if the growth rate is - 3% or higher.
Petrochemical Industry Growth Rate Sensitivity Analysis $50
NPV @10% $- -6% -4% -2% 0% 2% 4% 6%
$(50) GROWTH RATES FOR PETROCHEMICALS
Figure 9-2 Project sensitivity to change in change in growth rates
The growth rate of the tourism industry is 5% and the sensitivity of the project to this growth rate was analysed. The following graph indicates that the continued growth in this industry will ensure profit and even if the growth rate is negative, the project will remain profitable if the growth rate is above -7%.
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Tourism Growth Rate Sensitivity Analysis $150
$100
NPV @9% $50
$- -15% -10% -5% 0% 5% 10% 15%
$(50)
GROWTH RATES FOR TOURISM
Figure 9-3 Project sensitivity to change in tourism growth rates
Further sensitivity studies were not carried out for these projects because they are dependent on many factors. This type of study would not be appropriate to analyse these other factors effectively. Hence, the PESTLE (political, economic, social, technological, legal, environmental) risk analysis in the previous section is sufficient.
All the sensitivity analysis graphs illustrate that the projects proposed will maintain profitability even if there is a significant oil price change or industry growth rates decline. This is particularly advantageous because the main purpose of diversifying the economy is to reduce the nation's vulnerability to oil price.
9.5 Investment Sources (AO)
Investment will be obtained from various sources and is dependent on the industry of the proposed project. State-owned SABIC and Saudi Aramco are the primary investors of the petrochemical projects because they own the refineries that will be expanded. However, due to the long history of joint venture projects, there is potential for collaborations with other major petrochemicals companies such as SINOPEC, Total and Exxon Mobil. The tourism and hospitality industry will require large investments from the government, particularly to expand the mosque and infrastructure costs in Islamic Tourism. There are several government funds for this including the sovereign wealth fund. Non-Islamic tourism will rely on foreign investment from venture capitalists and private hospitality companies.
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9.6 Evaluation of Project Viability (AO)
Following the analysis of both NPV and the sensitivity, the results indicate the projects proposed are economically viable. By the end of the twenty-year period analysed the revenue from these industries will exceed $100 billion. Twenty years ago, the revenue of the KSA was $40 billion and this has increased by over $90 billion in the last two decades. These two industries will provide the same level of revenue increase within the time period, this highlights the viability of the proposed projects.
The aim of the study was to design industries that will diversify the economy and reduce dependency on oil and the proposed projects meet the requirements of this aim. The projects are not risk-free, but the profits outweigh the risks. The designs proposed will lessen the KSA’s current dependence on oil revenue and maximise the use of the natural resources in the country.
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10 Sustainability Analysis (UA)
An input-output analysis is an economic model constructed to describe how different economic sectors affect each other. Input-output analyses use compilations of data from governments around the globe which included the production and consumption for the year of which the survey is conducted. This data can then be linked to the environmental and social impact that these sectors or industries may have. The input-output tables can be produced by indicating flows between sales and purchases of outputs in industry, or by indicating the sales and purchases of outputs with regard to products. This analysis was conducted on the former basis due to the wider range of available information therein.
The data was extracted via the OECD Input-Output Database which reflects in part the collection mechanisms for other key data sources such as the research and development expenditure data, employment statistics, pollution data and energy consumption.
In the input-output table produced, the inputs sector has been divided into two sections. Firstly, intermediate inputs. Intermediary inputs are those which are used by one part of the production process and purchased by another. The purchaser is then labelled the intermediary consumer. The sectors which entail production are labelled the intermediate sectors. The section of the table that describes the transactions between intermediate sectors and intermediary consumers is labelled the transactions matrix.
The second section of the table signifies the factors of production. This is represented by the row - which is always positioned under the transaction matrix – labelled ‘value added’. The factors of production consider the inputs to the production process that are not considered by the intermediary sectors. It is equal to the sum of revenue that is provided to labour, the government and capital during process production. The value-added row also includes the value of imports.
The last row is output. This is calculated by the following formula [224]:
푂푢푡푝푢푡 = 푉푎푙푢 + 푇푡푙_푖푛푡_푓푛푙
Where:
Valu – Value added at basic prices
Ttl_int_fnl – Total intermediate consumption at purchasers’ price.
The columns that come after the transaction matrix relate to the final demand vectors. This represents consumers who are external to the production cycle of the economy. In ‘The System of National Accounts’ it divides final demand into household consumption, final consumption of non-
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The imports content of export is calculated by the following formula [224]::
푢 × 퐴푚(퐼 − 퐴푑)−1퐸푋 퐼푀푃푂 = ∑퐸푋
Where:
Am & Ad - input-output coefficient matrices for imported and domestic transactions
I – Identity matrix u – Denotes a 1 x n vector
EX- Export vector
The input-output coefficients are obtained empirically from external input-output tables.
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Agriculture Extraction of Mining and Coke and Chemicals Other non- Basic metals Machinery and Motor vehicles, Other Utilities Construction Wholesale and Transportation Banking and Tourism Real estate Education Health and HFCE: Final NPISH: Final GGFC: Final GFCF: Gross INVNT: CONS_ABR: CONS_NONRES EXPO: Exports IMPO: Imports crude oil quarrying of refined and metallic equipment, trailers and manufacturing retail trade Financial activities social work consumption consumption consumption Fixed Capital Changes in Direct : Direct (cross border) (cross border) metals petrochemicals pharmaceutical mineral nec semi-trailers ; repair and activities expenditure of expenditure of expenditure of Formation inventories purchases purchases by To: (sector in column) products products installation of households non-profit general abroad by non-residents machinery and institutions government residents (exports) equipment serving (imports) households
From: (sector in row) Agriculture 310.4 5.0 0.0 0.4 109.8 0.9 3.8 0.2 0.1 4.3 0.3 55.2 84.9 1.5 0.1 10.0 3.2 48.4 48.0 19,625.9 0.0 18.2 4.7 4.6 65.5 65.6 376.7 -6,219.9 Extraction of crude oil 0.6 2,733.3 0.2 17,604.7 3,451.1 0.9 326.0 0.2 0.1 17.6 5,632.3 9.7 3.7 17.6 1.4 0.1 69.5 1.8 674.0 2,984.0 21.0 340.7 19.4 -335.0 3.3 1.8 139,561.4 -135.3 Mining and quarrying of metals 0.4 7.3 27.0 0.1 293.9 596.6 876.5 2.7 0.5 23.5 6.2 1,165.8 4.7 3.4 0.0 0.1 7.6 0.2 1.7 4.5 0.0 5.6 3.8 -2.7 0.6 0.0 220.4 -1,105.7 Coke and refined petrochemicals 367.1 452.1 41.0 976.4 2,621.8 708.5 226.8 45.1 0.5 142.4 785.9 4,280.6 1,121.9 4,270.9 36.7 0.4 118.0 776.3 816.5 2,876.1 0.0 39.3 13.9 110.7 78.8 93.0 12,949.8 -1,441.1 Chemicals and pharmaceutical products 485.9 222.1 25.8 364.8 9,379.0 692.5 186.6 76.8 41.0 285.8 171.5 2,252.5 359.5 97.7 10.8 89.4 95.3 461.2 1,846.8 6,292.6 0.0 5,049.3 482.5 267.9 60.9 55.9 24,444.0 -12,727.4 Other non-metallic mineral products 4.6 8.2 2.5 1.4 37.9 438.7 19.5 7.2 4.3 14.7 4.0 3,493.4 26.0 6.1 0.1 3.2 16.6 30.0 36.2 2,528.4 0.0 11.5 3,822.7 2,006.4 1.3 0.0 444.9 -3,020.0 Basic metals 5.5 122.8 13.3 8.2 245.5 240.4 1,863.4 992.9 203.5 1,008.8 119.3 9,877.3 181.9 22.0 1.8 2.8 9.9 21.7 63.6 117.0 0.0 10.0 282.9 111.1 2.3 0.0 2,709.1 -15,042.2 Machinery and equipment n.e.c. 4.0 20.7 0.9 1.9 13.7 11.9 11.8 35.7 5.9 19.9 8.1 203.6 34.5 8.7 0.5 18.3 2.5 11.0 15.0 836.4 0.0 34.1 16,942.8 4,381.7 3.7 0.0 258.3 -19,185.6 Motor vehicles, trailers and semi- trailers 0.3 2.5 0.1 0.2 5.5 4.1 5.5 2.6 53.4 8.2 1.8 27.0 93.3 16.9 0.3 4.5 1.2 1.7 7.4 5,030.4 0.0 16.0 14,532.8 4,717.4 21.3 1.9 51.0 -23,332.2 Other manufacturing; repair and installation of machinery and equipment 13.2 32.7 1.6 5.8 32.6 27.6 25.4 17.4 3.2 93.1 33.1 291.6 50.2 82.1 4.8 2.1 43.7 77.1 295.7 490.6 0.0 294.6 6,372.9 1,835.2 97.4 81.8 90.1 -3,982.8 Utilites 57.9 205.1 8.3 57.6 462.7 318.9 125.8 30.5 10.4 55.1 1,005.8 417.0 430.6 169.5 29.8 560.0 190.5 1,109.3 900.1 5,045.7 0.0 6,653.3 71.0 39.2 3.5 0.0 0.0 -254.1 Construction 14.5 38.9 2.3 6.9 36.7 34.3 24.0 7.0 1.7 43.4 104.0 5,422.0 164.0 104.0 21.4 21.6 444.3 345.2 332.8 3,312.2 0.0 22.0 85,201.4 768.0 4.9 56.3 59.1 -194.4 Wholesale and retail trade 444.3 354.8 41.5 289.7 3,292.4 770.0 753.3 338.3 105.8 689.0 429.0 6,779.4 7,883.5 1,652.9 58.9 3,245.0 203.9 860.7 2,471.3 30,894.4 0.9 3,229.9 17,894.6 6,017.2 343.3 168.9 8,336.8 -25,140.3 Transportation 106.0 208.3 14.7 138.7 1,061.6 374.1 230.6 85.7 23.0 181.9 167.6 2,375.3 1,442.2 3,390.2 196.1 1,032.0 77.3 980.4 903.9 11,893.1 0.3 21,713.1 3,383.5 497.6 839.6 591.5 4,734.4 -33,198.4 Banking and Financial activities 191.6 434.6 12.6 101.4 508.8 316.6 161.0 98.6 36.9 210.4 414.4 3,801.2 2,144.9 836.7 1,611.7 177.0 2,835.4 1,529.8 1,696.6 3,706.5 0.0 20.8 10.2 8.7 134.9 133.4 2,620.9 -3,975.6 Toursim 0.2 2.0 0.0 0.3 1.7 0.9 0.2 0.3 0.1 0.8 1.3 7.1 7.1 4.2 2.4 12,334.0 331.4 1.2 7.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Real estate activities 9.7 39.4 1.0 7.7 41.1 34.3 4.5 11.4 6.6 44.0 46.9 694.0 1,393.0 209.4 86.6 677.0 242.0 892.6 848.7 28,445.8 0.0 8,722.2 6,421.5 0.7 359.5 495.4 1.7 -869.6 Education 0.2 2.0 0.0 0.3 1.7 0.9 0.2 0.3 0.1 0.8 1.3 7.1 7.1 4.2 2.4 0.1 0.8 64.0 17.1 4,985.4 0.0 45,564.0 13.2 2.9 681.5 173.0 0.0 -754.7 Health and social work 26.4 11.5 0.6 9.9 142.2 54.9 13.3 18.5 7.0 67.4 85.3 476.5 470.3 470.0 246.9 11.5 44.3 138.4 3,091.8 28,680.6 3,899.4 9.3 1,093.2 3.5 110.7 117.0 0.0 -151.5 TXS_IMP_FNL: Taxes less subsidies on intermediate and final products (paid in foreign countries) 6.4 11.1 0.6 13.3 68.1 14.7 3.9 3.2 1.6 8.1 11.1 93.1 42.4 104.6 2.9 0.1 3.1 27.1 54.6 1,211.0 0.0 301.6 569.5 176.0 319.1 0.0 0.0 -3,248.8 TXS_INT_FNL: Taxes less subsidies on intermediate and final products (paid in domestic agencies, includes duty on imported products) 3.9 15.2 0.7 36.5 50.7 12.8 12.9 5.7 2.4 9.7 21.7 138.9 23.7 41.2 1.5 0.2 2.9 16.5 51.3 5,501.8 0.0 36.7 686.0 414.6 0.0 912.6 192.3 0.0 TTL_INT_FNL: Total intermediate consumption at purchasers’ prices 2,531.5 5,801.6 232.4 19,776.9 23,524.1 5,462.2 5,070.4 2,137.9 661.9 4,018.7 9,760.5 55,524.8 21,942.0 13,989.6 3,395.9 31,408.0 5,218.0 12,377.0 21,192.4 250,970.1 3,955.3 197,621.9 195,518.9 31,645.0 6,941.6 7,356.4 204,907.7 -246,396.9 VALU: Value added at basic prices 16,444.5 168,337.8 2,034.2 16,100.7 22,113.4 4,652.4 3,532.5 1,671.9 674.4 2,713.3 9,228.7 41,701.6 61,369.2 14,355.9 22,655.0 98,663.0 45,112.7 38,445.6 21,138.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 OUTPUT: Output at basic prices 18,976.0 174,139.4 2,266.7 35,877.5 45,637.6 10,114.6 8,602.9 3,809.8 1,336.4 6,732.0 18,989.3 97,226.4 83,311.1 28,345.5 26,050.9 125,611.0 50,330.7 50,822.6 42,330.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
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In terms of environmental sustainability, this can be measured by evaluating the carbon dioxide emissions. In this analysis, carbon emissions will be evaluated in terms of association with final demand.
Emissions related to consumption can be obtained using the IEA database and the OECD ICIO system which allows us to obtain the intensity of emissions from a specific country. The intensity obtained can then be used along with the Leontief inverse of the ICIO system to get required multipliers necessary to obtain final demand.
The equation used to calculate the final demand indicator is [225]:
퐹퐷(퐶푂2) = 푐표푙∑퐶퐶 + 퐹푁퐿퐶
Where:
FNLC - represents a 1 x N vector of direct emissions related to final consumption.
푐표푙∑퐶퐶 - a 1 x n vector of the total amount of emissions in the consumption of final products. The CC represents the rows in the results matrix and can be calculated by the following equation [225]:
퐶퐶 = 푑푖푎푔(퐸퐹)(1 − 퐴)−1푌
Where:
diag(EF) - is the diagonalized matrix from of vector EF from industry emissions calculate per unit of production (i.e factors of emission).
A – the flobal intermediate coefficients matrix
(1-A)-1 – Leontief inverse
Y – Final demand matrix
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Other indicators are also used to represent environmental sustainability, these have all been summarised below:
Table 10-1: Sustainability Indicators
It can be seen from the definitions that these other indicators in two categories: consumption based, and production based. The consumption-based emission indicators are all derived from the above- described calculation and therefore no additional equations or methods of calculation are provided. The production-based indicators are obtained from allocated IEA CO2 emissions. The results are presented in the table below:
Consumption-Based Emissions Production-based emissions Net-exports
FD_CO2 FD_PCCO2 FD_GDPPPPCO2 PROD_CO2 PROD_PCCO2 PROD_GDPPPPCO2 NET-CO2 (million (t/capita) (PPP$/ kg CO2) (million t) (t/capita) (PPP$/ kg CO2) (million t) t)
386.7 13.9 3.5 428.6 15.4 3.2 41.9
Limitations
There are a number of limitations associated with an input-output analysis. There are inaccuracies as related to assumptions formed with the use of the Leontief production function such as the fixed input ratios and homogeneous outputs. Moreover, limitations lie in the accuracy of data provided by governments and databases as much data is acquired by way of surveys.
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11 Conclusion (AO)
Natural resource utilisation has developed the KSA economy and changed the life for their citizens. The oil industry has increased employment and living standards of the nation. However, the oil dependency of the nation is not sustainable. Along with the introduction of unfavourable environmental policy, oil reserves are depleting and the cost of production is increasing as a result. Hence, diversification of the economy is required for the KSA to remain a global superpower. Subsequent to an evaluation of all potential industries for diversification, it was established that the petrochemical sector and tourism sectors were the most strategic industries to replace the current oil revenue. It has been proposed that three key refineries in Jubail, Ras Tanura and Yanbu undergo expansion to increase petrochemical production. Furthermore, the holy mosques in mecca and medina should be expanded to increase the tourist capacity. Opportunities in the non-Islamic tourism sector have also been identified and proposals to tackle the lack of a robust educational system have been outlined. Overall, with the proposed improvements will reduce the oil dependency of the economy and improve the education of KSA citizens.
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12 Gantt chart
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Appendix a) Policy, Technology and Energy Demand scenarios
Figure 0-1: Structure of scenario assumption (www.carbontracker.org)
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b) Resulting change in temperature based on the scenario chosen
Figure 0-2 Annual CO2 emissions in each scenario featured in this report and implied average temperature increases assuming 66% probability
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Saudi Arabia After Oil Group 1 d) Different degrees required for a holistic approach to acquiring essential knowledge on Education for implementation
Living Total University Length Cost / University cost/Year Cost/ TOTAL Requirements Description Programmes (Years) Year (USD) Year The training of ICE doctoral students is geared toward achieving substantial research competence in areas where a social science The doctoral specialization in discipline and the policy ICE is designed to relate a problems of development firm grounding in the theories International education intersect. Doctoral and methods of a social or Comparative students are therefore behavioural science to the Stanford 1 67604 16000 83604 83604 Education expected to have, or to analysis of education's role in (ICE) acquire while at Stanford, the processes of economic substantial graduate training growth, political development, in a social science discipline and social and cultural relevant to their fields of change. interest at a level equivalent to the master's degree or a PhD minor in the appropriate university department.
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The general strength of the program is generated by its didactics and methodology relying upon a balanced combination of theory and practice to be used in a future a Bachelor's (or Master's) work as a teacher or degree in the area of educator. The program Early Language education or foreign facilitates gaining a Eastern Education languages, or equivalent multicultural view on 2 9106 1024 10130 20260 Finland for Intercultural AND studies or work educational issues and Communication experience in the field early sharing personal/collective language education AND experience in intercultural sufficient English proficiency settings. The program prepares its students to effectively tackle challenges and possibilities arising from the globalization, as well as cultural and linguistic diversity Master's Degree Focuses on the management Programme in of higher education, research and innovation. It provides Tampere Research and 2 6830 1024 7854 15708 students with competencies University Innovation in to act as change agents able Higher Education to take the leading role in (MARIHE) institutional development. Master’s Degree Programme in Education Entrepreneurship bridges the Master's Degree Oulu fields of education, in Education 2 11382 1024 12406 24812 University entrepreneurship, design and Entrepreneurship innovation. It focuses on a hands-on approach to support new innovations in
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education such as building education technology start- ups or social impact initiatives, and leading innovation in educational organizations and companies. The central aim of the programme is to develop quality in education and to equip students to exercise socially responsible leadership in complex and diverse societies. The programme emphasises North-South-East-West dialogue and includes studies in international education, interculturalism, globalisation Master in and their effects on various University Education and 2 14800 1024 15824 31648 sectors of education. The of Oulu Globalisation programme focuses on ethics, policy, planning, curriculum, evaluation and comparative research in education. It aims to develop the appropriate competencies and knowledge needed in planning, evaluation, research and development tasks in education and related fields in the midst of societal changes, both on the local and global levels.
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It offers a thematic walkthrough through diverse A Bachelor's (or Master's) disciplines related to degree in educational Master in education and pedagogy. sciences, educational Learning, Students can flexibly choose psychology, educational Eastern Teaching and their thematic modules 2 9106 1024 10130 20260 sociology, or equivalent AND Finland Counselling in according to their personal at least 20 ECTS of research interests and needs. Intercultural methodology courses during Students may focus on Adult Context their previous studies AND Education and Counselling, sufficient English proficiency Primary Education, or Science Education. A broad-based education programme that introduces Successful completion of students to educational one year of a Bachelor insights from traditional Degree at a Saudi Arabian disciplines including university recognised by history, sociology, BA Education UCL 3 23281 19175 42456 127368 UCL, with an average of philosophy, psychology as Studies 85%, CGPA of 4.5/5 or B+. well as innovative fields For degrees from the Arab such as media, Open University a CGPA communication and of 3.3/4.0 is required technology studies, race and ethnic studies, feminist and cultural studies.
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