ANALYSIS: Impact of the GCC rail network

An integrated rail network will transform the region
Freight, Gcc, Rail network, ANALYSIS

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An integrated rail network will transform the region and potentially unlock intra-GCC trade borders. Sarah Jacotine explores its impact & discovers how the project is progressing

When talking about a region’s economic growth and development, people all too often refer to a new project as a ‘game changer’. Every once in a while, however, a venturecomes along so monumental in its impect that to call it anything else would be an understatment.

One such milestone is a railway network connecting GCC countries to allow for the movement of cargo and people between them for the first time, requiring the construction of the Middle East’s most ambitious rail network to date.

With an integrated rail network forming a strategic infrastructure component in any major city and contributing invaluably to the wider area’s economic development, a rapidly growing region like the GCC was always going to need to take this vital step.

“Following the global economic downturn, governments across the GCC have been very clear on their vision for the future growth and development of the region,” Eng. Faris Saif Al Mazrouei, acting chief executive officer of Etihad Rail, tells Logistics Middle East magazine.

“In the UAE, the delivery of an integrated transport infrastructure is a major part of the UAE vision 2021 and Etihad Rail is a major catalyst for realising the country’s industrial and trade ambitions.”

Al Mazrouei states that Etihad Rail is creating an entirely new means of transport for the UAE; one that will capitalise on the country’s strategic geographical position and revolutionise the UAE’s economic landscape.

“It will promote growth in various business sectors, provide jobs for the local workforce, expand the UAE’s logistics capabilities and ultimately contribute to the national vision of diversifying the economy away from reliance on oil and petrochemicals,” he explains, citing a study carried out by transportation consultants Steer Davies Gleave, supported by Oxford Econimics, about the Economic Rate of Return (ERR).

“The ERR for the project is 15.5 percent – a figure well over the hurdle rate of 10 perpent for transportation projects as set by the World Bank” he says, adding that Etihad Rail is expected to bring an overall increase in the national GDP of $1billion (AED 3.5 billion) by 2030.

Indeed, Al Mazrouei quantified Etihad Rail’s role in the future development and growth of the GCC as “absolutely vital”.

He continues: “Once completed, Etihad Rail will provide services for both freight and passengers, with social benefits including lower cost of transportation, faster journeys than highway alternatives and reduced levels of highway traffic.”

With freight in particular, contrainer and bulf freight currently transported by road could be moved more efficiently and economically by rail. Al Mazourei comments: “The cost savings made by businesses that choose to transfer their freight via rail will enable them to be more commercially successful and therefore contribute futher to economic growth.”

Mohsen Ahmad, vice president of Dubai World Central’s Logistics District, agrees: “From a cargo perspective, the GCC currently has the sea-air route as well as air-land for the movement of goods. The development of the rail network will mean that shipments arriving by air can be transported much faster by rail. This is an extremely strong advantage.

“The strategic geographic location of the GCC makes it ideally placed to witness a strong growth of volume in trade between Europe and Asia. The UAE alone will touch $27 billion in 2015, according to Frost and Sullivan. It is evident, therefore, that a strong infrastructural network to support this growth is a necessity.”

Ahmad stresses the need for GCC cities to be well connected in order to deliver this growth and warns: “If the inter-city transportation network is not intricate enough and built to meet large volumes in movement of goods, rail will not be an option.”

He also states that although freight rail will provide an attractive new option for companies, as per Al Mazourei’s comments, rail is intended to run alongside existing modes of transport in supporting the region’s alread booming logistics industry.

“The GCC rail project is meant to complement the existing mode for the movement of goods between regions,” he asserts.

“It will result in significantly impacting the growth of the logistics industry in the GCC; in no way will it act as a replacement to the road transportation sector.”

He adds: “A synergy between the different modes of transport would ensure the highest levels of connectivity...ulitmately, I have no doubt that this project will usher in a new era of economic growth across the region.”

Nobody can deny the importance of the rail network in terms of promoting intra-GCC trade. The region is home to a multi-billion dollar trade surplus and one of the world’s wealthiest countries, Saudi Arabia.

Edwin Lammers, executive commercial manager of Sohar Port and Freezone, believes that rail is the key to unlocking intra-GCC trade borders and propellling the surging eocnomic fortunes of the GCC nations.

He tells Logistics Middle East: “There is a real danger that a gap would start to emergy in the supply chain [without the advent of rail] as investment continues to snure that the region’s burgeoning port infrastructures outgrow its aging road links. With many inland towns and cities reliant on road transportation, rail offers the benefit of increasing volumes and efficiency.”

Continuing, he adds: “You only have to look at the growth that emerging economies like India and China have seen off the back of rail – with China currently in the process of extending its high-speed rail network to central and western parts of the country. Having cut journey times from Beijing to Shanghai from over 10 hours to just five, China is also constructing lines that will connect the Far East with Europe and a line down through Laos, Thailand, and Malaysia that will terminate in Singapore.”

He remarks that China is the perfect example of how rail can bring growth to an economy, which should excite anyone when they imagine the effect on the GCC. “All things being equal, halving the economic distance within the coastal region in Guangdong, for example, increased average business productivity by 10 percent and that is just one province. When you translate that to the GCC nations, the benefits become very clear,” he explains.

Keeping pace with powerhouses like China is very much at the forefront of the GCC’s leaders’ minds, as is putting measures in place to prevent a repeat of the financial uncertainty that arose at the end of the past decade.

“One thing that the economic crisis should have taught us is the fact that every region in the world has an upper carrying capacity – an economic terminal velocity, if you like. This means that even if growth is restored to pre-crisis levels, at record speed, there will come a time where GGC nations reach their limit again. Rail has the ability to increase this limit dramatically, especially in terms of supply chain and logistics.”

He clarifies that while a failure to build a railway network would not lead to a dire economic position for the region, it is the minimum requirement if the GCC wants to keep pace with the other regions that are increasing their rail cargo capacities.

“On a global scale, it will also ensure that the GCC is capable of remaining competitive should another crisis occur and will be essential in tackling domestic issues like inflation, which are present to some extent, in most of the GCC countries,” Lammers explains.

In addition to being a good force for business, rail links offer benefits for residents’ careers, both in terms of widening the potential opportunities for jobseekers and creating a large number of jobs. Within the UAE, for example, workers will be able to comute to Abu Dhabi from Dubai more quickly and cheaply. And new positions, such as railroad engineers, station masters and train drivers will be on offer on a large scale for the first time.

“Etihad Rail is creating a whole new industry in the UAE, which brings with it a wide range of attractive employment opportunities,” Al Mazrouei reveals, adding that the company’s aim is to build “the strongest team of possible to plan, construct and operate” the rail network.

In terms of the construction work, Ethad Rail has finished the extension of Phase One from Shah to Habshan, laying more than 237km of rail track in the western region. Etihad Rail secured a $1.28bn five-year bank loan last year to build this phase. At the time of going to press, tenders for Stage Two were in the final stages of being awarded. This is the longest of the three stages. at 628km, and is expected to be funded by the UAE federal government.

Phase Three will link up the northern emirates to complete the UAE network, which will cover about 1,200km as well as being part of wider regional long-distance rail transport project with Saudi Arabia, Kuwait, Qatar, Oman and Bahrain.

Discussing the specific challenges presented by building a railway network in a desert environment, Al Mazrouei says Etihad Rail gives special consideration to topographic and climate issues, such as sand dunes, wind-blown sand, high temperatures and humidity.

“For example, there are three types of terrain in the UAE – from flat land to high frequency dunes, loose sand and dune surface crust,” he explains.

“To deal with these different terrains, we have had to use a range of special consolidation techniques...and we have undertaken geomorphologic studies to understand the behaviour of sand dunes and wind deposition of sand.”

The health and safety issues surrounding heat stress and driving in the desert, given the dust, heavy construction traffic and vast distances involved, have also been vital considerations for the company.

In navigating these region-specific complications, Al Mazrouei reports that the insight and expertise of countries dealing with similar challenges such as Saudi Arabia, Mauritania and China have been a valuable source.

“Working closely and learning from regional and international best practice is a guiding principle for Etihad Rail,” he remarks.

Indeed, it seems the GCC is in safe hands, in terms of its future development and upward growth trajectory safeguarded by the advent of rail. The rail network will go further than simply improving connectivity and accessibility within the GCC; the movement of cargo and passengers in the region will be completely different to how it has always been, meaning that the 2018 launch will be pivotal for all GCC companies.

FAST FACT
- $15bn the estimated cost of the gcc rail project is $15.4bn 

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