Gulf countries with plenty of money are turning their attention to mining and commodities in an effort to diversify their portfolios, and their economies.
Saudi Arabia, the world's biggest oil exporter, has identified mining as a key investment area after oil and petrochemicals, and is spending an estimated $38 billion to develop two cities centered around mining.
''The plan is to bring manufacturing into the Gulf Cooperation Council and have everything at your doorstep. The mining industry has a role to play to bring raw materials in this case,'' said Farouk Soussa, chief economist for the Middle East at Citigroup in Dubai.
''The idea is to try and improve the range of benefits and advantages of doing business in the G.C.C. and in Saudi Arabia, in particular, by having as much domestic manufacturing as possible.''
Saudi Arabia is going all out. The kingdom has constructed a 1,400-kilometer, or 870-mile, railroad network to transport bauxite and phosphate from the north to the estimated $31 billion industrial city of Ras Al Khair on the Gulf.
The new city follows the example of Jubail and Yanbu, which were built from scratch on the Gulf and the Red Sea as petrochemical hubs.
Ras Al Khair will be home to a $10.8 billion aluminum joint venture between the state-controlled miner Maaden and U.S. aluminum company Alcoa. The area already has a $5.5 billion phosphate joint venture between Maaden and the state-run petrochemical producer Saudi Basic Industries Corporation, that began production last year.
''The additional capabilities will help to establish downstream industries in Saudi Arabia using aluminum that has been mined, refined, smelted and rolled in the kingdom,'' Khalid al-Mudaifer, chief executive of Maaden, said by e-mail.
The Saudi government has also given the green light for $7 billion for Promise of the North City for Mining Industries. The project will be led by Maaden and is close to phosphate and natural gas resources in the north of the country.
''You have so much economic development in very in a very limited number of urban centers. Fostering more even economic development would be good,'' said Jarmo Kotilaine, chief economist at NCB Capital in Riyadh.
Among the Gulf countries, only Saudi Arabia has an established mining industry. It has been mainly focused on Maaden's production of precious metals as well as minerals for the cement industry. Maaden now plans to more than double production of gold, and is building a 500-kilometer pipeline to bring water to its gold mining center in central Arabia.
''The two biggest challenges facing the Saudi mining industry are the availability of experienced technical and operational personnel and the lack of water at some mining locations,'' said Mr. Mudaifer of Maaden.
Other Gulf states are pushing ahead with mining and related industrial projects - through both domestic and foreign investment.
''In the region generally, you have an economic diversification agenda, '' said Mr. Kotilane of NCB.
''Part of it is the fact that minerals in general have become more expensive. You do not want your import bill to increase and if you source minerals at home, you can create economic wealth and employment.''
Mubadala Development, the Abu Dhabi state-controlled fund, has taken a minority stake in the Sangaredi alumina refinery project in Guinea. In the U.A.E. it is a partner in two large aluminum producers, Dubai Aluminum, also an investor in Sangaredi, and Emirates Aluminum.
Mubadala also has cooperation agreements with the bauxite exporter Guinea to explore investments in bauxite, alumina and iron ore. Deals like this could help secure raw materials for its smelter in Abu Dhabi.
The fund is also investing $2 billion in the EBX Group, owned by Brazil's richest man, Eike Batista, giving the Abu Dhabi firm exposure to the billionaire's mining interests.
''A place like U.A.E. still has a strong competitive advantage because it is so connected, its infrastructure is so solid and it is a very business friendly environment in many respects,'' Mr. Soussa of Citigroup said.
Vale, the large Brazilian iron ore producer, has built a $2 billion iron pellet plant and deep-water terminal in Oman, another G.C.C. member. The idea is to use the country's Gulf location to distribute pellets to the Middle East, North Africa and India and take advantage of its ''affordable fuels,'' Marcus Beluco, chief executive of Vale Oman, said by e-mail.
Qatar, the world's biggest exporter of liquefied natural gas, is pursuing an aggressive two-pronged approach to mining. The Qatari government has created Qatar Mining Company with a mandate to invest in mining projects. The company has signed cooperation agreements with several mineral-rich countries, including Sudan, Morocco, and Mauritania.
Qatar's sovereign wealth fund recently took a large stake in the London-listed miner Xstrata, becoming its second-largest shareholder. That put the fund in a position to ask for a higher bid price from commodities giant, Glencore, which is in talks to take over Xstrata.
''They are all large exporters of oil and have large dollar surpluses. They can no longer efficiently invest in paper dollar assets, and it makes sense to diversify their investment portfolios,'' said Charles Gibson, head of the mining sector at Edison Investment Research, which is based in London.
Copyright 2012 International Herald Tribune. All Rights Reserved.
(Originally published July 19, 2012, in The International Herald Tribune.)