Saudi government schemes dovetail with local industry to create new jobs and opportunities for citizens

 

With record public expenditure of SR1.1trn ($293.3bn) in 2019 and government stimulus packages for the private sector, schemes devised under Vision 2030 to boost employment levels of Saudi workers and create new opportunities for local businesses look set to bear fruit. A range of planned infrastructure projects are set to begin construction. At the same time, major industrial companies are delivering on pledges to increase reliance on local companies in their supply chains. “Saudi unemployment is higher than at some times in the recent past, but with structural changes in the economy we are starting to see changes in the job market,” Adil Dahlawi, managing partner of financial consultancy firm Mauthouq, told OBG. “Saudis are in a wider variety of jobs — in retail, for instance — and we are seeing changes in the attitudes of young people to jobs and to the private sector.”

Infrastructure Projects

In 2018 a four-year, SR72bn ($19.2bn) private sector stimulus plan was announced. According to research conducted by Saudi investment management and advisory firm Jadwa Investment, SR24bn ($6.4bn) worth of expenditure was raised in its first year. It also reported that over the four-year period SR35bn ($9.3bn) of these funds would be directed towards the real estate sector, providing a welcome boost for companies supplying the construction industry. This would comprise SR21bn ($5.6bn) for residential housing loans and SR14bn ($3.7bn) for efficient building technology projects. The stimulus plan also included a SR10bn ($2.7bn) allocation to mega-projects, SR5bn ($1.3bn) for an investment programme, SR5bn ($1.3bn) for an export bank and SR2.8bn ($746.5m) for capital projects to support small and medium-sized enterprises (SMEs).

Quality of Life

The aim of this government-funded investment is to deliver on Vision 2030’s goals of sustainable diversification and development of the economy to enable the growth of local firms and the creation of private sector jobs for citizens. In May 2018 the Council of Economic and Development Affairs (CEDA) launched the Quality of Life Programme (QLP) 2020, with the aim of improving the quality of life of citizens while also generating job opportunities. The QLP is to be funded by some SR74bn ($19.7bn) worth of direct investment and SR50.9bn ($13.6bn) from the government, complemented by SR23.7bn ($6.3bn) of private sector investment. Indirect investment will take the total expenditure to SR130bn ($34.7bn) by 2020.

CEDA has pledged that the projects launched under the QLP will use 67% local content. CEDA also aims to create 346,000 jobs and generate SR1.9bn ($506.5m) in non-oil revenue by the programme’s completion in 2020. QLP projects include: the Al Qadiya Entertainment City, to be built 40 km from Riyadh; the Red Sea Smart City project; the Al Diriyah Gate heritage and hospitality project near Riyadh; the Historic Jeddah project; and the Royal Commission for Al Ula, a natural heritage and tourism site 300 km to the north of Medina. In addition to its efforts to stimulate the construction sector, the QLP is expected to encourage employment and involvement in a range of sporting, entertainment and cultural activities. Among the new developments to be completed by 2020 are a water park; three theme parks; 16 family entertainment centres; an arts and culture island in Jeddah; 45 cinemas; 16 theatres; 42 libraries; the Royal Arts Complex in Riyadh; and 492 sports facilities. Under the QLP there will be a marketing drive to increase use of sports facilities from 8% to 55%, with an emphasis on encouraging female participation in school sports. Some 325,000 girls are expected to participate in classes that will be run by 7500 teachers at 1500 schools with gyms. In 2019 construction also began on the first phase of NEOM, a $500bn city planned to be built on the Red Sea by 2025. Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud has said two or three towns will be built a year at the site. NEOM will provide homes for families, activities and accommodation for tourists, in addition to centres devoted to creativity and innovation in industries ranging from biotechnology to those related to water, food and energy.

Heavy Lifting

A driving force behind local content development in the Kingdom beyond these new mega-projects are the heavy industries that have been developed to capitalise on the country’s oil, gas and mineral resources. Saudi Aramco, Saudi Basic Industries Corporation (SABIC) and the Saudi Arabian Mining Company (Ma’aden) have all made pledges to focus on increasing the involvement of Saudi businesses in their respective supply chains as well as helping to foster the development of new conversion companies owned by citizens to manufacture consumer goods inside the Kingdom. More than 400 companies supplying 24 commodities were part of Saudi Aramco’s In-Kingdom Total Value Added (IKTVA) programme in November 2018. Among them are international firms that have formed partnerships in the Kingdom while adhering to the localisation goals of the IKTVA programme. IKTVA’s overall aim is to increase Saudi Aramco’s local content to 70% by 2021, by which time it hopes to see 30% of products manufactured by its suppliers sold abroad. Baker Hughes, a GE company, employs 2560 staff in the country, including 1400 Saudis – 36% of whom are women in science and engineering positions. In Saudi Arabia, Baker Hughes operates 10 manufacturing, assembly, maintenance and research and development facilities, collectively spending SR300m ($80m) annually with 1350 local suppliers. The world’s leading oil and gas technology company Schlumberger is also one of Saudi Aramco’s IKTVA partners. It hired more than 730 Saudis in 2018 and in addition began construction of a new complex at the King Salman Energy Park.

The Arabian Drilling Company (ADC) has hired 2400 Saudis since 2015, and its spend on local procurement increased from 42% in 2014 to 72% in 2017. AZR Technologies is the first Saudi company to provide Saudi Aramco with oil and gas wellhead downward inspection services. It has localised 70% of wellhead inspection roles and sources 65% of its materials in the local market. Innovative Software, which provides solutions to the energy market, meets 85% of its procurement needs in the local market and 80% of its staff are Saudi. In 2018 the first GE gas turbine manufactured in the Kingdom began operating at a new power station at Waad Al Shamal mining city. In January 2017 the petrochemicals giant SABIC launched its Local Content Business Development Unit, which in turn created a programme called Nusaned to deliver on the objectives of Vision 2030. Described in the company’s annual report as the “first localisation engine that connects all industrial development stakeholders in Saudi Arabia to partner under one umbrella and creates a proper ecosystem for success,” Nusaned uses a four-stage process to take business ideas from concept to realisation. In 2017 SABIC also supported 15 new investments to drive localisation that resulted in SR568m ($151.4m) in investment and 332 new jobs for Saudis, as well as the introduction of 15 new qualified local manufacturers. SABIC has also been encouraging its overseas suppliers to invest in manufacturing opportunities in the Kingdom. In 2017 the Japanese firm Ebara, which makes pumps, opened a new factory in Dammam. Saudi Arabia’s petrochemicals and desalination plants have imported more than 5000 of Ebara’s pumps in the past. In February 2018 local media reported that a memorandum of understanding had been signed between the SABIC Nusaned programme and the Council of Saudi Chambers (CSC) local content promotion initiative to help increase private sector investment in industrial activity and create new opportunities for young people.

Mining Opportunities

Ma’aden is driving the development of Saudi Arabia’s Northern Region and developing new value chains from mining to manufacturing as it exploits the Kingdom’s mineral wealth. Its local content strategy focuses on procurement, recruitment, training, research and development, supply chain management and local investment. The company defines local content as the total contribution Ma’aden, its contractors and suppliers make to national economic and social development. The company has informed all contractors and suppliers that at least 12% of their employees should be from the region; 10% of the contract price should be spent on local goods and services, and 1% of the contract should be devoted to local community initiatives such as the development of SMEs, scholarships, recycling, or infrastructure and ecology projects.

Although the development of local talent and business has long been an aspiration for Saudi Arabia’s rulers, Vision 2030 has had the effect of galvanising stakeholders across a range of industries to focus on making this a measurable short- and medium-term goal. The Kingdom’s larger businesses will continue to pursue international partnerships, but they will increasingly focus on ensuring these alliances create jobs and opportunities for Saudi citizens and SMEs.

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