Interview: Hussein A Al Athel
How would you assess the success of the government’s efforts towards industrial diversification?
HUSSEIN A AL ATHEL: The government considers economic diversification a top priority and has focused its new industrial strategy on diversifying industry. Given the enormity of the Kingdom’s oil production, the oil and gas sector plays a leading role in this initiative, particularly with regards to transformational refining and the petrochemicals industry. Industrial output of the Kingdom has grown at constant prices from SAR40.6bn ($10.82bn) in 1990 to approximately SAR109.3bn ($29.14bn) in 2010, an increase of 170.4% over 20 years. The contribution of transformational industry also rose as a percentage of GDP from 8.4% to about 12.6% in the same period, showing that the government has made substantial progress towards industrial diversification. To further support this we are looking to increase funding for manufacturing industries that produce petroleum and gas. By supporting these activities we believe transformational industries will soon make up a larger share of Saudi Arabia’s GDP.
What is being done to address the challenges that young Saudis face in terms of setting up a business?
AL ATHEL: Government agencies consider entrepreneurship a major priority in achieving higher economic growth rates and developing youth projects. Both governmental and non-governmental bodies have strived to remove procedural, regulatory and financial constraints facing these projects. The government has set up several organisations that provide funding for small and medium-sized enterprises such as the Kafala programme of the Industrial Development Fund, the Saudi Credit Bank and the Centennial Fund.
However, these businesses continue to face difficulties in obtaining financing, as the volume of applications exceeds the capacity of formal financial institutions. Even with the government’s support, commercial banks have proven reluctant to finance these projects due to the perceived risk involved in financing less experienced entrepreneurs. Local banks are also restrained by the rules of joint-stock enterprises and shareholder interests. As a result, the government has increased financing of specialised governmental financial institutions supporting youth projects.
How has the rise in investment conferences translated into tangible deals and concrete progress?
AL ATHEL: The last period witnessed a marked rise in investment conferences and forums. In the past these events were predominantly attended by experts and academics; however, recently they have also been attracting the investor community. In many instances these conferences have embraced and responded to the requirements and needs of investors, promoting real awareness of investment opportunities across different sectors, activities and regions.
Going forward, these events would benefit from more coordinated and cohesive agendas. Furthermore, some of them were focused more on attracting media attention than on facilitating real business transactions. Nevertheless, we believe these events have been the biggest contributor to the increase in the number of industrial licences issued in recent years, which, since 2010, have risen by over 10,000.
What is the impact of the Nitaqat programme on private sector industrial companies?
AL ATHEL: Nitaqat is a national programme that aims to increase the percentage of Saudi employees in the private sector by rewarding employers who meet certain targets while penalising those who do not. The programme can function well and yield the desired result for some companies in certain sectors. In others, however, implementing the programme could lead to financial losses if Saudis are employed that lack the will to work and/or the necessary skills. This puts the country at risk of hidden unemployment, and therefore, we believe that it is imperative the programme is only implemented in certain industries and for specific roles.
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