Catalysed diversification: Industrial clusters are identified as the vehicle to bring benefits to strategic manufacturing segments


A key objective in Saudi Arabia’s Vision 2030 national development strategy is the creation of a sustainable, competitive and diversified manufacturing ecosystem driven by private sector activity. The achievement of this objective is underpinned by the National Industrial Strategy (NIS), which outlines a programme to boost domestic manufacturing and exports by nurturing the development of strategic industries through the creation of specialised manufacturing clusters.

Clustered Development

A multi-agency approach is being taken to achieve these objectives. Targets have been established under the National Industrial Development and Logistics Programme (NIDLP) for each subsector of the selected industries, supported by studies of the most viable goods to produce in the Kingdom. Under the NIDLP, the strategy has been to generate momentum by launching projects aimed at stimulating the rapid development of specific industries. For example, the battery technology segment has been identified as a catalyst for the broader machinery and equipment industry.

A key government agency implementing this strategy is the National Industrial Cluster Development Programme (NICDP), which was established in 2008 under the supervision of the former Ministry of Commerce and Investment, and the former Ministry of Energy, Industry and Mineral Resources; responsibility for these areas were divided in 2019. The NICDP works alongside other agencies, such as the Saudi Authority for Industrial Cities and Technology Zones (MODON) and the Royal Commission for Yanbu and Jubail, to identify gaps in the manufacturing market, and has identified 40 components or products that could be manufactured in the country.

The formation of business clusters is a key strategy in achieving the Kingdom’s diversification aims. These clusters facilitate the horizontal and vertical expansion of firms while increasing efficiency and competitiveness. This is done by concentrating corporate and entrepreneurial operations with necessary suppliers and associated institutions in a specific locale. Examples of this set-up include the clustering of automotive production alongside components manufacturing to enable just-in-time production techniques, or biomedical and pharmaceuticals firms near research institutions or major hospitals.

Automotive Expansion

The development of a domestic automotive industry cluster has been identified as a major objective by policymakers. There is high demand for vehicles in Saudi Arabia and the broader MENA region, but the NIDLP highlighted that the Kingdom is the only country among the top-20 in terms of demand for new vehicles to be without a local or regional production centre. Establishing a cluster for the industry would not only enable the country to better meet local demand and boost exports to the region, but also provide support for the country’s upstream metals, plastics and chemicals industries.

As of early 2020 there are four international commercial truck manufacturers producing vehicles in Saudi Arabia, three of which have commercial operations in Jeddah, namely Volvo Trucks, MAN and Mercedes Benz. The most recent arrival to the market is Japan’s Isuzu Motors, which has been producing commercial vehicles for export at its Dammam facility since 2012. In October 2019 the Saudi National Automobiles Manufacturing Company (SNAM) signed a licensing deal with the South Korean original equipment manufacturer SsangYong Motor for the domestic assembly of the firm’s Rexton Sports and Rexton Sports Kahn sport utility vehicles. Under the deal SNAM aims to produce up to 30,000 units of the two models at its plant in Jubail by 2021. “Ensuring that the highest value is derived from transferring knowledge from South Korea to Saudi Arabia is a priority in order to offer long-term employment to specialised engineers and other professionals in the automotive sector,” Fahd Aldohish, CEO of SNAM told OBG.

Building on this, the NIDLP aims to create an automotive manufacturing cluster in the country that can produce both conventional cars and electric vehicles, while also developing the capacity to manufacture batteries. In August 2019 the country took its first steps towards creating an infrastructure network for electric vehicles with the installation of Schneider Electric charging points at some SASCO filling stations. Furthermore, the Public Investment Fund, the country’s sovereign wealth fund, has made inroads into the development of electric vehicles in the US, claiming a $2bn stake in the electric vehicle start-up Tesla before shifting its investment focus to Lucid, a Silicon Valley-based firm specialising in electric vehicle battery production. Nevertheless, while the NIDLP remains committed to the creation of an automotive cluster in Saudi Arabia, international conditions present challenges, with the sale of new units falling from 81.8m in 2017 to 80.6m in 2018, and sales set to fall by a further 4% to 77.5m in 2019, according to credit ratings agency Fitch.


The NIDLP has also identified the pharmaceuticals industry as a sector with significant potential for growth. According to the NIDLP, SR30bn ($8bn) worth of pharmaceuticals are expected to be sold in the Kingdom by 2021, a quarter of the MENA total, and yet only 20% of demand is met by local production. In addition to high levels of demand, the Saudi market has a stable economy with access to finance, an existing regulatory structure and free trade agreements with most of the MENA region. Alongside an economic rationale for expanding manufacturing, the NIDLP recognises a strategic incentive, in that local production can help protect the country from any future supply shortages. Nevertheless, challenges remain to development, including delayed disbursements to local manufacturers by the authorities, lengthy registration and a multiplicity of agencies involved in localisation of the industry.

The country’s pharmaceuticals industry is oriented towards the production of generics for the local market, and domestic players face strong competition from international firms in terms of developing higher-value products. Global pharmaceuticals firms tend to concentrate their resources on producing profitable patented medicines; however, this requires major inputs of capital and expertise in high-risk research, making it a difficult market to break into. Nevertheless, progress can be made if research and development (R&D) is consolidated, given that R&D is currently conducted in a patchwork manner by universities and medical centres, according to the NIDLP.

Research Links

To address this issue, the Research Products Development Company (RPDC) was created in 2015 in order to bridge the gap between patents and commercialisation. It leverages the existing research output of major industrial conglomerates such as SABIC and Saudi Aramco with educational establishments such as King Fahd University of Petroleum and Minerals, King Abdullah University of Science and Technology (KAUST), and King Abdulaziz City of Science and Technology. Among the most important projects supported by RPDC is the Saudi Vaccine and Biomanufacturing Centre, which was developed in conjunction with KAUST and the domestic vaccines and biopharmaceuticals manufacturer SaudiVax. Construction of the R&D cluster began in December 2018 and is earmarked for completion in 2020. The new facility will support clinical trials for emerging drugs and accelerate the development of vaccines. “The commercialisation of Saudi Arabia’s intellectual property has not been in line with the Kingdom’s aspiration. The entrepreneurship and tech start-up ecosystem is not yet adequately mature and well developed, thus we face major challenges,” Abdulmohsen Almajnouni, CEO of RPDC, told OBG. “However, Vision 2030 recognises the need to support R&D, and our aim is to focus on solutions that can benefit the whole country.”