More private sector participation to stimulate growth in Saudi Arabia industry

 

Bold strategies to use industry as an engine of economic change could see new gold mines, plastics factories and medical laboratories boost growth, prosperity and jobs. While raising the profile of private enterprise, the government is also planning to inject capital into promising sectors, setting ambitious targets for itself and for industry.

Government Plans

Saudi Vision 2030, the longterm development plan, largely focuses its economic agenda on developing promising industries that are separated from state spending and the fluctuation commodities prices. A key plank of the strategy is increasing private sector participation. According to the mid-term National Transformation Programme (NTP), by 2020 the civil service workforce is expected to be reduced by 20% and the public sector wage bill by 5%; meanwhile, the private sector is being tasked with creating 450,000 new jobs for Saudis, with the unemployment rate for locals estimated to fall from 12.3% in the fourth quarter of 2016 to 9%. In accordance with Vision 2030, the private sector’s contribution to GDP is anticipated to increase from 40% to 65%, with small and medium-sized enterprises (SMEs) expected to account for 35% of national output, up from the current 20%.

“Vision 2030 opens up good opportunities to the private sector,” Mohammed Yahfoufi, general manager of Del Monte, a US-based food production and distribution company, told OBG. “As more companies align themselves with the strategic vision, investors from outside are finding more places where their services and expertise are needed.”

Operating Environment

Although they were launched at an uncertain time in the Saudi economy, the NTP and Vision 2030 maintain ambitious statements of intent. Indeed, rather than proposing slight adjustments to the industrial landscape, Vision 2030 in many ways proposes overall structural reforms. During this time of transition, there are many factors that bode well for the Kingdom. “Saudi Arabia can count on a young population, strategic location, rich resources and strong leadership. These are the keystones that will enable the country to continue as an important economic player on regional and international fronts,” Muhammad Abusamak, general manager at the Arabian Tile Company, told OBG.

While the government’s ambitious aims have been applauded, analysts also acknowledge there will be challenges to negotiate. “Energy price reforms are a key priority, but there is scope for a gradual implementation to give households and businesses more time to adjust,” Tim Callen, mission chief for the IMF in Saudi Arabia, told international media at the end of the 2017 Article IV consultation.

Adjusting Oversight

In 2016 the government set about reorganising a number of ministries. The Ministry of Energy, Industry and Mineral Resources (MEIMR) was created as a result of these changes, headed by Khalid Al Falih, minister for energy, industry and mineral resources and former CEO of state-owned oil giant Saudi Aramco. The position makes Al Falih chairman of several key businesses and entities including Saudi Aramco, Saudi Arabian Mining Company (Ma’aden), the Saudi Industrial Development Fund (SIDF), the Royal Commission for Jubail and Yanbu (RCJY), the Saudi Industrial Property Authority, the Saudi Geological Survey, King Abdulaziz City for Science and Technology (KACST), King Abdullah City for Atomic and Renewable Energy, and the Saudi Exports Development Authority.

In 2016 it was announced that ownership of Saudi Aramco would be transferred to the Public Investment Fund (PIF), which is due to be granted greater autonomy. The PIF already owns key stakes in several listed, predominantly state-owned enterprises (SOEs), including 70% of Saudi Basic Industries Corporation (SABIC) and 50% of Ma’aden. The sovereign wealth fund will have assets estimated in excess of $2trn when up to 5% of Saudi Aramco is floated in 2018. The PIF, which is chaired by Crown Prince Mohammed bin Salman bin Abdulaziz al Saud, will be instrumental in directing Saudi Arabia’s investments in growth industries both at home and abroad. The funds investments come at a time of wider rationalisation of state spending. “The government is being more careful with its spending and wasting less. It is working to simultaneously ensure quality and minimise unnecessary expenses,” Mohammed Kuhaimi, president of Al Kuhaimi Metal Industries, told OBG.

Industrial Evolution

For more than four decades the key pillars of Saudi Arabia’s non-oil sector were petrochemicals and building materials. In 1975 the RCJY was created as an autonomous government body responsible for developing downstream refining and petrochemicals industries in the two ports located on the Arabian Gulf and the Red Sea.

In 1976 SABIC was created by royal decree to lead the development of petrochemicals. With core markets in transport, agri-nutrients, construction, medical devices, packaging, clean energy, and electrical and electronics, SABIC held assets of $84.5bn, and made $4.8bn in profits on revenues of $35.4bn in 2016. In Saudi Arabia alone, SABIC holds significant shares in 22 manufacturing companies. The PIF controls 70% of shares in SABIC, with the remainder traded on the Saudi Stock Exchange.

Market Drivers

The rapid growth of Saudi Arabia’s economy and population over four decades has fuelled other industries as well, in particular construction and consumer goods. The 1974 census recorded the population at just over 7m people, but by 2017 the estimated number of people living in the Kingdom had reached 31.7m.

From 1975 to 2015 the number of factories producing cement, concrete and other building materials grew from 25 to 1467, as employment in the segment rose from 3780 to 184,200 jobs. The food and beverage industry also saw significant expansion in manufacturing employment over the period, with the workforce growing from 7199 in 1975 to 195,230 in 2015, according to the government’s Operational Industrial Projects System.

Diversification Agenda

Throughout the country’s development, Saudi Arabia’s leaders have recognised the need to diversify the economy away from a reliance on crude oil for state revenues and looked to the enlargement of the petrochemicals industry as a prime engine for growth. In 2016 petrochemicals made up 60% of non-oil exports, accounting for SR106bn ($28.3bn) out of SR176bn ($46.9bn) in total non-oil exports. However, oil and petrochemicals prices have often fluctuated in tandem, delivering a double blow to government revenues when the selling price for both commodities falls. The issue is compounded in a country like Saudi Arabia where the government agenda dominates infrastructure expenditure, as businesses involved in these works are inevitably also affected by the ebb and flow of crude oil prices.

Impact Of Austerity

The decline in global oil prices that began in the second half of 2014 had a profound impact on exports and government revenues that prompted a number of austerity measures. These public expenditure cuts had an immediate and sustained impact on a swathe of industries that relied predominately on government or government-owned enterprises for a significant portion of their income generation.

Austerity measures also had a knock-on effect on consumer spending patterns and the retail sector. By September 2016 the public sector workforce was feeling the brunt of the downturn, with ministers’ pay cut by 20% and staff across state bodies seeing a total stoppage of bonuses and allowances that in some cases accounted for 25% of their take-home pay. Although the September 2015 suspension of government spending was lifted in April 2017, it had an impact on confidence that affected consumer-facing industries, such as retail and tourism. Point-of-sale transactions declined by 4.7% in 2016, their first year-on-year drop since 1993, according to brokerage and financial advisory services company Al Rajhi Capital (see analysis).

Public Contractors

In sectors like construction that have historically relied on public contracts, smaller firms have been disproportionally affected by economic conditions. Even larger players were forced to close kilns and reduce supplies. “In construction, the main spender is the state, and if the government does not spend, that means a large part of the industry is going to be idle,” Jehad Al Rasheed, chairman of the National Cement Committee of the Council of Saudi Chambers and general manager of Al Yamama Cement, told OBG. “There is not enough activity in the private sector to compensate for the lack of government spending. Saudi contractors were among the first victims, but a lot of engineering companies, and small retail ceramics and building materials suppliers, are also closing down.”

Larger cement companies have also felt the pressure. “Like the rest of the building materials and construction industry in Saudi Arabia, cement margins were squeezed due to declining oil revenues and less government spending. However, confidence is coming back to the industry as a result of recent economic reforms, mega-projects announced and an improvement in oil prices” Saleh Alshabnan, CEO of City Cement, told OBG. Not all sectors have been affected in the same way, with some state-led infrastructure projects continuing apace. In telecommunications, for example, public projects continue to provide a steady stream of work. “Somewhat surprisingly, the biggest driver of business in 2017 was semi-government contracts, with ministries in general making major upgrades to their systems to support small and medium enterprises, and oil and gas business around the GCC getting back on track,”Mohammed Al Harthy, CEO of Middle East Fiber Cable Manufacturing Company, told OBG.

Size Matters

Vision 2030 acknowledges the importance of smaller-sized businesses to the development of industry, and wants to see the contribution of SMEs increase from 20% to 35% of national output by 2030. Creating an ecosystem that supports smaller businesses enables the diversification of industry and the wider economy. Countries that are embracing SMEs, such as Germany and China, could provide beneficial examples for Saudi Arabia.

In Germany, medium-sized businesses, make up 99.6% of all companies, accounting for 80% of employment and creating almost 55% of net value added. In China the small business segment has been dominated by town and village enterprises (TVEs), which were originally established by local governments but subsequently privatised. Between 1979 and 1991 TVEs grew at an average rate of 25.3% compared to SOEs at 8.4%, and by 1999 they accounted for 48% of China’s total exports, generating $94bn, according to a 2015 research paper.

National Accounts

Indicators published by the General Authority for Statistics (GaStat) show that the contribution of many key industrial sectors to GDP grew from 2016 to 2017. At current prices, manufacturing, which includes petroleum refining and petrochemicals, increased by 5.2% overall, and the refining component of output increased by 21.3% off the back of a 3.8% increase in 2015-16.

Excluding petroleum refining, manufacturing output grew by 0.9% in 2017; the construction sector was down by 3.3%; wholesale, retail, restaurants and hotels shrank by 0.5%; and mining and quarrying – excluding oil and gas – grew by 18%. In 2017 manufacturing contributed 12.8% to overall GDP, 9.7% if petroleum refining is not included; the wholesale, retail, restaurants and hotels sector contributed 10.7%; construction accounted for 6%; and mining and quarrying, without oil and gas, added 0.45%.

At the sectoral level the economy was clearly affected by declining oil prices. In 2012 the oil and non-oil sectors contributed an almost equal share of GDP, comprising 49.9% and 49.3%, respectively. In the non-oil sector, the private and public components accounted for respective shares of 34.5% and 15% of GDP. By 2017 the oil sector made up 27.5% of GDP, with non-oil’s share constituting almost three-quarters, or 71.4%. Within the non-oil component, 67.4% came from private sector sources, with 32.5% coming from public sector contributions.

In nominal terms, the oil sector contributed SR1236bn ($329bn) against the government sector’s SR595.5bn ($158bn) in 2017. From 2013 to 2017 private sector output increased by 17.6%, from SR1050bn ($279bn) to SR1236bn ($329bn). Although the private sector’s share of GDP rose to 48.2% by 2017 – making significant progress towards the 60% goal set out in Vision 2030 – its change in relative importance was also indicative of the decline in output value in the petrochemicals sector. Therefore, private sector’s relative contribution would be likely to shrink should oil prices rise.

“Looking forward, a higher oil price would certainly help the local business community to thrive again,” Talal Idriss, CEO of Bahra Advanced Cables Manufacturing Company, told OBG.

Mining & Minerals

Identified in Vision 2030 as one of the key sectors for growth in the economy, the shorter-term NTP has set the mining industry several specific performance indicators, including contributing an additional SR97bn ($25.9bn) to the economy and creating 90,000 jobs by 2020.

Ma’aden operates 11 mines producing phosphate fertilisers, gold, aluminium, copper and industrial minerals, and comprises three wholly owned subsidiaries as well as seven joint ventures (JVs). The company employed 7197 staff in 2016, 63.9% of whom were Saudi nationals, and held assets of SR97bn ($25.9bn). Sales totalled SR9.5bn ($2.5bn) in that year, the most recent for which data was available at the time of publication, including SR4.3bn ($1.14bn) in aluminium, SR4.2bn ($1.12bn) in phosphates, and SR1bn ($266.6m) in gold and base metals.

New Operations & Infrastructure

Although the company has been affected by low global commodities prices, commercial operations began at a number of new sites in 2016, including a gold mine in Ad Duwayhi, a copper mine in Jabal Sayid, a bauxite mine in Al Ba’itha and an aluminium refinery in Ras Al Khair, on the Gulf coast, north of Jubail.

In November 2016 King Salman bin Abdulaziz Al Saud officially inaugurated Ras Al Khair as the kingdom’s new mining centre, marking the role of the SR130bn ($34.7bn) investment in creating 12,000 direct jobs, as well as indirect employment opportunities in local communities. A 1450-km railway connects the Ras Al Khair port and processing complex to the newly built industrial city at Wa’ad Al Shamal. Deliveries of phosphoric acid from the city to the refinery in Ras Al Khair began in June 2017.

One company taking advantage of development in the country’s mining capacity is Modern Chemicals and Services Company, which provides mining services, including drilling and blasting, as well as explosives for opencast and underground operations. The company could potentially expand, possibly with JV partners, either in exploration or the downstream development of smelters for base metals. “Saudi Arabia is one of the few countries in the world that has the potential to benefit the whole value chain, from exploration to processing and manufacturing,” Abdulkadir Farah, vice-president of business development at Modern Chemicals and Services Company, told OBG. “Additionally, there is a significant market in Saudi Arabia for end products.”

Widening opportunities for businesses across the supply chain of a number of industrial segments is a key strategy for the Kingdom as it attempts to foster the development of mining and metals, plastics and car manufacturing (see analysis). “Value-added industries are the target; however, setting up the right incentives for investors can be complicated,” Shinya Sugioka, general manager at Mitsubishi Corporation Saudi Arabia, told OBG. “Downstream industries are labour-intensive, and the labour market here is expensive and challenging.”

Industrial Employment

Despite being onboard with the long-term expansionist goals outlined in Vision 2030, the immediate outlook at the time of the strategy’s publication in April 2016 meant that a number of businesses were rationalising expenditure, including payroll. This was reflected in employment data, though analysis by Jadwa Investment noted that changes in methodology may also be at play. The firm found that total net employment from January to September 2016 rose by 892,000, the second-fastest pace of recruitment on record, even as the economy was showing signs of a slowdown.

Of the new jobs created in the first nine months of 2016, 45,500 went to Saudis, with the Saudiisation rate falling from 43.3% to 40.6% and declining in 12 out of 20 sectors of the economy. The construction sector reportedly hired 652,000 foreign nationals and 4000 Saudi staff over the same period, despite slowing activity during the year. As a result, the Saudiisation ratio in construction fell from 9.3% to 6.4%.

In the wholesale and retail sector, 190,300 jobs were added, with 82% going to non-Saudis and citizens filling 34,100 positions. In manufacturing, which represents 8.6% of overall employment, 117,000 new jobs were created, with 95.4% going to foreign workers and the Saudiisation ratio decreasing from 19.8% to 18.1% as a result. In mining – one of the promising growth industries identified in Vision 2030 – 37,000 locals joined the workforce.

The 2016 Jadwa Investment report highlighted several NTP initiatives that would help improve growth in local employment, particularly in service-based industries such as wholesale, retail, food and accommodation, and tourism. However, estimates that 717,500 citizens will enter the labour force on a net basis in the four years from 2016 will require the creation of 832,300 additional jobs in order to meet the NTP target of reducing Saudi unemployment to 9%, indicating a pressing need to ensure these roles are available.

Labour Costs

Among the NTP measures outlined to increase the proportion of nationals securing private sector employment is a target to reduce the percentage cost difference between employing Saudis and non-Saudis from 400% to 280%. In 2016 the IMF noted that the current system tying expatriate employees to a sponsor restricts employees’ abilities to compete for higher wages. Reports that workers’ residences and work visas, or iqamas, might be “delinked” from their sponsor would help expatriate workers close the salary gap with their Saudi counterparts. The IMF also suggests that if the government wishes to control the numbers of expatriates working in certain industries, it can reduce the number of work visas issued. “We are striving to increase the number of Saudi staff we hire, and we also have a policy of hiring more female Saudi workers, many of whom are being offered positions with our photonics business,” Al Harthy told OBG.

The introduction of higher visa fees is designed to prompt changes in hiring practices. Increases to the costs associated with obtaining iqamas were brought in from July 2017 for expatriate workers and from January 2018 for their employers under the government’s Fiscal Balance Programme 2020.

According to local media, companies currently pay SR200 ($53) per month for each expatriate worker employed over the number of domestic staff at the firm. The revised fee structure favours firms with higher ratios of Saudiisation. For those companies where the number of foreign staff is equal to or lower than the number of Saudis, the monthly fees for each expatriate staff member will increase to SR300 ($80) a month from January 2018, SR500 ($133) in January 2019, and SR700 ($187) from January 2020. In companies where foreign employees outnumber citizens, the monthly charges will reach SR400 ($107), SR600 ($160) and SR800 ($213) in January of 2018, 2019 and 2020, respectively. In addition, private businesses will pay between SR8400 ($2240) and SR9600 ($2560) annually for each non-Saudi-citizen worker they employ.

Expatriate Levy

With fees increasing by as much as 400% over the next three years, salaries paid to expatriate staff are likely to decline, despite any visa changes. At the same time, foreign workers are now required to pay an additional charge for each dependent in the country. As of July 2017 these fees total SR100 ($27) per month per person, with this levy set to rise to SR200 ($53) in 2018, SR300 ($80) in 2019 and SR400 ($107) in 2020. The rate changes are being introduced each July to minimise the impact on school-aged children. According to the latest population estimates, there are 1.9m non-Saudi children under the age of 15 in the country.

By 2020 an expatriate male worker with a wife and two children living in the Kingdom will be paying SR14,400 ($3840) per year in dependent fees. With an estimated 10.9m foreign workers at the end of 2016, the expatriate levy could raise sizeable revenues for the Saudi government. However, the fees could also make hiring and retaining of skilled expatriate staff costlier and more challenging for private companies. While this might serve to encourage firms to hire more locals, the pay differential between citizens and non-Saudis is still likely to have an impact on payroll costs for private enterprises.

Labour Regulations

At the same time, labour-intensive service industries are being targeted with more stringent regulations on recruitment. According to GaStat data, the retail industry, excluding automotive sales, employed just over 1m people in 2015, a quarter of which were locals. In alignment with Ministry of Labour (MoL) regulations, beginning in September 2016 all staff working on sales, maintenance and accessories in the mobile phone industry must be Saudi citizens, and in April 2017 it was announced that staffing of retail units in enclosed shopping malls would be restricted to local staff. In that same month new constraints were imposed on non-Saudi staff working in a range of transport jobs, including 10,000 point-of-sale positions at car hire companies. While no date has been issued by the MoL for retail positions, it has forecast labour reforms in the transport sector alone would result in 200,000 jobs for citizens within three years.

Effects Of Reform

Reforms in the retail segment were reflected in the fiscal performance of the two biggest listed retailers in the final quarter of 2016 and the first of 2017. Although Saudiisation may have increased staffing costs, the net result of the labour reform, according to Al Rajhi Capital, was that larger organised retailers selling mobile phones, specifically Jarir Bookstore and eXtra, increased their market share as smaller mobile retailers were unable afford the higher salaries for local staff and were therefore forced to close. In the first quarter of 2017 Jarir Bookstore’s net profits increased 26.5% year-on-year, while eXtra reported its market share had risen from 8.9% to 11.1% between 2015 and 2016. In the first quarter of 2017 the firm recorded a net profit of SR13m ($3.5m), compared to a loss of SR45.9m ($12.2m) in the same period of 2016.

Labour reforms could potentially affect small business in other retail segments as well. In March 2016 local media reported the Shura Council had asked the MoL to consider closing local convenience stores that could not afford to employ Saudis. This change could have a significant impact on the market landscape. “An interesting aspect of the Saudi retail sector is that small convenience stores, or bakala, are still conducting 70% of the business.

Whereas, in other countries supermarkets and malls play a bigger role,” Salman Al Hajjar, executive general manager at Mezzan Foods Company, told OBG.

Attracting Workers

Another facet to increasing the private sector workforce is to make these jobs more attractive to locals. To this end, the government is working to reduce the disparities in working hours for private and public sectors. According to Jadwa Investment, in 2012 the average private sector employee worked 12.8 more hours a week than their counterparts in the public sector. By 2015 this difference had been reduced to 8.8 hours, with the average private sector employee working 48 hours per week. In 2016 the government was considering imposing a maximum 40-hour work week – before overtime – in the private sector to further reduce the disparity in working hours.

However, critics of this measure claim it would cause private sector productivity to decrease while also increasing staffing costs. The Makkah Chamber of Commerce and Industry estimates that a 40-hour work week would mean losing some SR100bn ($26.7bn) and 4bn hours of productivity per year.

Skills Gap

Conditions aside, opportunities in the public sector are expected to decline as the government works to increase private sector participation in line with Vision 2030. This creates an imperative to ensure citizens have the skills needed to work in the private sector. In a bid to better train citizens with the necessary skills and qualifications to support industrial goals, the NTP aims to enrol 950,000 Saudi students in vocational and technical training, and increase the proportion of high school graduates undertaking job-related training from 7% in 2017 to 13% by 2020. Both measures are designed to address the skills mismatch between jobseekers and the needs of industry. “Historically, Saudi Arabia has had an import-led economy,” Yousef Al Saleem, president of Al Saleem Corporation, told OBG. “Unfortunately, this has led to a skills gap. More manufacturing must happen in the Kingdom, and thanks to a more prominent private sector we are starting to see this capacity increase.”

In 2014 the Technical and Vocational Training Corporation (TVTC) announced plans to introduce courses in technical skills, such as carpentry and plumbing, for young Saudis – professions that had previously been regarded as unsuitable for citizens. Both private and public sector actors are playing a role in overcoming societal attitudes to certain occupations. In 2016 the government barred expatriate car owners from working as Uber or Careem drivers, limiting work for these firms to foreign employees of licensed taxi firms and Saudi citizens.

Saudiisation Of Industry

The TVTC is also working with larger employers in industry to help them establish training centres geared towards their particular skill requirements. In October 2016, in a partnership with 34 private companies operating in the Kingdom, Saudi Aramco opened the Saudi Arabia Drilling Academy in Abqaiq. It is estimated that more than 30,000 nationals will be needed to work in the drilling industry by 2020.

Efforts to reduce the skills gap is starting to show results. The Saudi Specialized Products Company (Wahaj), for example, is optimistic about the recent Saudi recruits it has hired and their future potential. “We have a lot of highly educated young people coming from universities and institutes who are used to technology, and that enables them to learn quickly when using our equipment,” Ayman Al Hazmi, general manager at Wahaj, told OBG.

The company, a subsidiary of the publicly listed Saudi International Petrochemicals Company, operates a tool manufacturing facility in Riyadh that employs 130 local staff, as well as a factory in the industrial city of Hail, where 70 Saudi employees make ethylene vinyl acetate film for the photovoltaic industry. The tool manufacturing facility uses precision engineering machinery to manufacture components for industries including aerospace.

Leveraging Expertise

More initiatives are needed to encourage talented Saudi scientists with higher degrees to remain in research positions in industry and help the country’s businesses develop more of their own products and solutions. “Companies like SABIC and Saudi Aramco hire young Saudis to run petrochemicals plants, but I believe there could be better incentives in terms of remuneration, career progression and status to encourage graduates from scientific fields to pursue technical research, and in doing so use their scientific knowledge rather than opting for administrative roles in the business,” Abdulmalik bin Taleb, assistant professor at KACST Petrochemicals Centre, told OBG.

For many domestic industrial firms, JVs with international market leaders offer complementary solutions to research and development programmes they are conducting themselves. In May 2017 GE announced a range of deals to pursue or investigate projects with a combined value of $15bn to improve power generation, enhance supply chains, and boost productivity and efficiency savings in mining and oil and gas through digital solutions. Dow Chemical, the second-largest manufacturer of chemicals in the world and Saudi Aramco’s JV partner in the Sadara Petrochemicals Complex, signed an agreement to invest $100m in the construction of a manufacturing facility to produce a range of polymers for coatings and water-treatment applications, as well as signing a memorandum of understanding for a feasibility study for a proposed investment in one of the company’s performance silicone franchises. The deals could create 450 permanent jobs for locals. While JVs introduce new technologies to the country, the challenge is to ensure knowledge is also transferred.

At the same time, however, there are niches where the Kingdom holds specialist knowledge that can help build new markets. “If you look at the market for desalination equipment manufacture, you will find there are companies all over the world relying on our expertise, and this presents us with an excellent opportunity for localisation,” Saud Khaled Al Sabhan, marketing department manager at SIDF, told OBG.

Equipment Upgrades

Upgrading equipment to the highest international standards is another way for manufacturing companies to remain competitive. SIDF was established to provide soft loans to enable companies to take advantage of these new technologies. For example, Abdullah Shamsan Industrial Group, which was established in 1954 and manufactures tissues, wipes and other sanitary products, has made use of this state-led financing.

Its access to former export markets in Syria, Lebanon and Libya has been curtailed due to conflicts, but the company has upgraded its equipment to serve new markets. “We have been able to take an interest-free loan from the SIDF to import new machinery from China, and we also hope to have government assistance in building a new paper mill,” Mohamad Dawod, general manager at Abdullah Shamsan Industrial Group, told OBG.

Trading Opportunities

With access to markets in Asia, Europe and Africa, Saudi Arabia could also leverage its position to become a regional trading hub, especially as export/import processes become more streamlined. The time needed for Customs procedures, for example, has been reduced from between three and four weeks to two weeks, though there are still disparities at different sites. “It is usually easier to clear goods in Jeddah rather than Dammam,” Faisal Al Qasem, CEO of SAS Gulf Elevators, told OBG. “There is still room to do much better, which would improve the ease of doing business.”

Smoother processes also have the potential to open up new markets for exports. “Saudi Arabia has a competitive advantage in terms of its location, and it needs to make it a priority to engage with Africa,” Hazim Fahad Aldosary, CEO of the Saudi Industrial Export Company, told OBG “Africa trusts Saudi petrochemicals products and medical services. The country can use this influence to expand into exports from other sectors.”

Outlook

Though the launch of Vision 2030 coincided with a difficult year for many industries in the Kingdom, it has served to galvanise industrialists and government ministries as they work towards recovery and future growth. The shift towards privatisation and the increasing focus on SMEs are both positive indicators of the government’s commitment to the structural changes outlined in the development plan, but results will not come immediately. “Vision 2030 is moving in the right direction and sending the right signals to the private sector,” Mohammed Al Namlah, managing director at Amnest Group, told OBG. “Implementation will naturally take time, however, and firms might suffer in the short term, especially if they are construction-driven.” An evolution in the role of the Saudi Industrial Property Authority (MODON) is creating opportunities for smart technology providers and entrepreneurs. With the aim of helping realise Vision 2030 goals for a sustainable, knowledge-based economy, MODON is becoming a more active participant in the sector by promoting entrepreneurial activity – particularly among young people – and supporting smart services across more than 35 industrial cities.

These cities are home to more than 6000 contracts, including factories and commercial and logistics facilities. MODON also oversees six private sites, including the 7m-sq-metre Fanar Industrial City. One of its biggest and most promising projects is Wa’ad Al Shamaal Industrial City, an integrated mining city to the north-east of Turaif, which recently transitioned from Saudi Arabian Mining Company (Ma’aden) to MODON supervision. The city’s focus is the Ma’aden Wa’ad Al Shamal Phosphate project, with expected investment of SR21bn ($5.6bn). In 2017 MODON signed several memoranda of understanding (MoUs) and took action to increase regulatory efficiency.

In August of that year it inked an MoU with wind turbine manufacturer Goldwind Science and Technology, allocating land in industrial cities to the Chinese firm. The three-way MoU included an agreement with the National Industrial Clusters Development Programme to “assist the company in identifying investment opportunities and supporting its search for local partners”.

Next, in September, MODON signed an MoU with Saudi Huawei, a leading smart city solution provider, to support the exploration and implementation of smart technology in Riyadh 2nd Industrial City. Smart technology will first be used to enhance security and safety services, with the introduction of smart applications for utilities, health, environment and engineering support to follow, as well as “the rationalisation of energy and water consumption operations” at industrial sites.

On November 5, 2017 MODON announced it was looking to shorten processing times for building permits in industrial cities from three days to 24 hours via its “eModon” online portal. In December MODON was also considering lengthening the validity of industrial licences. Currently, factories are only allowed one-year licences, but this period could be extended to three years.

Khaled Al Salem, director-general of MODON, told OBG that the priority for 2018 is to attract more entrepreneurs and small and medium-sized enterprises by establishing dedicated incubators. The authority is also working to provide industrial space for the the military and logistics sectors.

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The Report: Saudi Arabia 2018

Industry chapter from The Report: Saudi Arabia 2018

The Report: Saudi Arabia 2018

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