The non-oil private sector is forecast to grow at more than 5% in 2015 and is expected to lead to economic expansion in three directions: vertically in industries drawing on the Kingdom’s hydrocarbons endowment; horizontally in industries that do not rely on oil; and spatially into areas of the country that have grown more slowly than the larger cities. The opening of the $20bn Sadara petrochemicals plant in 2015 is the most prominent example of vertical expansion, along with major growth in refinery capacity in the Kingdom. The ongoing demand for health care and consumer products from a population set to pass 30m is partially responsible for driving horizontal potential. Spatial growth is being directed by the ongoing development of up to six economic cities, as well as industrial developments like the Waad Al Shammal mining complex.
Saudi Arabia’s 10th Development Plan, for the period 2015-19, emphasises the need to diversify the country’s economy and reduce its reliance on oil, which accounts for 90% of fiscal revenues and 80% of export revenues, and also highlights the need to provide livelihoods for future generations. Industrial enterprises that can add value to the Saudi economy in this way will find businesses in the Kingdom keen to engage in joint ventures, and will also be able to tap government funds and land to facilitate project development. The Saudi Arabian Company for Industrial Investment was formed in 2014 with SR2bn ($533m) in capital and will invest SR7.5bn ($2bn) in the next five years in a programme targeting conversion industries that rely on non-oil manufactured products, including petrochemicals, plastics, fertilisers and steel. The company is a joint venture between Saudi Aramco, Saudi Basic Industries Corporation (SABIC) and the Public Investment Fund.
Growth Indicators
The latest figures from the Central Department of Statistics and Information (CDSI) show growth of key industrial non-oil sectors, both year-on-year and in terms of overall contribution to GDP. Manufacturing other than oil refining grew from SR201.6bn ($53.7bn) in 2012 to SR215.9bn ($57.5bn) in 2013 at current prices, an increase of 7%. According to preliminary data, this rose by an additional 8.7% to SR235.34bn ($62.72bn) in 2014. The mining and quarrying sector, other than oil, grew from SR9.4bn ($2.5bn) in 2012 to SR9.9bn ($2.6bn) in 2013, an increase of 5.9%, and by a further 6.2% to SR10.54bn ($2.81bn) in 2014, as per preliminary figures. The combined GDP contribution of mining and non-oil manufacturing rose from 7.6% in 2012 to 8.2% in 2013 and 8.7% in 2014. Khaled Juffali, chairman and CEO of Khaled Juffali Company, told OBG, “The export market has a bright future in the Kingdom, especially in the manufacturing industry for products like automotive spare parts. Nonetheless, manufacturer’s priority is not exports as the local demand is relatively strong enough.”
Jadwa Investment reports that overall non-oil private sector growth was 7% in 2013, and in January 2015 it predicted growth of 5.7% for 2014 and 5.3% for 2015. It said it expected non-oil manufacturing growth to slow in 2015 due to weaker global demand for petrochemicals. These predictions were borne out by CDSI figures comparing exports in January 2014 and January 2015. Exports of plastics fell 16.6% and exports of chemical industry products were down 12.6%, according to CDSI data. The balance of trade figures show that in 2013 the ratio of non-oil exports to imports was 23.6%.
Looking at Figures
A discussion paper published by the IMF in March 2015 titled “Saudi Arabia: Tackling Emerging Economic Challenges to Sustain Growth” showed that 95% of all exports from Saudi Arabia were commodities for intermediate consumption, with only 4% of all exports being products for final consumption. Although exports of petrochemicals and refined petroleum products are still defined as commodities for immediate consumption, the expansion of these sectors signals Saudi Arabia’s determination to extract more value from its hydrocarbons. Jadwa estimates that Saudi Aramco’s two joint venture refineries – Yanbu Aramco Sinopec Refining (better known as YASREF) at Yanbu industrial city, and Saudi Aramco Total Refining and Petrochemical Company (better known as SATORP) in Jubail industrial city – will create 10% growth in the refinery sector, while the Sadara petrochemicals complex will have the capacity to produce 3m tonnes of products per year. Adel Al Ghassab, president of Zamil ChemPlast Holding Company, told OBG, “We are currently only converting 15-20% of the plastics resin produced in Saudi Arabia. Boosting this number would have a significant economic impact and create many new job opportunities.”
Developing export potential will be key to growth across the industrial sector, as new sectors gain ground. “The most important sectors now are pharma or anything related to health, building materials and also food,” Abdulrahman Al Zamil, chairman of Riyadh Chamber of Commerce and Industry, told OBG. “However, if you build something here you had better be prepared to export 20-30% of your products.”
Saudi Arabia’s location and its reputation for stability are expected to support these efforts, according to Abdulhakim Al Mahdi, general manager of Arabian Medical Products Manufacturing Company (ENAYAH), which exports 40% of its products to Iraq and North Africa. “The strategic position of Saudi Arabia in the heart of the Middle East and in close proximity to Europe, Africa and Asia makes it a potential export hub for manufactured goods,” said Al Mahdi. Saudi products are also in demand throughout the region. Abdulghani Al Hammouri, CEO of Saudi Pipes System Company, told OBG, “When it comes to manufacturing and quality products, Saudi brands are very strong around the region. For instance, in Jordanian supermarkets, about 70% of products are from Saudi Arabia. The Kingdom manufactures according to international standards.”
Labour Market
Since 2011 the Ministry of Labour has introduced measures designed to tackle unemployment among Saudis and to increase the number of citizens working in the private sector. The most prominent of these schemes is the Nitaqat Saudiisation programme, which divides employers into different bands based on the proportion of Saudis on their payroll. Nitaqat uses financial incentives to encourage the employment of Saudis and financial penalties for businesses that fail to comply with their quotas.
A Jadwa Investment analysis of Ministry of Labour figures comparing 2012 and 2013 showed the manufacturing sector’s Saudiisation rate increased from 13% to 19.3%. The number of Saudis employed in the construction sector grew by 34%, while non-Saudis rose by 14%. This was despite a high wage differential between expatriates and Saudi workers. In response to concerns raised by the Council of Saudi Chambers, the Ministry of Labour postposed the start of the third phase of the Nitaqat programme, which had been due to go into effect in April 2015. Had it been enacted, large business groups would have seen the Saudiisation rate raised from 29% to 66%. No date has yet been announced for its introduction. Muhammad Abu Samak, general manager of Arabian Tile, told OBG, “The biggest impact of the labour law changes have been on the profit margins of small and medium-sized businesses, which limits their ability to compete with regional and international companies of the same industry.”
Business leaders in Saudi Arabia back the aims of the labour reform programmes, but have had mixed experiences in terms of the impact of the reforms. “There is plenty of money to develop a proper industrial sector that supports economic diversification,” Ibrahim Al Daghrir, general manager of Al Wafrah for Industry and Development, a manufacturing, sales and distribution company for food products, told OBG. “However, the availability of affordable, quality manpower is a challenge given all the labour reforms.”
For Selim Chidiac, CEO of jewellery manufacturer L’Azurde, recruitment, training and retention of young Saudis should be seen as an investment rather than a cost. He said L’Azurde employed 130 women in its factory. “Companies need to recognise the writing on the wall and embrace Saudiisation instead of complaining and trying to fight it,” Chidiac told OBG.
According to Al Zamil, joint ventures with international companies often have a good record of retaining the Saudi staff they hire. “Foreign joint ventures are the best employers because they understand that you can take a young educated man, give him insurance, other benefits and a secure job, and he will work well for you and stay with you,” he told OBG.
Minimum Wages
In November 2014 the Saudi Gazette cited government sources in an article claiming a new private sector minimum wage would be introduced for Saudis and for expatriate workers after the third phase of Nitaqat was implemented. The report said the minimum wage for Saudis in the private sector would be SR5300 ($1412) a month, while the minimum wage for expatriate labour would be SR2500 ($666). Based on a four-week month and a 40-hour working week, the hourly minimum wage for Saudis in the private sector would be SR33.13 ($8.80) and the rate for expats would be SR15.6 ($4.20). At the time of press it is unclear how the postponement of the Nitaqat’s third phase will affect salary levels.
From the perspective of the Saudi government, the introduction of a minimum wage in the private sector will send a strong message to young Saudis, who have traditionally preferred the better pay and conditions enjoyed by public sector workers. In 2013 the IMF reported the government had introduced a minimum wage for the public sector in 2011 of SR3000 ($799) and at the same time had introduced Hafiz stipend payments for jobseekers of SR2000 ($533) a month for a maximum period of a year. However, these reforms are only the beginning and the system will require tweaks in the near future. Aiman Al Masri, CEO of Middle East Specialised Cables Company, said, “Employees have benefitted from labour changes through higher salaries and increased training programmes. However, the industry is facing a greater level of employee turnover and supplementary operating costs.”
Industrial Development
As part of the government’s 10th Development Plan for 2015-19 there are ongoing efforts to diversify the economy spatially by building industrial developments around the country. By 2020 four new economic cities are due to be completed, with anticipated populations of 40,000, 80,000, 200,000 and 250,000 at Rabigh, Hail, Medina and Jazan, respectively. In addition, expansion is also taking place at Jubail on the east coast and Yanbu on the west coast. The Royal Commission of Jubail and Yanbu is responsible for administering the development of these two cities and is also developing a new industrial settlement at Ras Al Khair in the Eastern Province and a new mining-focused development at Waad Al Shammal near Turaif in the north of the country. These new developments offer opportunities in a variety of sectors. For example, the economic city at Jazan could include agribusiness and light industry. Mohammed Al Manea, CEO at the Jazan Development Company, told OBG, “Jazan offers excellent opportunities for agribusiness given its good climate and fertile soil. This can be complemented with light industry allowing companies to grow and package food products in the same area.”
Attracting foreign players to the sector will be critical for growth. “The Kingdom needs to attract global corporates to help build the manufacturing sector. The vital catalyst will be to introduce the right subsidies in key industries to accomplish this,” Jameel Al Molhem, managing director of the Shaker Group, told OBG.
Mohammed Alnamlah, the managing director of Amnest Group, a holding company primarily focused on the manufacture of building materials, believes the opportunities for foreign investment in Saudi Arabia are improving. “Overall, there are good regulations in place to support foreign companies looking to establish operations in the Kingdom,” Alnamlah told OBG. “However, obtaining visas, especially for females, remains an issue that needs to be addressed.”
Stimulating Growth
Another key mechanism offering stimulus to investment in the Kingdom is the Saudi Industrial Development Fund (SIDF). The fund offers long-term, low-interest loans to industrial projects, covering 50% of costs across the Kingdom and up to 75% in less developed regions. Since SIDF began issuing loans to Saudi businesses in 1974, the number of industrial units has increased from the initial 198 to 6471 in 2013. Capital invested by SIDF has risen from nearly SR12bn ($3.2bn) in 1974 to more than SR883bn ($235.3bn) in 2013, while the number of employees working for those enterprises has grown from 34,000 in 1974 to 843,000 in 2013.
The sector that received the most financing from the fund between 1974 and 2013 was the chemicals industry with SR427bn ($113.8bn), representing 48% of the total. Food and beverage manufacturing has created the most jobs over that time, with 159,107, while the sector defined as “other non-metallic minerals” has created the most factory units, reaching a total of 1304, according to SIDF figures. This sector has also received the second-highest level of SIDF funding over the 40-year period, with SR89bn ($23.7bn), or 10% of the total. It has also created the second-highest number of jobs, with 156,214 workers taken on during that time. “Funding is readily available for local industrial companies,” Alnamlah told OBG. “SIDF loans are fairly easy to get, and once you have been approved by the SIDF then getting a commercial loan from a bank is simple.”
New Opportunities
Ibrahim Behairi, CEO of Al Watania for Industries, a holding company with interests in the manufacture of construction materials, containers, foodstuffs and packaging, believes the investment climate is ideal for international companies looking for joint ventures. “International companies are looking to co-pack with local companies, which offers good opportunities for internationals to enter the market and local companies to gain more business,” Behairi told OBG.
Majid Al Otaibi, the CEO of Takwa, a company with interests in spare parts, automotive and industrial equipment and industrial recycling, also believes that joint ventures can offer a chance for success through symbiosis. “There are significant opportunities for foreign companies to come to the Kingdom and partner with local companies,” said Al Otaibi. “International companies have the money and can help regulate the market by bringing in best practice procedures, while Saudi partners can provide local knowledge of the market.”
When it comes to pursuing opportunities for horizontal diversification of the Saudi economy, away from industries fed by oil or natural gas, Al Otaibi believes lateral thinking about the nation’s other natural assets could provide some opportunities. “Saudi Arabia needs to focus its diversification efforts on areas where it has the greatest advantages,” he told OBG. “For example, as there is a huge amount of sand in the Kingdom, we should dominate the world glass industry.”
Petrochemicals
However, as SIDF investment figures for the last 40 years demonstrate, the abundance of hydrocarbons in the Kingdom has led to a proliferation of downstream petrochemicals businesses, the clearest example of what the 10th Development Plan refers to as “vertical diversification”. The natural gas that is allocated to producers at a subsidised price of SR2.81 ($0.75) per million British thermal units, the lowest price anywhere in the world, has been a significant part of Saudi Arabia’s value proposition for foreign investors. However, the petrochemicals companies are not the only businesses attracted by discount feedstock, and as demand has grown pressure has increased on national oil company Saudi Aramco’s supply. Businesses rely on allocations of gas made by the Ministry of Petroleum and Mineral Resources. According to the Oil and Gas Journal, Saudi Arabia had a gas processing capacity of 11.8bn standard cu feet per day (scfd) in January 2014. Saudi Aramco’s Wasit gas processing plant, scheduled to be fully operational by mid-2015, will offer additional capacity of 2bn scfd.
SABIC describes itself as the world’s second-largest diversified chemicals company and the biggest nonoil company in the Middle East. In 2013 the company employed 40,000 people worldwide and had global sales of SR189bn ($50.4bn). Saudi Aramco is also a significant producer of petrochemicals, and in 2015 its $20bn Sadara complex in Jubail Industrial City II, a joint venture with Dow Chemicals, came on stream (see analysis). In March 2015 Saudi Aramco also announced it had secured financing to expand its Petro Rabigh facility, a joint venture with Sumitomo of Japan.
Plastics
Petrochemicals production also presents opportunities for integration with value-added segments. “The petrochemicals industry should be grown vertically through developments such as downstream industrial parks, so that rather than exporting commodities you can turn them into higher value-added finished products,” Ziad Al Labban, CEO of Sadara Chemical Company, told OBG. “This creates more value and, even more importantly, more jobs for our young population.”
Plastics producer Rowad National Plastics Company makes polycarbonate, acrylic and several other types of sheets and geomembrane liners for the construction and media sectors. They also produce battery cases for the automotive industry and BOPP film for the packaging industry. One-quarter of the company’s sales are exports, with key markets including Italy, Greece, France, Poland, North Africa, Pakistan, India and Australia. In addition, it has ambitions to supply North and South America from a new SR800m ($213.2m) facility in Hail, set to start production in late 2015.
“Downstream petrochemicals, especially plastics, is a very competitive sector due to the highly developed local industry,” Ossamah Elshebany, the company’s general manager, told OBG. “Plastics companies do not enjoy the same sort of low feedstock costs that upstream petrochemicals manufacturers do. However, they are still located close to petrochemicals production facilities, allowing for greater access and cheaper transport costs, which enables the industry to be slightly competitive internationally.”
However, there are significant challenges in the sector, with producers facing high prices and a shortage of materials, largely due to petrochemicals companies selling overseas rather than the local market. Downstream producers have faced an environment where many firms must contend with a general lack of investment. As a result, businesses have banded together to press the government to enact legislation requiring petrochemical producers to sell more of their output locally. One businessman who has been central to these efforts is Ali Hassan Al Jameel, industrial sector CEO of Al Rajhi Holding. He said, “By requiring petrochemical companies to sell more of their products locally by imposing an export tax if they export more than 70% of their product, it will boost availability of materials and create competition, which will bring prices down to a point that will attract increased investment in downstream production. This will help to create more job opportunities and further diversify the economy.”
Automobiles
Meanwhile, the auto sector has provided a new avenue for opportunities in the sector. Local producers may choose to concentrate their operations in southern regions such as Jazan, as facilities located there will be able to take advantage of a large Yemeni workforce and lower logistics costs – as well as having the additional benefit of providing stability to the border regions. With an initial focus on assembly, the industry may also look to securing government contracts and exporting to high growth areas in Africa, given its proximity to nearby markets. Local firm Takwa has been around for over 50 years in the manufacturing and industry sectors, with a focus on the production of auto and industrial parts and equipment, and is looking to rebuild and refurbish some of its factories, in line with wider trends. As Saudi industrialists begin to explore their options in the auto industry, foreign companies will likely find significant opportunities for partnerships with local firms that are looking to expand, while also helping to introduce best practices.
METALS: Saudi Arabia’s steel production rose by 15% from 2013 to 2014, the second-highest increase in percentage terms in the world. Production was up from 5.5m tonnes to 6.3m tonnes, according to the World Steel Association, making the Kingdom the world’s 25th-largest steel producer. Monthly steel production for December 2014 showed Saudi Arabia produced 547,000 tonnes, up 7% from the same month in 2013, when it produced 509,000 tonnes. Steel production in the Middle East rose by 7.7% from 26.5m tonnes to 28.5m tonnes. Mahdi bin Nasser Al Qahtani, CEO of Al Rajhi Steel, told OBG, “The demand in steel is well-ensured by the ongoing mega projects, even though the industry is facing issues from imported materials.”
SABIC is the biggest steel producer in the country, through its subsidiary Hadeed Saudi Iron and Steel Company. In 2013 it produced 5.9m tonnes globally, a rise of 5%. The company said in its 2013 annual report that it was investing $4.3bn in new manufacturing facilities in Saudi Arabia and that it was carrying out a feasibility study on iron ore reserves in Mauritania, which could give it access to 500m tonnes of iron ore. SABIC products include wire rod coils, steel billets, galvanised products and steel slabs. In April 2014 local press reported SABIC hoped to increase its global production to 10m tonnes by 2025 at new plants at Rabigh and Jubail.
Steel consumption is largely fuelled by the construction sector, and Saudi steel business executives see growing demand driven by construction projects large and small. “The current shortage of housing will be a big source of future revenue as the government and private developers look to fill this gap,” Hussain Al Nafisi, CEO of Absal Steel, told OBG. “Significant amounts of local steel will be consumed in these efforts. Over the next five to10 years we anticipate a boom, with lots of projects set to come on-line and additional expenditure on infrastructure upgrades expected.”
However, in the short term Al Nafisi was concerned by the impact of cheap steel imports from China. With declining steel prices squeezing margins and putting pressure on smaller steel producers, there is some expectation that the government should provide more support for local manufacturers, such as new regulations for export of reinforced steel and cement.
Sharjeel Azhar, CEO of Al Ittefaq Steel, told OBG, “Even though the steel industry is driven by mega projects and infrastructure construction in the Kingdom, we are still facing unfair competition, volatile prices and oversupply.” Majed Al Dawas, the acting CEO of Jubail Energy Services Company, expressed similar sentiments. He told OBG, “Foreign competition is hurting the local industry, as many are coming in and selling below cost. The GCC needs to take collective action against this to protect local companies.”
Building Materials
An example of new government rules supporting Saudi businesses can be seen in another area of the building supply industry. “The Ministry of Water and Electricity announced that all new houses will be required to have thermal insulation. We are hoping that they will consider red bricks as a substitute to thermal insulation, as this would be a serious boon for local brick manufacturers given the amount of housing that will be built in the coming years,” Behairi told OBG, adding that the Kingdom’s brick companies were producing 2400 tonnes per day.
Others agree. Khalid A Al Amoudi, CEO of Saudi Red Bricks, told OBG, “In the near future, we expect growth in the demand for insulated bricks within the construction market. Not only is this new product cost-effective during the construction phase, but it will also reduce the cost of electricity consumption as a result of improved insulation.” According to MEED, the value of projects either planned or under way rose by 13.7% in 2014 to reach $1bn. Jadwa Investment reports that new letters of credit for imports of building materials stood at $5.9bn for the year by November 2014.
The cement sector is also poised to benefit from future home building schemes. According to the US Geological Survey, Saudi Arabia’s cement production growth was higher than anywhere else in the world, with output increasing by 10.5% from 57m tonnes in 2013 to 63m tonnes in 2014. This made Saudi Arabia the eighth-largest producer of cement in the world, overtaking the output in Japan and Turkey in 12 months. The 14 cement companies listed on the Saudi Stock Exchange saw sales grow by 3.8% in 2014 to reach SR13.5bn ($3.6bn), according to local media reports in March 2015. The National Committee for Cement Companies (NCCC) said demand for cement was expected to grow by 4% in 2015 to reach 59.5m tonnes. In the meantime, producers have built up a surplus. “Saudi cement is the only industry that keeps stocking, whereas in other countries companies will cut production,” Ali Al Qahtani, the managing director of Cement Services Industries, told OBG. “Companies keep producing because they want to be prepared for the inevitable construction cycle upswing. The cement industry enjoys the privilege of low energy cost that has helped the industry to keep investing in high capital expansions to avoid an acute shortage of cement.” Access to foreign markets would also support suppliers, and the NCCC called for the lifting of a ban on cement exports.
Logistics
A significant proportion of the infrastructure work taking place in the Kingdom in the next few years will revolve around improving transport links and building ports, roads, rail links and metro services. The GCC railway system is due to be complete in five years and will allow freight to travel across Saudi Arabia, with goods coming from the West arriving at Saudi Arabia’s Red Sea ports, while container ships from China and East Asia will be able to dock in Oman to avoid using the Straits of Hormuz. Work on the network is under way and although the 2018 deadline is not expected to be reached, some sections will be up and running.
The rail shipments are expected to take 13-14 hours from coast to coast on the new network. “The ships will save 10 days of sailing at a cost of $70,000-80,000 a day, but while the expense is important, so is the speed,” Al Zamil told OBG. “For this reason, logistics is an important area for the Saudi economy. We are starting to see global companies coming and investing in that sector in a big way.” This infrastructure focus will also benefit a varied range of manufacturers. Dionysius Metzemaekers, CEO of Saudi Cable Company, told OBG, “The demand for both high and extra-high-voltage cables is driven by all mega-infrastructure projects in the Kingdom; a good example is the Makkah rail project. Indeed, as far as extra-high-voltage cables are concerned, I see this as an irreversible trend.”
Pharmaceuticals
Saudi Arabia’s health care market was worth $24.7bn, according to World Health Organisation figures in 2011, and in 2014 Alpen Capital forecast a compound annual growth rate of 11.4% from 2014 to 2018, with a projected market value of $31.5bn by 2018. Serving this growing market is an expanding pharmaceuticals industry. According to CDSI data, there were 34 factories with a combined output of SR3.2bn ($852.8m) worth of pharmaceuticals in the Kingdom in 2013, with 9099 employees. SIDF data shows that 32 projects have received funding totalling SR2.96bn ($788.8m) since the fund was established. For example, Saudi Chemical Company’s sister firm, Aja Pharma, built a SR230m ($61.3m) factory in Hail.
“Saudi Arabia has the potential to become a pharmaceuticals manufacturing hub in the near future,” Mohammad Al Badr, Saudi Chemical Company’s general manager, told OBG. “The industry won’t only supply the Kingdom, but will also sell products to the regional and even international markets.”
International investors are keen to capitalise on these opportunities. After South Korea’s president, Park Geunhye, visited Saudi Arabia in February 2015, Korean media reported that three representatives of pharmaceuticals businesses there had been part of the delegation and were keen to invest in the Kingdom with the intention of building production facilities as a base to export to the Middle East. In November 2014 Saudi media reported that Indian businessman B.R. Shetty was planning to invest SR1bn ($266.5m) in a health care centre and Neo Pharma pharmaceuticals factory in Jazan. The report said the SIDF would provide 75% of the funding in soft loans to be paid back over 20 years.
Medical device and equipment manufacturers are also seeing growth in the national market and further afield. Abdulhakim Al Madhi, general manager of ENAYAH, said the Kingdom had earned a reputation for high-quality goods. “With hospitals shifting from reusable to disposable items, we are seeing significant growth in demand for locally produced consumables,” said Al Madhi. “Surrounding Arab countries see products made in Saudi Arabia as high-quality, desirable goods.”
Testing Times
However, just as Saudi companies are looking outward to support growth, international players coming into the market are creating competition. According to Metab Al Saif, CEO of Motabaqah, a company that operates 15 testing laboratories, in the Kingdom, one of the biggest challenges it faces are that firms abroad are able to import goods with foreign Kitemark assurances. Compounding the issue of foreign competition in the segment, the Saudi Standards, Metrology and Quality Organisation both regulates the sector and also runs its own testing laboratories. “While the government is supporting the sector by licensing and allowing many private labs to operate in the field, further support is expected in the accreditation process and competition caused by having certain government bodies in the field,” Al Saif told OBG. “These government entities are expected to potentially adopt international standards recognised by international governing bodies such as [International Laboratory Accreditation Cooperation] ILAC. As such, the private sector is expecting the government to act as a regulator only, allowing the private sector to increase their capacity without competing with the government testing labs.”
Light Industry
The growth of Saudi Arabia’s population has enabled a range of lighter industries to cater to consumers’ needs. CDSI data for 2013 shows that the textiles and apparel industries employ about 15,000 and 13,000 people, respectively. The textiles industry is worth SR5.9bn ($1.6bn), while SR1bn ($266.5m) of apparel was produced in the Kingdom. Saudis are also producing goods for their homes, with SR14.7bn ($3.9bn) worth of electrical equipment manufactured by 34,500 workers in over 200 factories, and SR2.9bn ($772.9m) worth of computers and optical equipment produced by over 8000 workers in around 50 workshops. As more homes are built, there is also a growing demand for furnishings and interior design; the furniture market was worth SR3.4bn ($906.1m) in 2013 and employed more than 25,000 staff in more than 300 factories. Abu Samak told OBG, “The demand is massive here so sales are not an issue. The real challenge is being able to keep up with consumption.”
Two of the biggest light industrial sectors supply the country with food and drink. The food industry was worth SR46.5bn ($12.4bn), while beverages accounted for SR27bn ($7.2bn). The food industry employed 118,000 people in almost 700 factories, while 42,000 people worked in the drinks industry in 188 production plants. One of the most high-profile new entrants to the food sector was the confectionary firm Mars, which opened a new plant in Emaar, the Economic City at Rabigh, in December 2014.
Outlook
The proliferation of industries serving Saudi Arabia’s 30m consumers shows it is a significant market, but the big hitters in the economy are still the heavy industries fuelled by hydrocarbons and their byproducts. The drop in oil prices may have reduced the advantage producers in the country have over foreign competitors, but those using natural gas are still paying a lower cost than those elsewhere. The determination to see more of the population working in the private sector, and the subsequent introduction of Nitaqat quotas and penalties, present short-term challenges for investors planning labour-intensive enterprises, but weigh up well when balanced against the advantages of cheap operating costs and a foothold in a stable and prosperous economy and regional hub.
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