The expansion of Saudi Arabia’s industrial sector is a core part of the Vision 2030 strategy to diversify the economy and reduce reliance on hydrocarbons revenue. Industry has been targeted as a driver of future non-oil growth and job creation. Expansion plans are under way for the country’s main strategic industrial segments: oil and gas; petrochemicals; and mining, a significant potential contributor to the economy.
Petrochemicals projects in the pipeline are facilitating significant increases in natural gas production planned for 2030. New initiatives are aimed at spurring industrial growth, including the Made in Saudi Programme; Programme HQ, which encourages multinationals to establish their regional headquarters in the capital of Riyadh; and the Shareek (partner) investment programme. The Kingdom is also in the process of developing new industrial facilities such as OXAGON at NEOM and the King Salman Energy Park (SPARK).
Structure & Oversight
Hydrocarbons and mining represent the main pillars of the country’s industrial base. The Ministry of Industry and Mineral Resources (MIMR) oversees the development of the Kingdom’s industrial and mining sectors. Its remit includes boosting investment in the sectors and leveraging the country’s mineral resources. Bandar Alkhorayef has been in place as minister since 2019. The Saudi Industrial Development Fund (SIDF), for its part, helps to improve access to finance for industrial and logistics businesses. The fund provides short- , medium- and long-term loans that focus on industry, mining, energy and logistics. The Saudi Authority for Industrial Cities and Technology Zones (MODON) is tasked with developing and managing industrial land and integrated infrastructure. It oversees 36 industrial cities across the country, as well as private industrial locations.
There were 10,675 industrial facilities in existence or under construction as of June 2022, according to MIMR. In the first six months of 2022 the Kingdom issued 501 new industrial licences, representing an investment volume of SR13.7bn ($3.6bn). During the same period 721 factories started production, representing SR19.1bn ($5.1bn) worth of investment, and more than 26,000 jobs were created in the sector.
The latest available statistics from MODON show there are 36 industrial cities in operation or under development, with nearly 200 sq km of developed industrial land. The cities under its management supervise 6587 industrial and investment contracts, and more than 4000 factories with 517,242 employees.
Strategy
The Kingdom’s industrial strategy is driven by Vision 2030, Saudi Arabia’s long-term social and economic transformation plan. The National Industrial Development and Logistics Programme (NIDLP) is one of the 11 Vision Realisation Programmes tasked with reaching the goals of Vision 2030. NIDLP was launched in 2019 with the aim of transforming the Kingdom into a leading industrial and logistics centre. It focuses on four key sectors: energy, mining, industry and logistics. It also aims to maximise local content and unlock the potential of the Fourth Industrial Revolution – both of which are seen as enabling pillars of industrial development. NIDLP aims to create 130,000 direct and indirect jobs in the mining sector by 2030.
“Technology has become essential to boosting profit, while lowering costs across the industrial sector. This is not expected to affect the local labour market in the foreseeable future, as the priority for the government is to provide ample job opportunities for the population. Rather, it presents an opportunity to make our industry more regionally and internationally competitive,” Abdullah Ibrahim Alkhorayef, CEO of Riyadh-based industrial firm Alkhorayef Commercial, told OBG.
Diversification, localisation, privatisation and sustainability are key features of the Kingdom’s industrial strategy. Saudi Arabia is aiming to increase the share of non-oil exports from 16% of non-oil GDP in 2016 to 50% by 2030. It also seeks to raise the private sector’s contribution to GDP from 40% to 65%, and increase foreign direct investment (FDI) from 3.8% of GDP to 5.7%. It also targets SR120bn ($32bn) worth of new investment in the mining sector.
In January 2022 Suliman Almazroua, CEO of NIDLP, told local media that the country is encouraging the development of downstream mining activities. This would involve the processing of raw materials to create value-added products, helping the Kingdom to capture more of the mining value chain. Saudi Arabia is looking to expand its petrochemicals sector to tap into anticipated global demand growth for petrochemicals products in the years ahead. The country is also seeking to diversify its oil and gas sector, as well as reduce dependence on crude oil export revenue.
A major strategic priority is localisation. The country aims to curb its current dependence on imports and in turn help local businesses increase the production of goods and services. “The pandemic has led to a shift in priorities. While previously the focus was on boosting efficiency by leveraging global supply chains, today efforts are more concentrated on building resilience. This can be achieved by increasing industrial localisation, particularly in areas that are strategic for the country and relevant to the broader region’s prosperity,” Ibrahim Almojel, CEO of SIDF, told OBG.
Even so, there remains room for foreign participation. “The domestic market is large enough to absorb more local workers,” Alkhorayef Commercial’s Alkhorayef told OBG. “However, it is clear that localisation cannot happen overnight. There are industrial segments that are highly technical and complex, and they still require external technology and expertise,” he added.
Saudi Arabia is also targeting a clean energy and sustainability push which will inform future industrial development. The Kingdom aims to reach net-zero carbon emissions by 2060 and generate half of its electricity from renewables by 2030.
Investment
In March 2022 Bandar Alkhorayef announced that in 2021 the Kingdom had attracted SR81bn ($21.6bn) of investment in the industrial sector, taking into account private ventures and joint ventures with government entities. The government is courting more investment through the March 2021 launch of the Shareek initiative, which targets an increase in domestic investment from private companies to SR4.9trn ($1.3trn) by 2030. The aim of the programme is to help build domestic industrial capacity and supply chains. Government-owned energy company Saudi Aramco and petrochemicals producer SABIC will provide 60% of the investment, with the remainder coming from local private businesses. In addition to this, SR3trn ($800bn) in finance will be provided by the Public Investment Fund and SR4.1trn ($1.1trn) from funds linked to NIDLP, including around SR1.9trn ($500bn) of FDI.
Size & Performance
The economy expanded by 3.2% in GDP in 2021 – a growth rate that is expected to accelerate in 2022. In July of that year the IMF forecast that GDP would expand by 7.6% in 2022, with non-oil growth slated to reach 4.2%. It attributed this to both a rise in oil production and continued robust non-oil recovery, including sustained reform implementation.
The Kingdom’s non-oil exports grew by 35.8% in 2021, increasing from SR204.4bn ($54.4bn) to SR277.5bn ($73.9bn). According to property consultancy Knight Frank’s “Saudi Arabia Industrial Market Review” for the first half of 2021, Saudi Arabia’s non-oil sector expanded by 3.3% year-on-year (y-o-y) in the first half of 2021, during which it accounted for 44% of economic output – up from 41% in the same period of the previous year. Manufacturing accounted for more than SR82bn ($21.8bn) of economic activity, up from SR73bn ($19.5bn) during the same period the year before, and it grew at its fastest pace on record in the first quarter of 2021. Some 30,000 new jobs were generated between the first six months of 2020 and the first half of 2021. In 2020 the SIDF issued 212 loans worth SR17.6bn ($4.7bn), the majority of which were directed to small and medium-sized businesses.
The Industrial Production Index increased by 20.8% y-o-y in June 2022, continuing an upward trend seen since May 2021. Mining and quarrying drove the expansion due to its weight in the index, with the sector growing by 19.2%, while manufacturing expanded by 29.3%, and electricity and gas supplies fell by 1.2%.
Saudi Arabia accounts for 37.9% of the metals and mining market in the Middle East and Africa, worth around SR60bn ($16bn). The country’s mining industry generated SR727m ($194m) in revenue in 2021, following 27% annual growth. As of January 2022 there were 1989 licences in the mining sector. World Bank indicators show that value-added manufacturing accounted for 13% of GDP in 2021, up from 11% in 2011. In January 2022 local media reported a 27% localisation rate in the Kingdom’s manufacturing facilities.
OPEC statistics indicate that Saudi Arabia’s refining capacity grew by 13.7% in 2021, with 400,000 barrels per day (bpd) of capacity added. This raised overall refining capacity to 5.4m bpd. The increase was attributed to the new Jizan refinery in south-western Saudi Arabia. The Kingdom’s refining capacity is expected to rise over the coming decade as Saudi Aramco looks for downstream joint ventures in China and India.
Petrochemicals
A 2022 report by data and analytics organisation GlobalData noted that petrochemicals projects dominate Saudi Arabia’s current pipeline of oil and gas programmes, accounting for around 60% of the projects anticipated to start during the 2022-26 period. The report found that out of the 45 petrochemical projects expected to begin operations by 2026, 37 would be new builds and the remainder would be expansion projects. Petrochemicals are expected to help Saudi Arabia diversify its economy and increase the production of value-added products.
Petrochemicals are rapidly becoming the largest driver of global oil demand, according to the 2018 International Energy Agency’s “Future of Petrochemicals” report. They are expected to account for over a third of the growth in oil demand by 2030 and nearly half by 2050 – ahead of trucks, aviation and shipping. Petrochemicals are used in products such as plastics, fertilisers, clothing, medical equipment, detergents and tyres, among others. The production of plastic polymers is a major component of petrochemical demand. Research and Markets’ “Petrochemicals Global Market Report 2022” estimated that the global petrochemicals market was worth $599.1bn in 2021 and was expected to increase to $629.7bn in 2022, based on a compound annual growth rate (CAGR) of 5.1%. By 2026 it is estimated to increase to $761.6bn at a CAGR of 4.9%.
The Kingdom is working to increase its production of natural gas, which is expected to support rising demand for high-value petrochemical feedstock. In November 2021 the Kingdom awarded contracts for the development of its Jafurah gas field, a facility that is expected to produce 2bn cu feet per day of gas by 2030.
In June 2020 Saudi Aramco acquired a 70% stake in SABIC, one of the world’s largest petrochemicals manufacturers. The remaining 30% is publicly traded on the Saudi Exchange. The purchase, worth SR259bn ($69.1bn), is part of Saudi Aramco’s plan to bolster its downstream growth strategy, positioning SABIC as its chemicals arm. SABIC will now concentrate on petrochemicals and Saudi Aramco will focus on fuel products.
SABIC has a global footprint, with manufacturing facilities in the US, Europe, the Middle East and Asia Pacific. It is active in petrochemicals, chemicals, industrial polymers, fertilisers and metals. SABIC’s major in-Kingdom industrial operations are located in the industrial port cities of Jubail in eastern Saudi Arabia and Yanbu on the Red Sea. In October 2021 SABIC announced a target to become a net-zero company by 2050 across its operations. As part of this it aims to reduce its emissions by 20% by 2030 in line with the country’s wider climate goals. “Saudi Arabia’s pledge to achieve net-zero greenhouse gas emissions by 2060, as determined by the Saudi Green Initiative, is spurring a whole-of-society approach to the energy transition. With clearly defined targets, timeframes and financing, demand for renewables and technologies that facilitate energy efficiency is increasing,” Almojel told OBG.
SABIC is also supporting a number of the Kingdom’s broader sustainability and green initiatives in the journey towards carbon neutrality. In October 2021 Khalid Hashim Al Dabbagh, the chairman of SABIC, told international media the company was actively contributing to strategic initiatives including hydrogen production, reusing captured carbon and recycling plastics.
Metals
In May 2022 MIMR announced it had secured SR22.5bn ($6bn) in financing to build a SR15bn ($4bn) steel plate mill complex and a SR7.5bn ($2bn) electric vehicle (EV) battery metals plant. The steel plate mill complex will be used for shipbuilding, as well as the oil and gas, construction and defence sectors. Another integrated green flat steel complex will supply the automotive, food packaging, machinery and equipment fields, among others. The EV plant will provide inputs for EV batteries, in support of the development of the EV industry in the Kingdom (see analysis).
Mining
Saudi Arabia has identified mining as a key sector with significant potential for future development. The country estimates its untapped mineral resources have a potential value exceeding SR4.9trn ($1.3trn), according to the Saudi Geological Survey (SGS), a government organisation responsible for collecting geological data and conducting surveys, especially in relation to mineral and groundwater exploration. This mining potential includes gold, copper, phosphate, iron ore and rare earth minerals. The Kingdom aims to become part of the global supply chain for raw materials, which are expected to see an increase in demand from key sectors in the future such as renewable energy. Minerals are set to play a crucial role in the global transition to a low-carbon energy system.
In January 2022 Abdullah bin Muftar Al Shamrani, CEO of the SGS, told local press the Kingdom planned to triple expenditure on the exploration of metals over the subsequent three years, with spending expected to reach SR220 ($58.65) per sq metre. The increase in spending is designed to expedite the sector’s targets and help discover more locations; Al Shamrani has said this could exceed 5500 mining sites.
In October 2020 the Kingdom launched the Regional Geological Survey Programme, signing four contracts with international experts worth a combined SR553m ($147m). It is one of the world’s largest geophysical and geochemical surveys. While eastern Saudi Arabia is home to significant oil and gas deposits, western Saudi Arabia has a large concentration of mineral resources. The SGS has recently taken steps to improve the provision of data for prospective investors. In December 2021 the SGS launched the National Geological Database, which provides online access to national records of geological information, including maps and surveys of mineral deposits in the Kingdom.
The country is actively seeking to attract local and international investors in mining opportunities. A new mining law came into effect in January 2021 in an effort to boost FDI in the sector. Among the elements expected to attract investors are the Kingdom’s varied geology, the mining ecosystem it has developed and its focus on sustainability. Highlighting Saudi Arabia’s net-zero emissions by 2060 target, Al Shamrani said the sector will follow internationally recognised environmental, social and governance guidelines.
The inaugural Future Minerals Forum was held in Riyadh in January 2022. The event focused on the future of mining in Africa, the Middle East and Central Asia, and provided an opportunity to explore the potential of the mining industry, from exploration to downstream battery metal processing. The forum was designed to be a one-stop-shop for investors, miners and other stakeholders. The Kingdom aims to position itself as a leader in mining at the regional and international level, establishing itself as a mineral knowledge and production centre for the Middle East, Africa and Central Asia.
Industrial Facilities
Saudi Arabia is planning new facilities to accelerate future industrial development. In November 2021 plans were announced for OXAGON, also known as NEOM Industrial City, which will be located in north-western Saudi Arabia. The 48-sq-km development will be built around the Duba seaport in the south-western corner of NEOM, and will include onshore elements and floating structures offshore. It will be the largest floating industrial complex in the world, and the first fully integrated port and supply chain ecosystem for NEOM. Among the project’s target areas are technology and digital manufacturing, including telecommunications, space technology and robotics; and it will use modern construction methods.
In December 2021 Saudi Aramco broke ground on a 277,000-sq-metre drilling and workover facility at SPARK. The 50-sq-km park is located between Dammam and Al Ahsa in the Eastern Province. It is intended to be a gateway for the region’s energy sector, serving as a manufacturing, service and logistics centre. It is expected to be completed by 2035 and contribute an estimated SR22bn ($5.9bn) to GDP annually.
New Projects
The Kingdom is in the process of awarding exploration licences for the country’s largest mining exploration site, the Khnaiguiyah site. In August 2022 three finalists were announced to bid for the exploration rights, following submissions in March of that year. The Khnaiguiyah site covers some 353 sq km. The SGS estimates the site has a geological potential of more than 25m tonnes of zinc and copper, both of which are key raw materials for energy transition technologies. Exploration work includes 100,000 metres that were already drilled and a three-dimensional geological model. The ministry estimates the site will receive SR2bn ($533.2m) in investment.
In June 2021 Saudi mining company Ma’aden awarded a contract to provide mining services for its SR3.3bn ($880m) Mansourah Massarah gold project. The project is located in the central region of Saudi Arabia and involves the development of two open-pit mines that are expected to help increase Ma’aden’s gold mining capacity by 70%. The project is scheduled to reach full capacity by 2023 and will be responsible for producing 25% of Ma’aden’s target gold production. The company is aiming to produce 1m oz of gold a year by 2025. Representing an important step towards maximising local content in industry and mining, the contract was awarded to Saudi firm Jac Rijk Al-Rushaid Company. It will provide operational mining services such as drilling, scaling, loading, hauling, re-handling, ore control, dewatering, crusher feed and all related production activities at the mines. Gold currently accounts for around 20% of Ma’aden’s total revenue.
In August 2022 the company announced commercial operations had begun at its third ammonia plant in Ras Al Khair Industrial City in north-eastern Saudi Arabia. The SR3.4bn ($900m) project is the first part of Ma’aden’s SR24bn ($6.4bn) Phosphate 3 expansion plan, which aims to increase the company’s total phosphate fertiliser production capacity to 9m tonnes. The expansion is expected to add 3m tonnes of production capacity and help make Ma’aden one of the top-three phosphate fertiliser producers in the world.
Ma’aden recorded its best half-year results to date in the first six months of 2022, with a 232% jump in net profit to SR6.2bn ($1.7bn) driven by higher production volumes from new projects and improved efficiency in existing operations. In June 2018 the government raised its stake in Ma’aden to 65.44%, with the remainder listed on the Saudi Exchange. Ma’aden is the largest multi-commodity mining and metals company in the Middle East. Based on market value, the organisation ranks among the top-10 mining companies in the world.
Local suppliers comprised some 74% of Ma’aden’s supply chain in 2020, and the company says it is pushing to increase that figure further. In January 2022 Almazroua said that Ma’aden was implementing measures to ensure better environmental practices, including preserving and re-treating water using newly built pipelines, and powering facilities with renewable energy.
Made in Saudi
A new programme known as Made in Saudi was launched in March 2021 to promote and increase the competitiveness of local products and services. The programme is a NIDLP initiative managed by the Saudi Export Development Authority (SEDA), which is tasked with supporting domestic exporters in line with the wider goal of growing non-oil exports. SEDA offers programmes and support to enable exporters to access and compete in targeted global markets.
The initiative aims to build a unified national brand for Saudi products and services; promote Saudi-made products and services locally, regionally and internationally; and raise awareness and confidence in the country’s products and services among local and foreign consumers. Made in Saudi is intended to stimulate national industries and generate opportunities for Saudi businesses to expand their reach and promote their products both at home and abroad. This is expected to help increase the Kingdom’s non-oil exports in priority export markets.
A Made in Saudi Expo was held in February 2022 in Riyadh, offering a platform to introduce and showcase national products and services. At the event, SEDA signed cooperation agreements with public and private companies to promote business opportunities. As of February 2022 the Made in Saudi programme included more than 1300 companies and 6000 registered products, with over 2000 new firms waiting to be registered.
Regional Base
The Kingdom is making efforts to encourage multinational companies to establish their regional headquarters in Riyadh. In February 2021 Saudi Arabia said it would stop giving government contracts to companies with regional headquarters outside the country starting in 2024. The Kingdom is capitalising on its position as the region’s largest economy and seeking to avoid operations being overseen remotely from other regional economic centres. As of October 2021, 44 companies had set up regional headquarters in the Kingdom, including technology, food and beverage, consulting and construction firms.
Fahd Al Rasheed, president of the Royal Commission for Riyadh City, said in a statement in October 2021 that the relocations are expected to bring SR67bn ($17.9bn) worth of investment to the economy and provide 30,000 jobs by 2030. He added that the target is for 480 companies to relocate to the Kingdom by 2030. Saudi Arabia is aiming to transform Riyadh into a major global city by 2030, doubling its population and increasing the number of visitors to more than 40m.
In March 2022 Saudi Arabia issued new guidance for its Programme HQ. It defines regional headquarters as regional centres of administrative power for the multinational that should provide strategic direction to branches, subsidiaries and affiliates operating in MENA.
Outlook
As Saudi Arabia works to transform its industrial sector, hydrocarbons, petrochemicals and mining are set to be of central importance to industrial growth this decade. Petrochemical projects will help the Kingdom capture more of the value chain from the non-combustible segment of the oil and gas sector, and anticipated demand growth for key minerals offers a significant opportunity for the country if it can successfully tap into its wealth of mineral resources in the years ahead. Mining and manufacturing represent strategic sectors that can help to diversify the nation’s income sources and drive expansion in non-oil sectors.
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