Launched in October 2022, the National Industry Strategy (NIS) aims to promote non-oil exports and attract investment, using advanced technologies along with value-added manufacturing to drive sustainable growth and development. These are expected to supplement the traditional drivers of the Saudi industrial landscape, such as oil, basic manufacturing and petrochemicals. The NIS targets 12 industrial sectors: automotive, aviation, chemicals and specialty chemicals, construction materials, food and agriculture, machinery and equipment, maritime manufacturing, medical devices and supplies, military manufacturing, mining and minerals, pharmaceuticals and renewable energy. The initiative aims to attract an additional SR1.3trn ($347bn) in domestic and foreign investment and double industrial exports to SR557bn ($149bn) by 2030. The strategy also expects the number of factories to rise from 10,640 in October 2022 to 36,000, annual industrial GDP to surpass $377bn and nearly 3.3m industrial job opportunities to be created by 2035.
Strategy Considerations
Fully achieving the NIS will require trade-offs between import substitution and long-term competitiveness by fostering value chain integration, mitigating disruptions to supply chains and promoting sustainability efforts. While such measures can promote the growth of domestic industries, they can also lead to poor resource allocation and reduced competition. Alternative approaches are needed to be in line with global practices and hold firms accountable.
Well-coordinated policies that support value chain integration are also beneficial, meaning both backward and forward linkages to increase domestic value added and improve downstream activities. Integrated value chains can help mitigate disruptions in global supply chains. To achieve resilience, strategies must balance cost-efficiency and risk mitigation by focusing on strengthening local capabilities and leveraging technology for supply chain visibility and agility. In addition, environmental sustainability remains a high priority, and efforts should be made to nurture a talent pool capable of addressing environmental challenges, leveraging technologies and developing financing schemes for the transition to a net-zero economy. Additionally, incorporating energy-efficiency measures into the digitalisation efforts being undertaken by small and medium-sized enterprises (SMEs) can further support sustainability goals. Various initiatives and programmes are demonstrating Saudi Arabia’s commitment to capital enablement, local content and localisation, technological innovation and sustainability.
Capital
Saudi Arabia helps economic operators acquire capital goods, raw materials and machinery to increase productivity. The government has initiatives to facilitate the acquisition of necessary equipment, production inputs and financing for all types of businesses, including export-oriented industries.
In March 2021 Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud launched Shareek, a programme aimed at increasing large companies’ investment in Saudi Arabia. The intention is for the public and private sector to collaborate to spur SR5trn ($1.3trn) in investment in the private sector and have it account for 65% of GDP by 2030, helping the country become the world’s 15th-largest economy. In March 2023 Shareek announced SR192bn ($51.2bn) in investment for 12 projects being carried out by eight Saudi companies, including national energy firm Aramco, petrochemicals producer SABIC and mining company Ma’aden.
As for SMEs, in 2022 the Saudi Industrial Development Fund (SIDF) approved 111 loans valued at SR14bn ($3.7bn), of which 79% were granted to SMEs. Elsewhere, to boost non-oil exports across the board, in 2022 the Saudi EXIM Bank approved SR13.6bn ($3.6bn) to fund and insure various sectors. Export credit insurance policies amount to around SR9bn ($2.4bn), while disbursed export financing requests totalled nearly SR4.6bn ($1.2bn). These initiatives have resulted in Saudi non-oil exports reaching more than 60 countries.
Beyond credit facilities, another important aspect of capital enablement is the provision of readily available facilities through initiatives such as the National Industrial Development and Logistics Programme (NIDLP). The ready-built factories produced as part of the programme are particularly beneficial for local SMEs and foreign investors following a phased approach to localising their manufacturing activities in Saudi Arabia.
Local Production
To help SMEs expand and foster domestic industrial growth, Saudi Arabia is actively promoting local content and localisation across various sectors. The government targets a 75% increase in such content in the oil and gas sector, and $330bn of local content in the non-oil sector by 2030. To achieve these goals, in June 2022 the Council of Ministers approved new regulations requiring majority-government-owned companies to comply with the regulations of the Local Content and Government Procurement Authority (LCGPA). This shift is designed to encourage companies like Aramco, SABIC, Ma’aden and others to give favourable treatment to local content and SMEs. Majority-government-owned companies are also set to be required to track and report their local content usage to the LCGPA. In October 2022 the Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth entity, launched Musahama, setting a target of achieving 60% local content across its portfolio by 2025. The PIF will also hold vendor boot camps, and share supplier and investment opportunities to facilitate the qualification of contractors as vendors and promote local content.
The SIDF, for its part, contributes to local content through initiatives like Tawteen, which helps facilitate opportunities to localise supply chains by offering financial incentives to companies operating in the industrial sector; and Afaq, which supports SMEs in the expansion phase by providing loans and technical advisory services, as well as helps build partnerships between entrepreneurs and business incubators. In October 2022 Crown Prince Mohammed bin Salman launched the Global Supply Chain Resilience Initiative (GSCRI), which is expected to further enhance local content and localisation goals. In addition to an initial $2.7bn in financial and non-financial incentives, the GSCRI aims to attract more than $10.6bn in investment in its first two years, strengthening Saudi Arabia’s position as a major player in the global economy.
Technological Innovation
On the technological front, Saudi Arabia recognises the importance of innovation and has implemented initiatives to foster the adoption and development of Fourth Industrial Revolution (4IR) technologies. One example is the Centre for the 4IR, which was inaugurated in Riyadh in July 2021. One of a series of such centres that are affiliated with the World Economic Forum (WEF), the Riyadh location provides beneficiaries with knowledge in and experience with 4IR technologies, including how to implement them, as well as helps participating companies benefit from these technologies.
The SIDF is also promoting advanced manufacturing through its participation in the WEF’s Global Network of Advanced Manufacturing Hubs, which facilitates exchanges between manufacturing ecosystems at the local and national levels to help regions share best practices and case studies. Similarly, the International Centre for Industrial Transformation in Singapore has partnered with NIDLP to promote the adoption of the Smart Industry Readiness Index throughout the Kingdom. By incorporating the principles of the index into the country’s manufacturing facilities, NIDLP aims to establish a comparative advantage that makes Saudi Arabia more attractive to investors. Applying 4IR concepts in 100 factories evaluated by NIDLP is expected to lead to result in more than $133m in efficiency gains.
Targeted financial support is also helping mainstream 4IR technologies. The SIDF’s Tanafusiya accelerator programme is focused on supporting projects that are oriented around reducing energy consumption, offering them benefits such as a longer grace period, faster application processing and consulting services.
Environmental Sustainability
In May 2021 the Ministry of Industry and Mineral Resources established the Sustainability Council to strengthen related efforts across the Kingdom’s industrial and mining sectors. The council aims to support sustainability goals, enhance sectoral competitiveness, and improve environmental and social development indicators, while also creating an environment conducive for investment.
On the credit side, the SIDF has implemented strict protocols to ensure that projects financed by the fund comply with Saudi Arabia’s environmental standards and align with the Kingdom’s long-term national environmental strategy. Additionally, the SIDF offers financing programmes that support sustainability-related initiatives, such as Mutajadeda, which provides incentives for financing distributed solar power generation, independent renewable power generation, and the manufacture of solar and wind power components. Tanafusiya, by virtue of supporting investment in digitalisation and energy efficiency efforts, ultimately plays an important role in boosting sustainability as well.
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