Saudi Arabia’s industrial and mining sectors have long been singled out by the authorities as targets for expansion to support economic diversification. The Kingdom aims to attract international manufacturers, and develop the capacity of industrial small and medium-sized enterprises (SMEs) to strengthen domestic value chains. At the same time, the country is making efforts to upgrade its transport and logistics infrastructure, and investing in enhancing downstream capabilities to better integrate into regional and global supply chains.
In 2022 high oil prices helped make Saudi Arabia the fastest-growing economy in the G20 (see Economy chapter), and the government is capitalising on the favourable economic environment to roll out new initiatives, such as the National Industry Strategy (NIS) and the Stimulating Local Industry initiative. The aim of these programmes is to foster long-term industrial growth and ensure the Kingdom’s competitiveness in high-potential industries.
Structure & Oversight
Established by royal decree in August 2019, the Ministry of Industry and Mineral Resources (MIMR) is responsible for overseeing the development of the industrial and mining sectors as part of long-term economic diversification efforts. Headed by Bandar Alkhorayef, the ministry is also responsible for encouraging investment in the sectors and awarding licences to exploit the Kingdom’s mineral resources.
Industrial development is guided by Vision 2030, a long-term socio-economic transformation plan. The National Industrial Development and Logistics Programme (NIDLP), the largest of the Vision Realisation Programmes under the umbrella of Vision 2030, aims to transform Saudi Arabia into an internationally competitive industrial and logistics centre. NIDLP focuses on the development of four interrelated sectors: energy, mining, industry and logistics. To stimulate sustainable development in these sectors, the programme aims to maximise the use of local content and Fourth Industrial Revolution technologies, both of which are expected to play a key role in enabling industrial development.
One of NIDLP’s major initiatives is the Made in Saudi programme which is overseen by the Saudi Export Development Authority, an independent national authority tasked with increasing non-oil exports. Launched in March 2021, Made in Saudi is intended to improve the quality and competitiveness of goods manufactured in the Kingdom, encourage local consumers to prioritise the purchase of local items, and enhance the reach and appeal of Saudi manufacturers in overseas target markets. “The Made in Saudi initiative has breathed a new sense of purpose into local manufacturers,” Sharjeel Azhar, CEO of Al Ittefaq Steel, told OBG. “There is a palpable sense that local suppliers can now meet domestic demand and enjoy sustainable growth.”
Sector Development
The NIS, which Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud launched in October 2022, aims to catalyse investment and stimulate non-oil growth, with a focus on 12 high-potential subsectors: 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 (see analysis). In line with Vision 2030 and NIDLP, it seeks to leverage advanced technologies and value-added manufacturing to supplement the traditional drivers of the Saudi industrial landscape, strengthening economic diversification and contributing to the growth of non-oil GDP.
By 2030 the NIS aims to double industrial exports to SR557bn ($149bn), and attract an additional SR1.3trn ($347bn) in foreign and domestic investment. In addition, the initiative expects to increase the number of factories in the Kingdom from 10,640 to 36,000 by 2035. According to the US-Saudi Business Council, the strategy is expected to boost the industrial sector’s contribution to GDP to more than $377bn by 2035, as well as increase the number of jobs in the sector from 900,000 to 3.3m and increase the localisation rate from 41% to 64% by the same year.
In terms of financial enablement, the Saudi Industrial Development Fund (SIDF) helps improve access to financing for industrial and logistics businesses. The fund provides short-, medium- and long-term loans to companies and projects that focus on industry, mining, energy and logistics. Elsewhere, the Saudi Authority for Industrial Cities and Technology Zones (MODON) is responsible for developing and managing industrial lands and integrated infrastructure. The authority oversees 36 industrial cities across the Kingdom that are either already in existence or under development. As of June 2023 MODON had attracted SR405bn ($108bn) in investment from the private sector, and had nearly 6000 factories and 290 logistics facilities in operation or under construction in these cities. Government-owned mining company Ma’aden is one of the world’s largest mining companies based on market capitalisation, operating 17 mines across the Kingdom and exporting products to more than 30 countries. The government estimates that Saudi Arabia possesses more than $1.3trn in mineral reserves.
Public Finance & Support
The Saudi government is channelling investment into the industrial sector through several different institutions. The SIDF approved 111 loans worth SR14bn ($3.7bn) in 2022 in the industry, energy, mining and logistics sectors. The vast majority of the funding – 102 loans worth SR13.4bn ($3.6bn) – went to industry, while logistics received five loans worth SR552m ($147m). Companies in energy and mining split the remaining four loans, with the sectors receiving SR225m ($60m) and SR55m ($14.7m), respectively. SMEs received 79% of the total amount in volume terms, while 40 loans went to factories.
Industrial investment is also channelled through Shareek, an initiative launched by Crown Prince Mohammed bin Salman in March 2021 to facilitate private investment by fostering cooperation between the government and private sector. The idea behind Shareek is that investment from public entities – led by the Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund – can help catalyse SR5trn ($1.3trn) in collaborative investment from the private sector by 2030 and contribute to the Vision 2030 goal of increasing the share of non-oil exports from 16% to 50%.
In March 2023 Shareek announced an initial investment of more than SR192bn ($51.2bn) across 12 projects being undertaken by eight companies, with 28 large companies in total having already signed up to take part in the initiative. Of the announced funding, SR120bn ($32bn) will be spent by 2030 to generate SR466bn ($124bn) in GDP growth by 2040. Five of the 12 projects are being undertaken by government-owned energy company Aramco, including a steel manufacturing joint venture (JV), an engine manufacturing project for the maritime segment and a petrochemicals complex in Jubail. Other beneficiaries included ACWA Power, which plans to use the funds allocated to help build the world´s largest green hydrogen plant; and Ma’aden, to fund the Phosphate 3 project, which is expected to make the company the third-largest global producer of phosphate fertiliser by 2029.
Growth Strategy
In December 2022 the government announced Stimulating Local Industry, an initiative to develop the industrial sector. The goals of the initiative are to stimulate investment in the sector, increase the percentage of local content, boost operational efficiency, improve the competitiveness of factories and spur technology transfer into the region. The programme is set to be an Q1 2023 umbrella initiative for related plans, such as Factories of the Future, Promising Factories and several others in the pipeline. Factories of the Future seeks to automate and modernise 4000 local factories by financing up to 75% of project costs and offering financial incentives, while Promising Factories offers soft loans through the SIDF without requiring personal guarantees or mortgaging property.
MODON supports local industry by offering entrepreneurs and firms ready-built factories ranging from 700 sq metres to 1500 sq metres that are intended for light industries, such as food processing, medical equipment and electrical appliances. In March 2023 MODON signed three contracts with entrepreneurs worth SR10m ($2.7m). The agreements include a ready-built 700-sq-metre factory for Xtreme Systems to localise the manufacturing of electronic and visual products; a 1500-sq-metre factory for Almanara Electric Trading Company to produce electrical equipment; and a 700-sq-metre factory to Musa and Palm for making date fingers.
Performance & Size
Following a year in which high oil prices propelled Saudi Arabia to be the fastest-growing economy in the G20, the first half of 2023 was characterised by a moderation in oil prices and an acceleration in non-oil growth. In the first quarter of 2023 non-oil activities expanded by 5.4% year-on-year (y-o-y). Government estimates published at the end of July 2023 for the second quarter of the year put non-oil growth at 5.5% y-o-y, while oil activities fell by 4.2% y-o-y due to cuts in oil production and lower prices.
According to the World Bank’s Macro Poverty Outlook for Saudi Arabia, in 2022 the non-oil sectors of the economy grew by 4.8%. The value of nonoil exports and re-exports for the year reached SR315.7bn ($84.2bn), up from SR277.5bn ($74bn) in 2021, with total merchandise exports exceeding SR1.5trn ($400bn) in 2022. Local media reported that in May 2023 non-oil exports were up just short of 14.9% from the previous month to SR18.9bn ($5bn), accounting for 19.4% of the country’s total exports. China was the Kingdom’s main trading partner during this period, comprising 17.4% of total exports for a combined value of nearly SR17bn ($4.5bn). In return, China accounted for more than 23% of all imports, followed by the US, at 8.4%.
Manufacturing excluding petroleum refining accounted for 8.6% of GDP in 2022. In the first quarter of 2023 it comprised 9.7% of GDP, up 2.3% y-o-y compared to the corresponding period in 2022. In 2021 – the most recent year for which official figures were available – the manufacturing sector’s operating revenue was SR1.1trn ($293m), while the figure for the mining and quarrying industry was roughly SR900bn ($240bn), most of which was derived from large local and international companies being granted mining concessions.
The Kingdom uses a measure called the Industrial Production Index (IPI) as a general indicator of economic activity in the mining and quarrying, manufacturing, and electricity sectors that measures production levels and capacity. In June 2023 the general index, which combines the three aforementioned sectors, was down 1.7% y-o-y. The IPI for mining and quarrying for the month was down 6.5% y-o-y, while the indices for manufacturing and electricity were up 9.2% and 20% y-o-y, respectively.
Local Procurement
Saudi authorities have unveiled several initiatives in recent years to increase the amount of local content procured by the government, public sector enterprises and private enterprises. The promotion of local procurement is meant to create further demand for domestic industry to foster growth and support the expansion of SMEs. NIDLP has set a target to increase the local content of the oil and gas sector to 75%, and reach a total of $330bn in local content across the non-oil sector by 2030. The shortening of Saudi supply chains is intended to foster the development of more resilient local ecosystems to meet local demand and increase capacity.
To lead the effort of promoting local procurement, the Local Content and Government Procurement Authority (LCGPA), which was established by royal decree in December 2018, has enacted new rules and regulations to advance its objectives. The LCGPA website features the National Products Mandatory List, which outlines 12 categories of national products that must be purchased by contractors throughout their term of contract fulfilment. The lists encompass products ranging from food and agriculture, to water treatment chemicals, hygienic products, artwork, pharmaceuticals, construction and building materials, and furniture. The aim is to foster the development of local industries and enhance their capacity to fill government contracts.
In June 2022 the Council of Ministers approved a regulation requiring that all companies with the government as the controlling stakeholder – such as Aramco and Ma’aden – comply with LCGPA regulations. In October 2022 the PIF launched Musahama, a local content growth programme that sets a related target of 60% across the PIF’s companies by 2025. The regulations stipulate that each company within the sovereign wealth fund’s portfolio consider local content in their design decisions and procurement policies. The PIF’s Supplier Development Programme aids in development and upskilling initiatives for local suppliers to help them meet growing demand from its portfolio companies. In 2023 the fund plans to hold vendor boot camps to help contractors prepare their companies to qualify as vendors.
The SIDF also supports local procurement through its Tawteen programme, which helps facilitate opportunities to localise supply chains by offering financial incentives to companies operating in the industrial sector. The SIDF works with high-profile partners such as Aramco, Ma’aden and government-owned petrochemicals firm SABIC to switch to locally manufactured products and parts.
Metals & Mining
The authorities have identified the mining sector as key to the Kingdom’s long-term diversification, as it seeks to translate its vast mineral wealth into productive downstream industries and high-value exports. Saudi Arabia’s estimated $1.3trn mineral endowment includes gold, copper, nickel phosphate, iron and rare earth minerals. Given that demand for certain mineral resources – particularly copper, nickel and lithium – is increasing due to their importance in the energy transition, Saudi Arabia’s extensive resources and government support could provide it with substantial leverage in the global economy, helping position it as a key part of this important supply chain.
“The mining sector has significant growth potential in Saudi Arabia, as many geographic regions remain untouched,” Ali Mousa Al Jabrah, CEO of Astra Industrial subsidiary Astra Mining, told OBG. “The government is actively working on implementing various projects to explore and create opportunities in the mining sector. Infrastructure development is an essential component in this endeavour, and while there have been significant accomplishments already, we expect to see more in the near future.”
Investment in the sector has been aided by a mining law that took effect in January 2021. The legislation was designed to improve investors’ access to capital, and boost exploration and production activities, by making the licensing process more transparent and allowing for full foreign ownership of entities operating in the sector.
The Saudi Geological Survey (SGS) is the government organisation responsible for collecting geological data and conducting surveys on mineral and groundwater exploration. The Kingdom aims to increase its spending on metals exploration to SR220 ($58.50) per sq metre by 2025 in an effort to discover more resources and expedite progress towards key targets. Increased spending could also lead to the discovery of further mining sites; in January 2022 Abdullah bin Muftar Al Shamrani, CEO of the SGS, told local media that more than 5500 additional locations could be discovered thanks to more funding. The SGS maintains the National Geological Database, which provides online access to national records of geological information, including maps and surveys of mineral deposits in the Kingdom, helping potential investors make informed decisions.
In an effort to stimulate entrepreneurship in the mining sector, in March 2023 Nuthree, an incubator to support Saudi individuals and companies in mineral exploration, was launched. Operated by the SGS in coordination with the Small and Medium Enterprises General Authority, Nuthree’s services include analysing geological data, obtaining exploration licences, and providing intensive courses and training workshops on earth sciences.
At the end of 2022 there were 377 mining complexes in the Kingdom spread across 44,300 sq km, and in August 2023 the MIMR announced that it was making eight more mining sites available for bidding. Makkah Province is home to the highest number of mining complexes, at 76, followed by Riyadh with 60, Medina with 53 and Asir with 34. The Kingdom’s active mining complexes are in 35 mineral belts, the majority of which are located within the Arabian-Nubian Shield, a 3m-sq-km Precambrian rock formation in North Africa and the Arabian Peninsula.
New Investment
As part of broader diversification efforts, the authorities are targeting investors who can capitalise on the Kingdom’s mineral resources to boost downstream industrial production using local inputs. Such investors include UK steel manufacturer JO Steel Holdings, which announced in September 2022 that it would invest nearly $900m to build an integrated billet manufacturing plant in the industrial city of Ras Al Khair. The company secured a $692m credit facility from a consortium headed by what was then known as Saudi British Bank to finance the project. The steel mill is expected to have an annual capacity of almost 1.8m tonnes once it start operations in the first quarter of 2025. In November 2022 Brazilian mining company Vale signed an agreement to build an iron ore pellet production facility in Ras Al Khair that is set to produce 4m tonnes of iron ore annually.
Significant domestic investment in the steel segment has also been announced. In September 2022 the MIMR said that the Kingdom would build three steel plants worth $9.3bn with a combined capacity of more than 6m tonnes. One would produce iron sheets, which are used in shipbuilding, pipelines, platforms and oil depots, while another would produce hot-rolled iron, cold-rolled iron and tin-plated iron. The third is set to produce circular iron blocks.
In addition, the Kingdom is looking to extend its influence in the global mining industry. In January 2023 the PIF and Ma’aden collaborated to form Manara Minerals Investment Company, a JV in which Ma’aden has a controlling stake of 51%, to invest in mining assets around the world to secure essential minerals for the Kingdom´s industrial development. The aim of the entity is to acquire minerals that act as crucial inputs in the production of renewable energy components. In July 2023 the JV agreed to purchase a 10% stake in Vale’s nickel and copper operations for $2.6bn, with the deal expected to be closed in the first quarter of 2024.
Factory Expansion
In 2022 the MIMR issued 964 industrial investment licences amounting to SR32bn ($8.5bn) worth of investment in the industrial sector. Simultaneously, more than 1000 factories began operations in 2022 thanks to nearly SR29bn ($7.7bn) in investment. As of the end of the first quarter of 2023 there were over 10,800 factories in the Kingdom, with total investment in these facilities topping SR1.4trn ($373bn). In May 2023 the MIMR reported that foreign funding represented 37% of investment in the sector, and 17% of factories were the result of foreign or joint investment.
One programme that could enhance foreign investment in manufacturing is the Global Supply Chain Resilience Initiative (GSCRI) announced by Crown Prince Mohammed bin Salman. Launched in October 2022, the GSCRI is an initiative of the National Investment Strategy that intends to make the Kingdom a destination for international manufacturers seeking to diversify or restructure their supply chains. The GSCRI includes SR10bn ($2.7bn) in financial and non-financial incentives, with the goal of attracting SR40bn ($10.6bn) worth of investment during the initiative’s first two years. These incentives are intended to complement the Kingdom’s other competitive advantages to attract global companies, namely its abundant natural resources, robust logistics infrastructure and young workforce.
A particular area in which the Kingdom is seeking to catalyse investment is the automotive subsector. In May 2022 the MIMR announced that it aims to produce 300,000 cars annually by 2030. Developing a robust automobile industry could have positive knock-on effects, as it encourages the development of complex supply chains. In May 2022 Lucid Motors, a US-based luxury electric vehicle (EV) company in which the PIF owns more than 60%, signed an agreement to build its first major international manufacturing facility in King Abdullah Economic City, with a production capacity of 155,000 EVs annually. An estimated 85% of the cars the factory produces will be exported and sold outside the Kingdom.
Outlook
Manufacturing has made steady gains in Saudi Arabia since the launch of Vision 2030, and there is reason to believe that the Kingdom is on the cusp of a new era in its attempts to diversify and industrialise its economy. The country has announced a wide array of new funding initiatives and incentives, a strong signal that it is serious about industrial policy. The focus on local procurement – the Council of Ministers requires that companies in which the government has a controlling stake comply with LCGPA regulations, while the PIF has set local content goals – could shift money from offshore into the Saudi industrial sector, generating a new level of demand to spur further investment.
Policies to attract foreign investment have brought in innovative global companies. Such investment is likely to bring crucial know-how to the industries expected to define the 21st century, spurring a transformation in the local industrial sector. Saudi Arabia’s vast mineral resources and supportive regulatory environment also provide an exciting opportunity to capitalise on demand for minerals related to the energy transition. As the authorities proactively invest in key minerals outside the country, the Kingdom´s own resources are likely to become increasingly sought after as the energy transition gains pace, as there is potential to generate large volumes of revenue and make Saudi Arabia a leading player in the global green economy.
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