Rebooting the industrial plan for Saudi Arabia

13 March 2014

Saudi Arabia is embarking on the next phase of its industrialisation and will have to ensure development agencies are working in harmony

For most of the past four decades, three state-owned entities have driven Saudi Arabia’s industrialisation programme: the Royal Commission for Jubail & Yanbu, which runs industrial cities at Jubail, Yanbu and Ras al-Khair; Saudi Basic Industries Corporation, the petrochemicals and metals company; and oil major Saudi Aramco, which has ensured the availability of low-cost fuel and feedstock.

Working together, the three firms, joined over the past decade by a series of more specialised industrial development agencies, have created a world-class petrochemicals industry in the kingdom, which exports base chemicals to downstream plastics converters around the world, and which has provided a bedrock layer for the broader diversification of the manufacturing sector.

But Saudi Arabia is now embarking on the next phase of its industrialisation and a new approach is required. Or rather, the old approach needs to be revised to suit the changing challenges of the new era.

The next phase of industrial development will depend on Riyadh’s ability to attract leading brands to manufacture in the kingdom for the domestic and export markets. These must be further downstream and more diversified than ever before. According to the Saudi Industrial Development Fund, downstream conversion industries and end-use product manufacturing create about four times as many jobs for every dollar invested in them than are created by the same dollar spent on upstream megaprojects. In addition, downstream production multiplies the commercial value of the basic commodity materials by as much as 15 times.

Downstream manufacturing creates jobs and drives non-oil GDP growth – Riyadh’s most important economic priorities. But the kingdom will be ill-advised to allow the ongoing proliferation of industrial development agencies without ensuring they are working together. The result would be confusion and inefficiency, which could deter potential manufacturers.

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