The appointment in February of Mohamed al-Mady, the long-time CEO of Saudi Basic Industries Corporation (Sabic), as chairman of Saudi Arabia’s General Organisation for Military Industries (Gomi) was a move that took many by surprise.

King Salman bin Abdulaziz al-Saud’s decision appears to reflect a desire to install someone with expansive corporate experience in the upper echelons of the Saudi defence sector. Al-Mady will ensure the kingdom gets the best deal out of the billions of dollars it spends on military procurement every year.

Al-Mady’s departure from Sabic came suddenly and finally put to bed endless rumours about his leaving the company, which he has run since 1998. His acting replacement is Yousef al-Benyan, who had been named executive vice-president of corporate finance at Sabic in January. It is not yet clear whether Al-Benyan is a permanent replacement or is filling in until a long-term appointment can be made.

Growth strategy

Whatever the outcome, it is clear there needs to be a strategy in place that can grow Sabic further. Al-Mady had been at the firm since it was formed by royal decree in 1976; he left it one of the world’s largest chemicals producers and the largest listed company in the Middle East.

As of 2013, Sabic was the world’s fourth-largest producer of chemicals and is one of only a handful of truly global companies originating from the region. This has been achieved domestically through organic growth and internationally via acquisitions such as the firm’s $11.6bn purchase of US-based GE Plastics in 2007.

Thirty per cent of Sabic’s shares are traded on the Saudi Stock Exchange (Tadawul); the other 70 per cent is owned by the government.

Domestic focus

Despite the global footprint that came with the GE acquisition, the kingdom remains the bedrock of Sabic’s activities and the company runs 17 affiliates and subsidiaries making chemicals products as well as steel and fertilisers. Much of this has been achieved through a strategy devised by Riyadh that provided extremely cheap gas feedstock for petrochemicals production in order to drive industrial growth, create jobs and diversify away from oil exports. Over the past two decades, this has been a success. The twin industrial cities of Jubail and Yanbu stand testament to this. From rural fishing villages, the cities have grown into two of the largest industrial zones in the world.

However, since 2007 there has been a lack of available gas feedstock in the kingdom, and this has caused Sabic’s domestic project activity to grind to a near standstill.

Aramco entry

Meanwhile, oil major Saudi Aramco has entered the petrochemicals sector with almost $30bn-worth of domestic investments and the promise of more to come, fuelled by its vast network of oil refineries. However, there is no doubt Sabic will remain the kingdom’s petrochemicals superpower. But there must be some changes.

It is clear the old strategy of using cheap gas is gone and is unlikely to come back. Riyadh is keen to curb its excessive subsidies and will eventually raise the price of ethane from the current 75 cents a million BTUs.

Oil to chemicals

The prevalent mode of chemicals production in the region is shifting towards the use of a combination of liquid and gas feedstock, and Sabic is looking to develop this on a large scale.

A proposed oil-to-chemicals (OTC) plant in Yanbu will be the largest of its type in the world and will cost far in excess of $30bn to build. It is presently only at the study phase and is being pursued by both Aramco and Sabic. Whoever is appointed the permanent CEO of Sabic will be expected to oversee the development of the OTC scheme and may also have to ensure Sabic can work on a megaproject with Aramco, a feat even Al-Mady could not achieve.

There is no question that Al-Mady’s legacy will long be remembered, and he will be credited with transforming Sabic into the global player it is today. However, his tenure has now ended and fresh impetus is required. Whether Yousef al-Benyan is the person to lead this is a question for Sabic to answer.