Saudi Basic Industries Corporation (Sabic) has outlined Riyadh’s plans to attract automotive manufacturers to the kingdom.

Speaking at the Saudi Downstream 2011 conference in Yanbu, vice-chairman and chief executive Mohammed al-Mady, said Sabic would like to see a development holding company being formed that would facilitate important industrial clusters in the kingdom.

Saudi direct investment 2010
Local  $90bn 61%
Foreign $57bn 39%
Source: Al-Mady

“The holding company will either directly invest in such clusters or develop joint ventures with foreign companies.” Al-Mady said. “In this way we will be able to bridge the management gap and accelerate the development of the right skills for those industries.”

“Once established, the holding company will certainly motivate Saudi investors to adapt the concept of downstream investment,” he added. 

A multi-product assembly line making automotive components for many companies could be the starting point for the industry, said Al-Mady. This would tackle issues with economies of scale that original equipment manufacturers (OEMs) face when first setting up operations in a new country.

Al-Mady cited China and Eastern Europe as examples of how promoting a fledgling automotive sector in the kingdom could be successful by an OEM moving to the country.

“Eastern Europe and China has proved that once [an OEM] decides to locate to a region, the tier one and tier two suppliers mostly follow. This could be enhanced by policies which stimulate local content targets,” Al-Mady said. “This model will ensure that it attracts both international and local players in the automotive supply chain.”

Saudi Arabia’s booming petrochemicals industry could lure automotive producers to the country and Sabic is currently developing a number of projects that reflects this. Its $5bn carbon black joint venture with ExxonMobil, that is currently being planned for Jubail in the kingdom’s Eastern Province, will eventually produce chemicals and materials aimed almost exclusively at the automotive industry.  

The Sabic CEO also urged continued transparency, as well as consistent feedstock pricing, rapid project implementation and infrastructure provision as essential to influencing the choice of any downstream investor.

Al-Mady cited the success of the kingdom’s polymer and plastic conversion industry as an example of how downstream investment can lead to success.

The market is growing by a rate of between 7-9 per cent a year and now the kingdom produces around 2 million tonnes a year (t/y) of polymers and plastics, which is processed by about 800 companies.

In the wider GCC, the industry now produces around 3.3 million-t/y, which is in turn processed by 1,200 companies and employs 60,000 people. It is also believed that up to six times as many personnel are indirectly employed for ancillary support and infrastructure.

PET consumption in the GCC was 450,000-t/y in 2010 and is expected to rise by 7 per cent a year in the medium term.