The programme aims at diversifying the Saudi economy and reduce its dependence on oil through increasing investments, fostering economic diversification, boosting local job creation and elevating workforce development

The ‘In Kingdom Total Value Add’ (IKTVA) programme launched by Saudi Aramco has been designed to drive domestic value creation and maximise long-term economic growth to support the rapidly changing Saudi economy, according to Bahrain-based Sarens Nass Smet Industries (SNSI).

The programme aims at diversifying the Saudi economy and reduce its dependence on oil through increasing investments, fostering economic diversification, boosting local job creation and elevating workforce development within the kingdom.

SNSI further adds that the value-creating IKTVA programme has introduced the new ‘Local Content Requirement’ (LCR) for suppliers and contractors, where they need to prioritise the purchase of goods and services from a local supplier base. Thereby, the programme drives, measures and monitors the ‘added value’ brought to the kingdom by a supplier; making ‘local content’ central to the procurement process and a requirement of doing business with Saudi Aramco.

The three critical objectives which guide the programme are – doubling the percentage of locally manufactured energy-related goods and services to 70 per cent by 2021; helping raise the export of Saudi–made energy goods and services to 30 per cent over the same time frame; creating direct and indirect jobs within the energy-related sector for growing and talented Saudi population.

Recognising that the IKTVA objectives may be at odds with the market realities, Saudi Arabia has taken meticulous steps to create an enabling environment to further develop the energy industry and its workforce; by investing in research and development (R&D), creating joint ventures (JVs) with foreign firms, deploying funding schemes, providing incentives to both local and foreign investors, and embedding localisation into procurement, says Neha Tyagi, sustainability consultant at SNSI.

Moreover, small and medium sized enterprises (SMEs) have been recognised as a key to meet the IKTVA targets. The Saudi Aramco President and CEO Amin H Nasser has highlighted the important role of SMEs in driving value creation and innovation in the localisation process.

In a world where SMEs are the cornerstone to economies of developed nations and help built competitive advantage; they only contribute 20 per cent to the GDP of Saudi Arabia. Henceforth, acknowledging that SMEs are the engine of innovation and economic growth, the Saudi Vision 2030 has set a target of increasing SME’s contribution to GDP of Saudi Arabia from 20 per cent to 35 per cent, says Tyagi.

She further asserts that as of today, IKTVA has already laid the foundation by establishing clear targets, implementing comprehensive policies, creating an engagement framework and providing the IKTVA measurement tool. It has successfully partnered with several international firms in a series of joint ventures that will see a greater proportion of locally manufactured goods, investments into R&D, accelerated technological progress, and increased employment of locals.

"Whilst progress of local content development in other parts of the world have historically been slow, however, the IKTVA programme adopts a more comprehensive approach to ensure its success within a short period of time," says Frank O’Gara, managing director of SNSI.

He remarks on the current state of globalisation and unstable economies, and states: "It is increasingly important for Saudi Arabia to develop domestic capacities and capabilities, and reduce dependencies on foreign imports of goods and services. Companies doing business in the kingdom in the energy-related industry, should not just consider, but proactively plan to establish local manufacturing units, and regionalise R&D alongside operations in the kingdom."

Also expressed by Abdulaziz Al-Abdulkarim, vice president for procurement and supply chain management at Saudi Aramco, "Some companies as a matter of fact have already moved early, quickly and smartly."

O’Gara advises companies to not be late in the game and to take the opportunity of the thriving and welcoming environment for SMEs in Saudi Arabia. With that he reveals: "SNSI has the intention of establishing a manufacturing plant in Saudi Arabia, to support its existing and ongoing operations."