Backed by various government initiatives, Saudi Arabia’s tenacious plans to increase the amount and value of locally manufactured products is very likely to see accomplishment

The long-term success and viability of a localisation programme boils down to three inextricable pillars: policy, investment and technology, and people. And the Kingdom of Saudi Arabia is assembling all official instruments under its control for its own foolproof schemes in alignment with the central Vision 2030 roadmap.

Eventually, products with the 'Made in Saudi’ label will speak of quality and reliability, but above all will manifest a sense of national pride and substantiate economic diversification.

The world’s second largest oil producer is not giving up on fossil fuel just yet and has in fact plans to further expand the production of oil and gas and then use that money to finance its energy transition.

The energy sector is still seen as a key enabler of the Kingdom’s localisation efforts.

Thus a large part of the localisation process will cater to various segments in the oil and gas sector in the near-term. In the long-term, however, the non-oil sector will have to grow to sustain an economy in a changing energy landscape.

The Public Investment Fund (PIF), KSA’s sovereign wealth fund—one of the world's largest—and directly supervised by HRH Crown Prince Mohammed Bin Salman, has embarked on a strategy to unlock the capabilities of promising sectors and strategically important industries that can drive the diversification of the local economy.

This will help localise technologies and knowledge, enable the private sector, and create more direct and indirect job opportunities in the local market.

Since 2017, PIF has invested in 13 strategic sectors and established 77 new companies domestically, says Yazeed Al-Humied, Deputy Governor and Head of MENA Investments at PIF.

To attract investment, the Kingdom has since 2018 allowed 100 per cent foreign ownership, and is undergoing an ambitious economic liberalisation.

It has all the key ingredients for success: A young population, a fast reforming business climate, easy access to regional markets, a free labour market, and strong support and incentives from the government to encourage local investment.

The Kingdom has also made major commitments to sustainability and environmental concerns, including the $186-billion Saudi Green Initiative (SGI), circular carbon economy, and initiating carbon markets, and aims to reach net-zero carbon emissions by 2060.

LOCALISATION INITIATIVES

The Lucid EV on display at the iktva 2023 forum outside the Dhahran Expo Centre

• The Shareek Programme is Saudi Arabia’s dedicated programme launched in 2021 for large companies (and now SMEs). It is designed to help unlock the full potential of the Kingdom’s private sector and contribute to achieving the national targets defined by Vision 2030.

The programme seeks to unlock SR5 trillion ($1.3 trillion) of domestic private sector investments by 2030, increase private sector contribution to 65 per cent of the GDP by 2030, and create 65,000 jobs. It is part of an investment programme worth a whopping SR27 trillion ($7.2tn) by 2030.

Initially, it was thought that by increasing large companies’ investments, the impact will undeniably reach the overall value chain and indirectly benefit small and medium enterprises (SMEs) and other business operations.

However, early this year Shareek was transformed into the Private Sector Partnership Reinforcement Centre (Shareek) and it will now create opportunities for SMEs as well.

The programme will offer financial support when necessary to help companies reduce the cost of investment projects.

Potential beneficiaries from the programme will need to invest a minimum of SR20 billion over the next decade and pump SR400 million in each additional project to qualify.

There are currently 28 companies enrolled in the programme.

In March, Shareek announced support for the first wave of 12 projects worth SR192.4 billion across 8 companies, including Aramco, Ma’aden, ACWA Power, Saudi Telecom, Zain, Bahri, Saudi Advanced Industries Company, and SABIC.

These projects will contribute to the Kingdom's economic growth, diversify industries, promote innovation, and further enable public-private partnerships.

Aramco has five projects with international companies including Total and Google. With a budget of SR62 billion, the projects will create a total of 10,000 jobs.

SABIC’s supported project is a first of its kind to produce catalysts inside the Kingdom, while Ma’aden plans to add 50 per cent production capacity in the phosphate fertilisers sector.

Meanwhile, ACWA Power’s project includes the construction of the world’s largest green hydrogen plant in NEOM; while Saudi logistics giant Bahri will set up ammonia transport services for the first time in the Kingdom.

• Aramco has also been aggressively advancing its own flagship localisation initiative—the in-kingdom total value add (iktva) programme. The programme achieved 63 per cent local content in 2022, up from 35 per cent in 2015, when iktva was originally launched, with aims of reaching 85 per cent by 2030.

In January 2023, Aramco signed over 100 deals and MoU’s worth $7.2 billion at the 7th edition of the iktva Forum and Exhibition.

The iktva programme encourages the establishment of international companies’ regional headquarters in the Kingdom. Since its inception, more than 150 investments have been made within the Kingdom, including products manufactured for the very first time in Saudi Arabia.

• To support iktva, Aramco initiated the Namaat programme in 2020, which aims to further strengthen the Kingdom’s energy and chemicals value chains.

Under the programme, opportunities to invest in the domestic private sector are classified into five categories: Sustainability, digital, industrials, manufacturing and social innovation.

Namaat and iktva are further complemented by other Aramco initiatives including the King Salman Global Maritime Industries Complex, the King Salman Energy Park (SPARK), and its LAB7 technology and innovation hub.

• Small-to-medium businesses and startups are a cornerstone of economic activity, and Saudi Vision 2030 pledges to raise the contribution of SMEs to Saudi Arabia’s GDP from 20 per cent to 35 per cent by 2030.

To support SMEs, the Kingdom has initiated programmes to develop the culture of startups and encourage new businesses, as well as create funding to support the sector.

Monshaat, the Kingdom’s SME authority, is helping SMEs by removing obstacles to doing business, facilitating access to funding, supporting SMEs in marketing and exporting products and service.

GREEN TRANSPORT

Something that KSA is heavily involved in for the first time is the local production of electric vehicles (EV) and allied industries.

It is expected that the Kingdom will invest $50 billion in the sector over the coming years and see 30 per cent of EVs on Riyadh’s roads, an Arab News report said.

This also contributes to KSA’s climate action commitments and are in line with PIF’s strategy to focus on unlocking the capabilities of promising sectors locally that can help drive the diversification of the economy, to help achieve the objectives of Vision 2030.

Currently, the Kingdom’s transport sector consumes over 21 per cent of the Kingdom’s total energy per annum.

The Kingdom has two major local investments in EVs: Ceer, Saudi Arabia’s homegrown EV brand that will contribute to Saudi Arabia’s automotive manufacturing sector; and Lucid, a US EV company in which PIF has over a 60 per cent stake.

Ceer Motors, a joint venture between PIF and Hon Hai Precision Industry (Foxconn), was launched in 2022 by the Crown Prince. With a production target of 170,000 cars a year, Ceer is expected to create up to 30,000 direct and indirect jobs in the region, and directly contribute $8 billion to Saudi Arabia’s GDP by 2034.

In February, James DeLuca, Ceer CEO, said building a state-of-the-art EV manufacturing cluster would attract international OEMs and tier-one suppliers to the Kingdom.

This influx of tech and innovation, that will form the basis of the country’s automotive industry, will create tens of thousands of high-tech jobs in the Kingdom, primarily for young Saudi nationals, he said at the second annual LEAP conference

According to reports, the company has spent $96 million on an industrial plot at King Abdullah Economic City (KAEC) to host an EV manufacturing factory.

Ceer will sell a range of vehicles for consumers both in the country and the Middle East and North Africa region. The first units are expected to become available in 2025.

Separately, work on US manufacturer Lucid's Jeddah assembly plant began last year with re-assembly operations expected to begin in September, California-based Lucid said in a presentation.

The facility will see a peak production of up to 155,000 cars a year.

Saudi Arabia has remained a committed investor in Lucid, with PIF having invested around $3.6 billion in it since 2018.

SKILLS & SAUDISATION

No country can sustain its national economic plans without developing local talent. People must be at the heart of any national programme, and Saudi Arabia is placing great focus on preparing the population of the Kingdom, especially women and young people, to take the lead in its transformation initiatives.

The Kingdom has an extensive programme to develop the human capital and capacity that will be required to realize Saudi Vision 2030.

Abdullah Abuthnain, the Vice Minister, Saudi Ministry of Human Resources and Social Development said Saudi Arabia’s labour was presently in "a phase of big reforms," including eight strategic labour market themes and 25 development initiatives.

He said the strategy will benefit more than 200 professions, with skills councils establishing employment standards, as well as on-the-job training programmes, in important economic sectors.

Doing its part, Aramco has established 16 national training centres in 10 Saudi cities, covering more than 60 trades. To date, more than 48,000 Saudi nationals have graduated from these centres, said an Arab News report.

CONCLUSION

Underpinned by Vision 2030, the Kingdom’s localisation initiatives are focused on accelerating public-private partnerships and incentivising new investments. They will foster the formation of international partnerships and the establishment of new companies and industries in the Kingdom. These partnerships offer a world-class cluster of innovation that empowers lives through the conversion of lucrative business ideas and ventures that drive business, job creation, and national economic growth.

By Abdulaziz Khattak