'Risk averse' Saudis look to manufacturing

Oil and gas still drives the Saudi economy, but the country is now pumping investment into industrial cities as it strives to build a stronger manufacturing base.

Although there is a manufacturing sector in the KSA, its contribution to the country's gross domestic product is below expectations, said Khalid Sulaiman, Saudi's Deputy Minister for Industrial Affairs.

This is because industrial exports are low, as are employment levels in the sector. 'It's time to have another look as far as industry is concerned,' said Sulaiman, speaking at the Saudi Investment Forum in Dammam.

Industrial cities

The kingdom is pushing ahead with a number of industrial cities, all designed to house manufacturing businesses. The plan is to ensure they have the latest communications technologies in place too, with ubiquitous wireless and fibre optics to each building. Plus the government is trying to make it easier to set up and do business in the region.

The newest industrial cities include Sudair, a 257 million square metre city about one hour north of Riyadh. A master plan for the city is expected within six months, and contracts for a project consortium to develop it three months later.

In late November the government issued a tender for Jeddah 2, an industrial city that will host 400 companies and said that the 24 million square metre Dammam 2 should be completed within two years.
But while the government has big ambitions to improve its manufacturing base, there is a need for greater education both at school and university level and for vocational training to get the unemployed back into jobs.

Saudi Arabia suffers from high unemployment and Khaled Al-Ohali, Vice President of the National Industrial Cluster Development Program, said the country needs to create 3.6 million jobs over the coming 10 years. This means it must double the number of jobs created each year.

The program has identified five key manufacturing industries to develop and evolve. These are packaging, metals processing, consumer goods, construction materials and the automotive value chain. This would mean pushing into areas such as manufacturing car seats or tyres or value added processes for metals.

Vocational training

To support these industries, 160 vocational training centres are being set up over the same 10 year period, designed to give workers key skills in these sectors. In the technology sector, which is also seen as a growth market for the future, companies are also investing in skills - Cisco for instance recently set up a networking university in Saudi Arabia.

But a concern for Saudi Arabia is the lack of internal skills in the country and its reliance on importing them instead. In some areas, this is being tackled by setting quotas to ensure a set percentage of employees within a company are Saudi, but to an extent, this is putting the cart before the horse.

While setting minimum levels for Saudi nationals will help push up employment, if they are not educated to do the essential, higher skilled jobs, companies will hit their quotas through low-skill, low paid roles, and continue to bring in highly skilled people from other countries to fill the key positions.

Looking at the IT sector in the kingdom, Nabil Kassem, Vice President and MD of Invensys Middle East, said that while it was important to build a workforce that is Saudi, it would not happen 'without deliberate planning or investment'. 'We can't expect it to rain talented people,' he said. 'We have to invest in them and train them.'

Without better training and education - which encourages both men and women into the workforce - it will be difficult to create the additional jobs the country needs. 'If we cannot take advantage on that, it will be a shame on us as a country,' said Dr Abdulrahman Al-Azzam, Country Senior Officer, Saudi Arabia at Alcatel Lucent.

Importantly though, a better educated workforce is more likely to develop and design products internally, rather than simply build those that have been designed elsewhere in the world.

Risk averse

Saudi Arabia is not seen as a country that takes risks on ideas that may either develop into great money-spinners or may simply crash and burn. A risk averse culture means it is difficult for people to develop ideas, be that those they have suggested to the company they work for or ones they are trying to build themselves.

'The region is drowning in liquidity but thirsty for venture capital,' said Kassem. 'The venture capital culture is severely lacking. It can feed ideas and bring those ideas into fruition.'

This was an issue in other regions, where entrepreneurs would struggle to get an idea off the ground and develop it into a fully fledged business. But in many parts of the world it is now increasingly easy for people to get venture funding to develop ideas.

In Saudi Arabia though, Kassem said people were 'more at ease sinking money into a property deal' than taking a chance on an idea. 'Perhaps it's the trader mentality. People cannot see the picture until it is painted,' he told AME Info.

He felt Saudi Arabia should play to its strengths when it came to VC funding. While the government wants to shift away from a reliance on oil and gas, at the same time it has great experience in the energy sector, and that experience can help spot a good idea and understand how to foster it into a business. 'It's the industry that has to encourage [entrepreneurs and ideas],' he said.

See also:
Manufacturing booms in Saudi Arabia
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Working With Islamic Finance