Industrial diversification lifts off in Saudi Arabia

Plans have recently been outlined to increase the number of specially developed areas dedicated to industrial and manufacturing undertakings from 14 to 24. This is seen as necessary to widen the nation's industrial base through provision of more sites, promoting more foreign investment and encouraging the start up of technology-based enterprises.

Most of Saudi heavy industry is concentrated inYanbu, 350 kilometres northwest of Jeddah and in Jubail, 100 kilometres north of Dammam. But a dozen other extensive industrial estates also host substantial numbers of factories in additional parts of the Kingdom.

According to the Ministry of Commerce and Industry there are some 3,657 factories currently operating in the Kingdom with total investments of SR 256 billion ($68 billion) involved. The bulk of this investment though is directed towards petrochemical and plastics production in Jubail and Yanbu.

Purpose-built areas are essential for larger scale enterprises with often huge areas of land required for major industrial undertakings. An area of 504,300 square metres for example has been allocated in Jubail to Chevron-Philips to develop its petrochemicals venture.

Jubail is already one of the world's biggest production centres for petrochemicals based on natural gas accommodating 17 primary industries all of which are the basis of fast growing exports. These include petrochemicals, fertilizers, steel oil refining, lubricants and industrial gases.

Jubail wins half of FDI

Almost half of foreign investment coming into the Kingdom has been directed to Jubail. The industrial city now estimated to produce seven per cent of the world's petrochemicals is still developing with 30 plants under construction and 44 others being discussed.

Plans to extend the city on a 6,200 hectare site involving an investment of $56 billion are well advanced. The chairman of the Royal Commission for Jubail and Yanbu Prince Saud ibn Abdullah ibn Thunayan expects Jubail-2 to attract local and foreign investments worth SR 130 billion as well as create some 55,000 new jobs.

Yanbu on the Red Sea is also going to see a virtual new city developed by 2019 on a 66 square kilometres area. This will accommodate development of fresh industrial projects valued at SR 115 billion ($30.7 billion). The extension to the existing city will contain 34 basic and secondary industrial developments and 224 other light industries bringing overall investments in Yanbu to more than SR 200 billion.

However, there are many other medium and small scale enterprises in the Kingdom involved in manufacture of building materials, ceramics, textiles, clothing as well as food products, beverages and many types of equipment. While 64% of Saudi Industrial development Fund (SIDF) loans have been made to the petrochemicals sector, a further 20% have gone to the consumer sector and 16% to the building materials sector.

The industrial sector provides employment for 340,000 people and clearly needs to expand in a variety of areas in order to provide more employment opportunities for Saudi Arabia's young population.

New help for SMBs

A new small and medium enterprises loan guarantee scheme is to be launched by SIDF. According to the fund's chairman Yousef ibn Ibrahim Al-Bassam: "The steady growth in development of new projects and the high percentage of loans committed to expansion of existing projects firmly reflect the success of investment in the national industrial sector, the high actual return of such projects and the confidence in the future of the sector."

In another move, the Saudi Organisation for Industrial Cities and Technology Zones was recently set up to help attract development of knowledge-based industries. The first zone on a 3.5 million square metres site in Dammam is intended to encourage a cluster of energy, environmental, advanced petrochemicals and new materials ventures to develop.

The government hopes that these in turn will stimulate similar developments elsewhere in the Kingdom. It is anticipated that the zone's development and operation will be carried out on a build-operate-transfer basis by the private sector.