AN UNMATCHED LOW-COST INDUSTRIAL PRODUCTION AND EXPORT HUB
Diversification of the largely oil-based Saudi economy has been declared a government priority for as long as anyone cares to remember, but for a long time the results of this policy remained somewhat underwhelming. Since King Abdullah took over at the helm of the country in 2005, however, a remarkable acceleration has taken place in this like many other fields.
Professionals in the industry are enthusing about the fact that, for the first time in its history, the country has adopted a coordinated national strategy for industrial development, including infrastructure, designated industrial zones and DFI inflow through directed funding, low-cost loans and important incentives.
In recent years, foreign investors have discovered the increasing advantages of establishing manufacturing facilities in KSA. Ever more companies are attracted not only by the kingdom's strategic position as an exporting country – a natural geographical hub connecting Europe, Asia and Africa – but also by the many incentives offered by the state.
The accession of Saudi Arabia to the WTO in 2005, the low-cost feedstock, energy and labour and the development of new infrastructure around the industrial cities have also helped to create a shift in the source of the investment. Whereas in the past most of the industrial projects were heavily financed by the government, they now tend to be carried by private investors taking note of the country’s advantages.
According to the Saudi Arabian General Investment Authority (SAGIA), private sector contribution to the petrochemical sector alone will quadruple over the next ten years, positioning Saudi Arabia as the sector’s leader.
The expansion of the Saudi economy at a time when the rest of the world is struggling has its own reasons. The oil revenues amassed during the period of high oil prices in the early years of the century have created a boom in every sector of the economy, but specifically in the non-oil industry.
Within this field, the petrochemical sector is one of the fastest growing in the economy and the largest non-oil sector of KSA. According to SAGIA, “Saudi Arabia is the world’s 11th largest petrochemicals supplier, accounting for 7-8% of total supply. Simultaneously, Saudi Arabia has increased its global market share in petrochemicals to 13-14%.” Judging by the profile of the 80-plus petrochemical facilities in place, however, Saudi Arabia could easily become the world’s third largest producer by 2015.
A 35-YEAR STRATEGY PAYING OFF: THE MIRACLE OF JUBAIL
A cool sea breeze brings solace to evening walkers along the Corniche lining the northernmost tip of the Gulf coast. Children play and men sit around chatting,
whiling the evening away. Green lawns, flower beds and lines of trees complete the pretty picture. An idyllic image unperturbed by any smells or smokestacks, it seems strangely incongruous, seeing as
it actually lies in the world's largest dedicated industrial city and its biggest ongoing civil engineering project: Jubail Industrial City (JIC).
Since the JIC's establishment in 1975, the old fishing village of Jubail has been transformed several times over and evolved into a major player in the global petrochemicals market. Once was an uncertain dream, today it is the largest industrial complex of its kind, housing world-class petrochemical companies such as SABIC (the world’s 4th largest petrochemical company) and the world’s largest desalination plant, Marafiq, which provides most of the drinking water of the country's 27 million inhabitants.
Located on the Gulf, about 100 kilometres north of the Dhammam metropolitan area, the continuous development of the city and its industry keeps attracting bright engineering minds and top investors from around the world. According to the 2009 census, some 95,000 people live in Jubail Balad, currently in a SAR 22 billion refurbishment program involving a full-service residential community with schools, a hospital, clinics, hotels, mosques and last but not least one of the world’s most advanced training centres, the Jubail Technical Institute.
The city occupies a territory of 1,016 sq km - only 200 less than New York City. The site's preparation for the construction of the city involved moving 370 million cubic meters of earth, more than needed to build a road around the world. The city is now home to 17 major primary industrial facilities covering 80 sq km, and about 150 secondary operations – support and light manufacturing industry – occupying another 16 sq km. Today, 35 years after its conception, it provides fully 7% of the country’s GDP.
A HESITANT BEGINNING
It all started way back in the mid-1970s, when a nationwide program was developed to gather the previously wasted gases that are continually released by Saudi
Arabia's oil wells. Put to good use as fuel and feedstock, they would henceforth serve as the basis for a new industry, one of the earliest efforts to diversify the country's economy. From this seed
grew the more ambitious vision of KSA as a strong industrial nation, a major future exporter and a leading economy. This vision has remained the inspiration over the years, and has continued to
produce wealth and benefits for the nation. It has created an entire industry from scratch and transformed the country into one of the most influential powers of the twenty-first
The Kingdom stopped being a mere exporter of raw materials and began transforming its hydrocarbon reserves into petrochemical products such as ethylene, which were then exported at much higher prices than the raw materials, and later in turn transformed into literally thousands of by-products destined for export or consumption by a growing population at home. In one stroke, the challenge of employing a very young and fast-growing population was getting tackled too.
SETTING UP THE INFRASTRUCTURE- ENVIRONMENTALLY FRIENDLY FROM THE START
The vision involved selecting the most cost-effective locations providing access to the sea at spots appropriate for deep water ports, and transforming what were
essentially stretches of inhospitable coastal desert into huge industrial cities. The entire infrastructure was built according to the highest environmental standards, resulting in Jubail Industrial
City winning many green awards throughout its history.
On September 21st, 1975, the Royal Commission for Jubail and Yanbu (RCJY) was established as an autonomous organ within the Saudi government, and investment started in the first two industrial cities of Saudi Arabia, Jubail and Yanbu, located respectively on the eastern Gulf coast and the western Red Sea board.
Dr. J. Michael Cobb, who has carried out extensive research on JIC, wrote in 2002: “Almost 20 years ago, a July 1982 Time magazine article in seeking to describe the unfolding project stated: 'The search for historical comparisons with Jubail is daunting... In all the expansive sweep of civil engineering, from the pyramids of the Nile to the construction of the Panama Canal, nothing so huge, or costly, as Jubail has ever before been attempted by anyone.'" Indeed, the only historical experience coming close to KSA's current drive is probably the wholesale industrialization of Russia in the first decades of the Soviet regime.
The projects at Jubail and Yanbu laid the foundations for an economic diversification that would diminish the country's reliance on oil exploitation by increasing domestic industrial production. The overall development of Jubail and Yanbu - accomplished with an investment of SAR 84 billion - involved the creation of over 233 industrial facilities which in turn have invested over SAR 244 billion and currently employ more than 107,000 workers. Investment has mainly flowed in from America, Europe and Asia. Its impact has been so extensive that the country's petrochemical output rose from a paltry two million tons in the 1970s to almost 60 million tons today. Production is expected to hit the 100 million ton mark by 2015 - a projected annual growth rate of about 12 percent.
GEARING UP FOR THE YEARS AHEAD
“As you know,” affirms His Royal Highness Prince Saud Al Tunnanyan, president of the RCJY, Saudi Arabia has a high potential. Our economy is very strong and we have a
strategic plan to develop the country and produce added value using our resources. We believe we have been successful in building industrial cities in Jubail and Yanbu and accommodating huge
investments. I am sure we can accommodate yet more investment in both cities. We have extensive lands and a long-term vision. We started with the oil industry, then moved into the petrochemical
sector and now we will begin exploiting our mineral wealth. Additionally, we will focus on developing tourism and other resources in the kingdom.”
Prince Saud's particular concern lies with the future employment of Saudi Arabia's youngsters. “We have to maximize our resources”, he says. “King Abdullah is the leader of the kingdom and has the vision to take us to pole position in the region. I think that the new mega-projects in Saudi Arabia, such as the King Abdullah University for Science and Technology (KAUST) and the economic cities, will help put the kingdom in the position we aim for. We want to get maximum added value for our resources.” The figures seem to indicate that the vision is working: the original investment flow of $500 million in the 1980s had swelled to $20 billion by 2000.
Since the launch of the industrial development plan in the 1970s, more than a dozen industrial cities have been built in various locations throughout the kingdom which are strategically close to raw materials or to local and international markets. However, Jubail remains the flagship project and has grown bigger than any of the others, now reaching the stage where Jubail II is added to the original project.
Our latest investment report on Kuwait was recently published in one of the leading Spanish dailies, ABC. FindMe in Kuwait explores the economic perspectives of Kuwait and the country´s future plans to compete with its fast developing neighbours. Once the leading country of the Gulf, Kuwait has remained silent for the past decade. And although many would like to see faster changes, Kuwait is moving, at its pace, to them. Inexorably. Learn about who is who in Kuwait and read what the leaders say about their own future in our upcoming release: FindMe in Kuwait Mobile app.
Stay tuned - Stay Ahead
Global Gulf Consulting has concluded its latest production on Bahrain, FindMe in Bahrain giving the country a fresh approach after a couple of difficult years of local demonstrations that matched the global recession. Bahrain is a small island in the Arabian Gulf with an incredible potential for logistics, industries and tourism. FindMe in Bahrain was supported by both the public and private sector of Bahrain. Banagas, Nass Corporation, BBK and DHL were GGC strategic partners in the development of the series among others.
FindMe in Bahrain is available at the local bookstores Jashamal and online as well as in the Apple Store. It is a full business leisure and business guide for any investor or visitor interested in traveling to Bahrain or for those that already live there.
FindMe in Saudi offers a multi-faceted overview combining business and leisure, economy and heritage. The book aims to capture the current development of Saudi Arabia in the words of the people who live and work there. It is an authoritative source of information for investors, businessmen and travellers produced to firmly position KSA as an attractive investment destination.
In contains general information about the country´ economic performance and who is who as a sectorial overview and a leisure guide.
They are talking about us. Read what the media is saying about GCC and its publications.
GLOBAL GULF CONSULTING
Po. Box 0097
Kuwait. +965 98801872
Spain: +34 646464770