Dr. Tawfig Al-Rabiah
Former Director General of The Saudi Industrial Property Authority
Investment in manufacturing in KSA, even outside the traditionally strong downstream petrochemical industries, is at an all-time high – that much is clear. Much of the funding for the multiple new projects has been provided directly by the government, specifically through the agency of the Saudi Industrial Property Authority, generally known as MODON. Some simple figures illustrate the increased expansion drive: in the last two years, MODON has developed 28.5 million square meters of industrial zones, equivalent to 67% of the total area developed during the preceding four decades. In the same period (2008-2010 Q1), 1,446 factories have been allocated land in these industrial cities.
TOTAL LAND DEVELOPED: 71,981 sqm
In 2009, MODON obtained the ISO 9001 certificate and signed an agreement with the Saudi Credit and Savings Bank to provide industrial loans to small and medium sized enterprises in the less developed industrial cities. In the same year, it obtained the ‘Best Working Environment’ Award. “The Authority´s objective – explains Dr. Tawfig Al-Rabiah, MODON´s General Director since April 2007– is to increase the impact of the industrial sector on the kingdom's economy by 300% over the next fifteen years.”
MODON currently oversees 19 industrial cities in different regions of the kingdom with a total investment of over SAR 200bn and more than 300,000 employees. Some of the latest areas to be developed are the Sudair City for Industry and Business and the industrial cities of Zulfi and Taif. Planning is also underway to establish industrial cities to join Jeddah and Dhammam I and II.
MODON especially encourages the private sector to increase its contribution to economic and social development through effective partnerships between the government and the private sectors under systems such as “Build, Operate And Transfer” (BOT) or any other suitable to the individual project. Under the BOT system and Dr. Alrabiah's leadership, the new industrial cities will be equipped with residential and commercial areas to provide services to the factory´s employees.
MODON expects to add 2 million m2 of industrial estate in the next two years – achieving as much growth in the past 4 years as in the preceding 37.“New industrial estates will be implanted in less developed regions of the country. In the past we have developed three main areas, Jeddah and its port on the Red Sea, Riyadh in the central area, and Dhammam/Jubail in the rich oil region on the East Coast. In the future, we will concentrate on the north and south of the country - Taif, Sudair, Yanbu and Tabuk - because the three existing areas are fast reaching the point of congestion,” continues Al-Rabiah. “In all, we are planning at least six more industrial zones, all connected to the new railway network that is simultaneously being built.”
Indeed, even just the recent extensions to these earlier centres have been crowding transportation arteries and causing delays in the ports. Riyadh Industrial City II contains almost 1,000 factories that together employ 140,000 workers. Jeddah II counts 550 factories and 75,000 workers; while Dhammam II boasts 400 factories – 100 of them still under development – which will eventually employ 40 to 50,000 workers.
Employment galore for young Saudis, one would think, but it turns out that it is not easy to implement the saudization program in the industrial sector: “At the moment, we have reached a saudization rate of some 20% among industrial workers. MODON has waged a marketing campaign to attract Saudis to the industrial cities, which in itself was successful, but demand in the labor market grows so fast that we need to cope in any way we can. That includes importing a large part of the workforce from abroad. The fact that KSA was not much affected by the economic crisis had the disadvantage of not driving young Saudis to the factories,” explains Dr. Al-Rabiah.
A natural export hub with easy financing
In recent years, foreign investors have discovered the increasing advantages of establishing manufacturing facilities in KSA. “In the past, financing these industrial zones used to be a major challenge,” continues Al-Rabiah, “but thankfully this is not a problem anymore, as we are getting more funds from the Ministry of Development and at the same time increased DFI flows. Low interest loans are available from the Saudi Industrial Development Fund, low cost land is offered by MODON, energy and transport costs are reasonable - electricity rates are as low as 4 cent per KW. Export tariffs are kept low too and are moreover secured by an export insurance programme and export financing loans,” underlines the Deputy Minister of Commerce and Industry. “In general,” Al-Rabiah continues, “the cost of operation for industrial manufacturing here is very low. There are few hidden costs and for industrial companies, the workforce is allowed to consist for up to 90% of expatriates. This means you can use low cost labor and easily import expertise which is not yet available in the kingdom.”
Additionally, of course, KSA also boasts a huge top class internal consumer market. “There is plenty of local demand on every level, even down to the educational sector where massive amounts of books and teaching aids are needed.” And the incentives are working too: products manufactured in KSA are now being exported all the way to the USA, Canada and Australia. “We have to publicize this fact for people to adjust their image of the KSA as a non-producing country.”
The largest single foreign investor in Saudi industrial enterprises is now Japan. “The big Japanese industrial groups have all discovered the kingdom. Some have established a presence here already, others are coming soon. There is even a Japanese government agency promoting investment in KSA now. Other major investors are Germany, the USA and the UK”, explains Al-Rabiah.
A world-class player
“We have economic stability in the kingdom with huge reserves of oil, gas and minerals, that make us resilient to fluctuations in world prices; our government is focusing on internal development to create more economic activity by developing education, training, tourism, foreign development, ICT and other infrastructure, etc…” outlines the general director of MODON.
“In general, not only economically but also socially and culturally, a shift to the positive side has been taking place here, especially in the past five years. There is more and better education, more exposure to the world, more openness... This is another reason we are now attracting more investments from abroad.”
KSA has become a member of both the WTO and the G-20 and for 2009 was ranked 13th by the World Bank in terms of ease of doing business. “But I have just received confirmation that we will be in the top ten in the upcoming report. KSA will play an ever bigger role in the world economy - and consequently in global politics too,” emphasizes Al-Rabiah.