TOGY TALKS TO
Engines of growthAugust 30, 2017
Ahmed M. Al Ghannam, director-general of the Saudi Export Programme (SEP), talks to TOGY about the importance of SMEs for future growth, the increasing participation of the private sector in Saudi Arabia and the goal of improving connectivity in the country. Having begun its operations in 2000, SEP seeks to promote Saudi exports and goods of Saudi origin made with at least 25% local content.
Ahmed M. Al Ghannam also discussed the current infrastructure in place in Saudi Arabia in comparison to other developing and developed countries. Given the size of the country, investment in infrastructure is necessary for connectivity between cities and will remain key in promoting growth in the economy.
• On SMEs: “I strongly believe that SMEs are the engine of growth in any economy, the larger the contribution of SMEs to GDP the more the developed and advanced the economy. SMEs are the main source of opportunities. They employ more people, develop more innovation and promote young and talented people.”
• On the private sector: “Like many developing countries, fiscal policy and government spending are key instruments in promoting growth in the economy. A larger role for the private sector is expected with the new Vision 2030.”
Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Ahmed M. Al Ghannam below.
What is the importance of SMEs for the future growth of the economy?
I strongly believe that SMEs are the engine of growth in any economy, the larger the contribution of SMEs to GDP, the more developed and advanced the economy. SMEs are the main source of opportunities. They employ more people, develop more innovation and promote young and talented individuals.
In advanced economies, the average contribution of the SME sector to GDP exceeds 70%. In order to promote SMEs, SEP promotes more flexible eligibility criteria in its guidelines. We reduced the value added to 25% and the minimum eligible transaction to SAR 100,000 [USD 26,665]. This helped us to accommodate SMEs, which we hope will take this advantage and increase its contribution to the Saudi economy.
Will natural gas play a bigger role in Saudi’s domestic consumption in the future?
Green energy has become very popular around the world. In 10 to 20 years, green energy will be a must. The whole world is shifting towards it. Shifting to other sources of energy may take some time, however, due to the huge investment needed for this shift.
In Saudi Arabia, both the government and the private sector are investing a lot in clean energy. This includes not only natural gas but also other alternatives where we have advantages, such as solar and wind. We are moving toward this end gradually in order to make the transfer smoother.
What is your assessment of infrastructure in Saudi Arabia?
Saudi Arabia has advanced infrastructure compared to other developing countries and is comparable to developed countries. Development of infrastructure is a dynamic task and our government is keen to improve it. Given the fact that Saudi Arabia is a huge country, infrastructure is a huge investment for the government.
It is now time to start privatising some of this infrastructure, such as that found in the energy, ports and transportation sectors. This is true especially of those sectors that are attracted to private investments. Vision 2030 is targeting these objectives, especially in the energy, ports and transportation sectors. In addition to this, new railway lines connecting major Saudi cities are being built.
The connection between Jeddah, Makkah and Al Medina is already in place. The railway line connecting Riyadh and Al Qaseem to the north of the country is also already finished. Meanwhile, the underground lines inside the capital are projected to be finished in 2018. All of this infrastructure will enhance connectivity between Saudi cities and will be part of a master plan which will connect us with other GCC countries.
Where are the targets of the programme’s recent investments?
First, I should introduce the Saudi Fund for Development (SFD), which is the main arm of the Saudi government for channelling concessional aid to low- and least-developed countries. SFD promotes development worldwide rather than focusing on regional or ethnic groups.
SEP is the trade arm of SFD. Its main objective is to help the Saudi economy to diversify and reduce dependency on crude oil exports. We do that through promoting Saudi exports containing an added value of at least 25%.
We target all Saudi products that add value to our economy, excluding crude oil. The facilities provided by SEP help Saudi products to compete and penetrate new markets. The objective of SEP is in line with the Vision 2030 programme, which aims to increase the contribution of non-oil sectors in the Saudi economy by 50% and increase non-oil exports by 50% in 2030.
Do you support companies involved in the end products of crude oil refining processes?
Saudi Arabia has always been associated with oil. Vision 2030 will hopefully change this. Rather than simply exporting crude oil we need to capture the added value of this vital and depleted resource in our economy.
Petrochemicals and oil derivatives are the best option to do that. This justifies why these products are eligible to receive benefits from SEP facilities.
One of the objectives for Saudi Arabia by 2030 is to be one of the top 15 economies in the world. What is the best strategy to achieve this?
I believe we should place more emphasis in sectors where we have competitive advantages. This will help us to promote growth in our economy. This applies not only to petrochemicals and oil derivatives but also includes other minerals that our country is endowed with. Ma’aden is a good candidate to take on a larger role in this domain.
The supply of oil is depleting and is going to finish one day. Some think that 30 to 40 years from now, Saudi Arabia will not export a single barrel of crude oil but will instead consume all of its production locally. We must therefore prepare for that eventuality and explore other alternatives.
We have gas, solar and wind energy in Saudi Arabia. These alternatives are now becoming priorities and need to be developed more to promote growth in our economy.
If the Saudi Export Programme functions like an Exim bank, what are your credit lines?
The intention of creating SEP facilities was to be a seed for the Saudi Exim Bank. I believe it is now time to establish a Saudi Exim as a separate entity and keep SEP to help in combining the concessional aid provided by SFD with SEP facilities.
SEP now acts as an Exim bank but on a smaller scale. SEP provides buyer credit, supplier credit and a line of credit to non-Saudi commercial banks. We also provide insurance and guarantees to local exporters. We co-operate with local commercial banks to help them to leverage more financing for Saudi trade and to help Saudi exports.
Is the public sector still crowding out the private sector in Saudi Arabia?
Like many developing countries, fiscal policy and government spending are key instruments in promoting growth in the economy. A larger role for the private sector is expected with the new Vision 2030.
As I mentioned, the vision is targeting privatisation of some key sectors that are attractive to the private sector such as energy, ports and transportation. A larger role for the private sector is expected within Vision 2030. The government will gradually exit from sectors that have the merit to be privatised and limit its involvement to sectors that provide public commodities.
What do you expect to see in the future in Saudi Arabia?
I am always optimistic about our future. Saudi Vision 2030 supports my future view of our economy. The programmes associated with the vision are very sophisticated and ambitious. Hopefully we can achieve the vision or at least the majority of the vision’s targets.
At SEP we are doing our best to align ourselves with the objectives of the vision. We are trying to be more creative in promoting our exports and eventually our economy. This will be done through introducing new facilities such as blending facilities that mix concessional aid with trade financing.
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