Saudi’s path to diversificationMarch 16, 2016
Tawfig F. Alrabiah, Minister of Commerce and Industry (MCI), shares the plan to modernise the kingdom’s economy by making it easier for industrial investors to partner with downstream opportunities in the oil and gas industry. He says the government has also increased the number of industrial cities in order to cater for a surge in business activity.
What role does downstream play in Saudi Arabia’s path to economic diversification?
The Ministry of Commerce and Industry has been leading the kingdom’s drive towards diversification in all sectors of the economy. It has been introducing initiatives to foster private investment based on the country’s competitive economic advantage and working to enhance supply chain relationships.
Through these programmes, the ministry aims to strengthen Saudi market mechanisms and the global positions of Saudi businesses. The downstream sector benefits from a lot of incentives, starting with the easy access to raw materials at fair prices.
Sector integration and linkages are another priority area. Over the next five years, we plan to significantly increase the impact of downstream businesses in the kingdom. The ministry monitors business growth indicators daily and intervenes only to help the private sector increase its economic participation and achieve more export sales.
With the decision to focus on downstream development, we are seeing increased private investment targeting a range of sectors, including petrochemicals manufacturing.
How responsive has the private sector been to plans that foster industrial development?
Creating modern cities is an additional form of support for national industries. In the past, providing water, electricity and transportation infrastructure to remote industrial areas was a challenge. Over the past decade, Saudi Arabia has made a lot of effort to cater to the private sector’s increasing growth and its high demand for support services.
The Saudi Industrial Property Authority (MODON) is responsible for funding specific infrastructure projects in many cities, including providing new industrial properties. We encourage public-private partnerships and build-operate-transfer contracts. These have taken Saudi Arabia from having 14 industrial cities in 2008 to 34 in 2015. By the end of 2014, 178 square kilometres of industrial properties had been developed to settle new projects, and the number of factories supervised by MODON increased to 5,800, up from 200 in 2007. Saudi Aramco, Saudi Arabia Basic Industries Corporation, the Saudi Electric Company, the Saline Water Conversion Corporation and the private sector contributed significantly to this growth. By increasing the share of locally produced resources in their output, they also further incentivised investors in the downstream sector.
Do falling oil prices hinder the modernisation of the domestic industry?
The real indicators lie in the recent take-off of private business in Saudi Arabia, particularly in the downstream sector.
This should be considered independently of oil price movements to a large extent. Although lower feedstock prices had a positive impact on downstream activities, the increase in Saudi exports has been due to the diversification of business across all sectors.
More competitive investments have been helping other businesses modernise and achieve steady growth.
How is the government supporting small and medium-sized enterprises (SMEs)?
Supporting entrepreneurs and SME investors through funds and services that reduce risks will have a great impact on retaining the national workforce.
In October 2015, the Council of Ministers created the Higher Authority for SMEs to regulate and develop these businesses in the kingdom. It aims to increase their overall productivity as well as their contribution to the GDP.
One of its achievements has been to simplify the procedure by which private businesses can be established.
An e-business platform now enables new enterprises to issue their own commercial records and apply for all the licences required from each of the relevant authorities.
At the same time, we are working with the Ministry of Labour to increase productivity in the labour market by encouraging more Saudis to find work in line with their high-skills training and education.
Through MODON, SMEs are also able to fast track their own development in any of the more than 600 business incubators in Saudi Arabia’s industrial cities.
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