As Saudi Arabia attempts to diversify its economy away from a reliance on petroleum production, the cultivation of its manufacturing and industrial sectors will be critical for the country’s success – both at home and on the world stage.
The Kingdom, the world’s biggest oil exporter, has already responded to weakening crude prices by announcing a $2 trillion war chest to fund an economic diversification strategy, with the private sector set to be a main beneficiary.
Saudi Arabia has a long history of downstream and upstream industrial and manufacturing activity, driven in large part by the success of its homegrown conglomerates Aramco and SABIC. The government’s latest industry focus and cash injection is set to further fuel the local specialised manufacturers who help to support the oil and gas industry.
Over the past four decades, the Kingdom has made some great strides in widening its industrial base. According to the Saudi Industrial Development Fund (SIDF), the number of operating industrial units in KSA increased from just 198 in 1974 to over 7,000 in 2015. What’s more, the amount of capital invested in the kingdom’s manufacturing and industrial sectors soared from nearly SR 12 billion in 1974 to more than SR 1.1 trillion in 2015. The number of employees in Saudi Arabia engaged in manufacturing and industrial activity also so a huge increase from 34,000 in 1974 to 990,000 in 2015.
In specific sectors, such as the manufacturing of machinery and equipment, the number of KSA factories leapt from just 12 to 208 in four decades. The number of specialised manufacturers, such as makers of rubber products, basic metals and fabricated metal parts, has also soared as the Kingdom’s economy matures and gains depth.
According to a SIDF spokesperson, “The national GDP mix for the manufacturing industries sector (excluding oil refining) is becoming more diverse. Since the 1990s, the chemical products' sector has occupied the lead position in the national mix of manufacturing industries, but other sectors have also shown growth, such as: machinery and equipment, building material products, and food products. At present, these four sectors contribute the lion's share of the Saudi manufacturing industries' GDP.”
As the country’s business landscape diversifies and widens under the surefooted guidance of the government’s ambitious long-term vision, the manufacturing industry is set to become increasingly specialised and spawn more niche sectors, enabling better productivity and higher efficiency throughout the economy.
Specialised sectors, such as steel products, heat exchangers, valves, tanks, and even ladders, are all set to benefit from the expansion of big industry players and an oil and gas industry that is increasingly focused on upstream and downstream production.
At present, the total that the manufacturing sector contributes is 10 per cent of the country’s GDP and is growing at an average of 7.5 per cent annually, according to a recent report from Mordor Intelligence. “Key factors in this growth will be the development of R&D facilities, government support, modern infrastructure and business-friendly regulations,” states the report.
The recent slump in oil prices has shifted the Kingdom’s focus to other sectors and manufacturing tops the list, both in terms of potential and financial backing, notes the report. “This could turn out to be blessing in disguise for Saudi Arabia, as it will give its largely oil-dependent economy an option for the future. Governmental backing and huge investments into the manufacturing sector could bring huge opportunities to the kingdom.”