INDUSTRIAL DEVELOPMENT

Saudi Arabia 2017 | INDUSTRY & MINING | B2B

To ease the pressure of high fixed costs and a recalcitrant domestic labor force, leading firms are leaning on automation to push major industrial initiatives forward.

Abdullaziz Al Zamil
ABDULLAZIZ AL ZAMIL
Chairman
Sipchem, Sahara, Alinma Bank, & Zamil Group
Abdulkarim Alnafie
ABDULKARIM ALNAFIE
Director General
Saudi Industrial Development Fund (SIDF)

How would you describe the current era of industrial development in Saudi Arabia?

ABDULLAZIZ AL ZAMIL When SABIC was founded in 1976, we were given capital of SAR10 billion and did chemical projects through JVs with various international companies. When the bylaws of SABIC were established it was clearly stated that it would be a wholly owned government company; however, after a number of years turning a profit, shares were sold to the public. We got the project going, and started production and export, and once SABIC declared its first two years of profit, the government decided to sell 30% of the shares to the public. This was a popular offering and was widely received; it was in fact oversubscribed by several times. Shares were sold for SAR10, and the current market value is over SAR100, making it a successful example of privatization. It represented a required income and this was understandable, especially when oil prices came down. Now it is ready and everything is set up; the bylaw is there and the company is profitable. There was an increase in local utility costs, which put pressure on companies like SABIC, forcing them to find ways to reduce their costs.

ABDULKARIM ALNAFIE Automation is an opportunity for our country as it raises the level of jobs that we can induce more Saudis to take. Salaries will increase, as will the workplace environment. Most of our plants are more or less automated; some have the highest levels of automation because it is not possible to find Saudis capable of doing the jobs or to provide salaries that will make employees happy. We discourage hiring more foreign labor for these jobs and encourage automation; we always want our plants and factories to adopt and employ the latest technologies. There is always a tradeoff between investment on returns and costs, so this has to be viewed in a more pragmatic way.

What kind of investments are you currently interested in?

AAZ We are active in downstream activity, with at least 12 ventures in chemicals and plastics. We have some JVs with American companies, such as Huntsman, and with Austrian and Turkish companies for packaging. Many of these JVs are expanding organically from within. We are also adding new products and looking at new ventures and opportunities. Packaging could grow massively, as FMCG multinationals have their regional headquarters here. Because of product price reductions we have to find a way to reduce our costs. This combined with an increase in feedstock costs means there is more urgency to reduce costs. A major effort was made by Sipchem, Sahara, and others to try to reduce their costs to be more efficient, and it has been successful. In terms of expansion, this depends on the viability; one area to reduce costs is in capacity, since this kind of investment is heavy and has high fixed costs.

AA The focus is not for us but for the entities that will develop these industries. The Ministry of Defense will determine its priorities and what can be localized or not. We are there to support, when requested, any of these industries. That is not to say we do not have certain capabilities today; we have industries in defense, though there is much room to grow. Aviation is one of them and some companies like Taqnia have announced different projects that they are looking into in aviation. It recently launched an airplane in cooperation with Ukraine and is looking at other ventures to support that project or others that are similar in nature. In 2016, renewable energy was a focus topic on our annual report in SIDF as it is an important industry that is imminent and we will need to support it. By the end of 2017, we should see execution of some of the mega projects that the ministry has talked about. We have financed certain projects in the sector but more will be on the way, at least for solar power.