Industrial strategy will maintain Kingdom’s geopolitical role
Last week, Saudi Arabia released its National Industrial Strategy, which charts a path toward greater diversification of the economy, away from dependency on the extraction and export of crude oil. It also is a key tool to maintain the Kingdom’s regional and global role as a key geopolitical player.
The new strategy complements last year’s National Investment Strategy as another important step in that transformative process, designed to increase private sector contribution to 65 percent of gross domestic product by 2030, expand foreign direct investment share to 5.7 percent of GDP, and non-oil exports from 16 to 50 percent, while lowering the unemployment rate for Saudi nationals from 11 percent to 7 percent.
It also builds on the success of the National Industrial Development and Logistics Program of 2019, to integrate and develop four key sectors: energy, mining, industry and logistics.
In his remarks launching the new strategy, Crown Prince Mohammed bin Salman said that Saudi Arabia has all the requisites to become a competitive and sustainable industrial economy able to contribute to securing global supply chains and exporting high-tech products. The strategy sets fairly high targets, for example to expand industrial GDP almost threefold by 2030 from its current level of about $91 billion to $239 billion. It also seeks to increase industrial exports to at least $149 billion by 2030 and $237 billion by 2035, with high-tech exports increasing sixfold.
The future pace set by the strategy is breathtakingly fast. According to official figures, only 7,206 industrial factories were started between 1973 and 2015. Since the launch of Vision 2030 in 2015, an additional 3,434 factories have been opened, an increase of 48 percent in seven years. However, by 2035 the strategy anticipates that the number of factories will reach 36,000, an increase of 338 percent, with at least two auto factories producing 300,000 cars, three new vaccine factories, four plants for aircraft components, and 15 plants specializing in internet-based products.
The industrial expansion focuses on 12 subsectors and provides more than 800 known investment opportunities worth about $267 billion. The strategy seeks to attract new industrial investments of about $347 billion, and create tens of thousands of high-value and high-tech jobs in the sector.
The private sector, which was heavily represented in the large launch meeting on Oct.18, is called on to take the lead, while government agencies are urged to enable and empower that leadership. The government has set up the Supreme Industrial Committee, led by the crown prince, to ensure consistent and speedy implementation. In addition, an industrial board has been created to include private companies in decision-making and policy development.
Saudi Arabia is the fourth-largest petrochemicals producer in the world, but
Energy Minister Prince Abdulaziz bin
Salman said that is not enough. He wants the country to transition from focusing on those intermediate products to producing more high-end manufactured goods using petrochemicals, something the new strategy encourages. It anticipates that the country will be producing about 800,000 tons of high-end petrochemicals annually by 2035. The energy minister, a key architect of the new industrial policy, did not mince words about the slow pace of industrialization, especially manufacturing, in the past. He blamed it on the “cantonization” of government bodies, meaning bureaucratic isolation and lack of a “whole government” approach to industrialization.
There is a reason for the speed demanded by the new strategy. Officials want to take advantage of what many believe to be the waning days of oil as the primary energy source. Once oil loses that place, its price may drop irrevocably unless Saudi Arabia and other producers are able to keep it relevant for other industries as an intermediate product, instead of a mere energy source.
Officials at the opening reflected that desire to accelerate the pace of diversification. They said that they intend to do in the next 10 years what China, India, Japan and Korea did over decades. The ambitious targets reveal that determination.
Officials were candid about the challenges, insisting that they are working on overcoming them. Investment Minister Khaled Al-Falih referred to the need for legislation and regulations to move at the same speed as the desired pace of industrialization. He also referred to investors’ concerns about shortages in skilled labor and cloud computing capacities in the Kingdom, limitations that may make it difficult to meet the new strategy’s targets.
As the Kingdom races to diversify its economy before oil wanes in significance and value, it needs an ambitious industrial strategy with difficult, but not impossible, targets. Much will depend on the ability of the new governance bodies to tackle the evolving demands of high-end manufacturing, as well as deal with the challenges already identified and those that emerge in the future.
But Saudi economic well-being is also important for regional and international security and prosperity. This year Saudi Arabia passed a milestone, with its GDP passing the $1 trillion mark, making it the 18th country to reach that goal. Its great wealth has enabled it to play a significant role regionally and a growing role globally. It has also enabled the Kingdom to care for the Muslim holy places and the millions of pilgrims visiting every year. Saudi Arabia has also used that wealth to help its neighbors weather the pandemic-related economic slowdown and food shortages caused by the war in Ukraine.
To maintain its contributions to regional and international security, stability and prosperity, and keep providing for its growing population of more than 35 million, the Kingdom needs to plan for the post-oil future that will guarantee its ranking among the wealthiest nations in the world.
As the Kingdom races to diversify
its economy before oil wanes in significance
and value, it needs an ambitious
industrial strategy with
difficult, but not impossible,
targets
Away from the
conciliatory words, Sunak’s
in-tray will be brimming with questions
of how to deal with the soaring
energy bills, labor shortages,
spiralling inflation and
climbing interest rates