Saudi Arabia Economy • One of the world’s 25 largest economies (23rd ) • The largest economy in the MENA region. • Represents 25% of total Arab GDP • It has 25% of worlds oil reserves • The industrial sector: 13% of the GDP. Projected: 20% by 2020. • Ranked 4th world wide for fiscal freedom.
NIS, manufacturing identified as a keydevelopment sectorGoal is to diversify away from oil and gas and develop human capital "Manufacturing is our strategic choice to diversify the economy" Vision Key strategic goal "A globally competitive industry, based on "To increase the contribution of the innovation and acting as a major tool in manufacturing sector to the GDP transforming national resources into sustainable to 20% … " wealth" Source: KSA Natinal Industrialization Strategy document, Factiva
Reaching NIS strategic goal would position KSA in the league of Germany and Japan Manufacturing as percentage of GDP (2009)40 35%30 27% 25% 21% 21% 20% GDP contribution by 202020 17% 16% 13% 13% 13% 12% 12% 10% 10%10 5% 3% 2% 0 Thai- Singa- Korea Japan Ger- South Egypt United UK KSA France Turkey Greece Norway Algeria Hong Canada land pore many Africa States Kong1. Manufacturing defined as all activities under ISIC classification, Code DNote: Manufacturing value added (MVA) measures contribution of an entity to the whole manufacturing GDP of economy. MVA =Manufacturing GDP – taxes + subsidies on manufacturingSource: Nation master; BCG analysis
NIS strategic goal to be achieved byreaching four targets Four targets help reach strategic goal of 20% manufacturing contribution by 2020 Four targets are interrelated 1 1 GDP Increasing manufacturing GDP Grow Man. 3x threefold GDP 3 4 More export More value oriented add sectors 2 More jobs sectors Manufacturing Increasing share of Saudi labor Saudization in manufacturing to 30% -> 30% More Saudi Employment involve- More 3 Increasing share of ment "nice Saudi Share of tech "technology"/value add jobs" More jobs involveme man products manufacturing products for Saudis nt "intl -> 60% to 60% jobs" 2 Saudi 4 employment Share of exports Increasing share of exports in man revenues versus domestic -> 35% revenues to 35%Source: KSA National Industrialization Strategy document; BCG analysis
Eight improvement axes identified to achieveNIS targets NIS axes Description 1 • Improve macro-economic policies (i.e., monetary and fiscal policies, wages) Overall business • Stabilize micro-economic indicators (to attract local and foreign investments) environment • improve trade policies and market competition 2 • Stimulate industrial diversification and achieve balanced development Industrial complexes • Important factors behind industrial development • Stimulate innovation and development by sharing skills 3 • More attention should be devoted to SMEs (i.e., industrial SMEs support, industrial SMEs Business community incubation, business resources center, competitiveness development and industrial and SMEs modernization center, industrial financing mechanisms) 4 • Link R&D efforts with development processes (i.e., linking science and technology network Industrial innovation with innovation in industrial companies, linking educational output to labor market needs) and productivity • Promote innovation in small and medium scale industrial facilities 5 • Ensure the availability of technically and scientifically qualified and well-trained resources HR development • Train personnel to deal with, develop, and maintain modern machinery and equipments 6 Infrastructure and • Develop infrastructure in the traditional industrial regions and the new industrial cities/zones logistics support • Enhance provision of industrial services and supportive activities (i.e., handling, shipping, storage) 7 • Move the Kingdom towards higher technology-content industries New industry • Provide continuing support for the development of existing industries which have earned verticals successful comparative and competitive advantages (i.e., petrochemicals) 8 Governance mechanism • Manage the implementation of NISSource: NIS; BCG analltsis
MODON In Brief• History Established in 2001. Independent, self-funded public organization.• Roles Regulate, develop and promote industrial properties and technology zones.• Facts Overseas 75 million m2 34.5 million m2 developed during the last 3 years. More than 300,000 Jobs. More than 3,000 factories
MODON In Brief Increase Industrial Lands to 150 million m2 in 2015 160,000 140,000 120,000 Thousand m2 100,000 80,000 60,000 40,000 20,000 0
Investment Incentives Incentives Competitive Advantages SAR 1 / square meter Integrated Infrastructure / year Biggest Attractive Market in ME Electricity rates: $0.04 / KW Governmental Services Centers Custom exemption (for equipments & Housing & Commercial raw materials) Centers Least Rental Rates in Government GCC financing up to 75% Center of ME Industrial Cities widespread Modern Industrial Cities