Diversification and added value are the catchwords one encounters these days
among economists and businessmen in Saudi Arabia. The country is no longer
satisfied to be merely an oil exporter dependent on rent economy. The aim
now is to turn into an industrial nation.
Arabia possesses the largest natural resource reserves in the world. More
than one-fourth of the world’s total oil reserves –about 262bn barrels– are
located in Saudi Arabia. For a long time oil revenues, which constitute over
70% of the national income, have been the major driving force behind the
kingdom’s economic development.
is a growing concern and worry regarding the heavy dependence of Saudi
economy on oil. Oil is an exhaustible commodity and its prices are highly
fluctuating. Moreover, oil production cannot absorb the labor force in the
country with an expected population explosion of unprecedented magnitude
within the coming decades. With increasing young population, the creation of
employment is becoming a central concern for Saudi authorities who have
recognized the need for economic diversification.
are the rational justifications for industrialization. But even more
important than that, the necessary means are available at hand. In addition
to the projected human resources just alluded to, the country is overflowing
not only with cheap energy but also with liquid cash and entrepreneurs who
are willing to invest their money locally. The skyrocketing oil prices in
the last few years and the restrictions imposed by Western countries on
foreign investors in the aftermath of 9/11 are all factors forcing wealthy
Saudis to look for investment opportunities inside Saudi Arabia itself.
promote this new trend towards privatization and diversification, the
government is relaxing investment regulations and opening markets up. The
Supreme Economic Council (SEC) was created in 1999
to spearhead such diversification and increase private sector participation
in the economy.
quarter of the world's energy resources come from Saudi Arabia, yet, the
kingdom houses only less than 3% of the world's energy-intensive industries.
It is for this reason that Saudi Arabia General
Investment Authority (SAGIA) has launched an aggressive campaign to
attract US$500bn in investment for such energy-intensive industries. To
attract foreign investment, six economic cities have been launched in
various parts of the country. According to SAGIA, the economic cities are
expected to attract investments worth much more than US$80bn and create more
than a million jobs within the next 10 to 20 years.
base of the Kingdom is far broader than other Gulf States and there is
already a well-established manufacturing sector, from plastics and polymers
to building products and various mineral mining plants, as well as
petrochemical associated industries and other industries dependent on a
ready and cheap supply of energy and feedstock materials. The Saudi
experience in petrochemical industries in Jubail and Yanbu’ launched in the
70’s of last century is very encouraging. ARAMCO and SABIC are other success
stories. But what is needed are labor-intensive industries that can absorb
the growing labor force. Future industries will be geared to make further
refinements of the outputs of petrochemical industries by using such outputs
as basic material for more developed and advanced industries, such as
plastic, metal, building material, cars, spare parts, packaging material,
household items, etc.
Soon Saudi Arabia
will become one of the world's largest aluminum producers. Saudi Arabian
National Mining Company (Ma'aden) has signed an agreement with Canadian
aluminum giant Alcan to develop a $7bn integrated aluminum production plant
in Minerals. The agreement is based on the discovery of Bauxite reserves at
a place called Al-Zubeira in the north with proven reserves of 90m tons,
which could last more than 30 years. The Al-Zubeira bauxite mine will feed
the production plant to be established at the Industrial City of Ras Azzour,
on the Gulf coast.
integrated aluminum plant will include all the steps in the process from
mining raw material to the refining of aluminum, The initial phase includes
the construction of a power plant delivering 1,400 megawatts, developing a
90-million-ton bauxite reserve located in Al-Zubeira, building an alumina
refinery with a capacity of 1.6 million tons per year and an aluminum
smelter with a capacity of 720,000 tons per year. The aluminum plant,
aluminum smelter and power generation facilities will be located in the new
Minerals Industrial City at Ras Azzour. A new $2.8 billion railway line is
being constructed to link Al-Zubeira to Ras Azzour and other northern Saudi
Arabian industrial cities. The plant will be one of the lowest operating
costs in the industry. According to Dick Evans, Alcan Chief Executive, the
aluminum project has an ideal combination of competitive energy resources,
local bauxite, well-developed infrastructure and favorable logistics.
Ma’adin is embarking on another major development project in its other core
area of operation, phosphates, which is abundant in the same Al-Zubeira
location. The company recently signed a $3.4bn partnership with Saudi Arabia
Basic Industries Co. (SABIC) to develop a huge fertilizer complex at Ras
Azzour where the aluminum project will be located.
are just few examples of the many industrial and developmental projects
embarked on by Saudi Arabia. There are other plans and projects to push
upward the ranking of the kingdom within the coming few decades to the 10th
instead of its current
The Ministry of Industry and Commerce is about to put the final touches on a
national industrial strategy to be soon submitted to the Supreme Economic
Council. The aim of the strategy, with a projected budget of nearly 5
billion dollars, is to attract local and foreign investments in order to
encourage and diversify local industries and give the kingdom a competitive
edge in order to increase the country’s export of processed commodities and
create new jobs for young Saudis. Along with other infrastructural
facilities, the government will grant free land to entrepreneurs to
establish industrial complexes and build factories in various cities
throughout the kingdom. The government will also pay for the running costs
of these industrial complexes for the first five years. Global Investment
House, one of the region's investment houses, reported that efforts by the
Saudi government to provide industries with investment benefits and build
up-to-date infrastructural facilities are making entry to Saudi Arabia's
industrial sector attractive for investors and private industries from
March 5th, the Council of Ministers issued several economic resolutions
ratified by King Abdullah that were meant to promote non-petroleum exports,
and encourage foreign investments that would create new job opportunities
for Saudis. An independent governmental committee was established for this
purpose under the name of “The Committee for Promoting Saudi Exports”. In
addition to this committee, the Council of Ministers approved the
establishment of a program to develop industrial complexes which is meant to
create a new industrial environment in order to diversify national
industries and encourage processed products instead of relying mainly on the
export of raw material and natural resources such as oil. This is supposed
to augment the gross domestic product by the addition to natural resources
the added value in the form of human labor.
hoped that by the year 2020 the contribution of industrial production to
national income will reach 25%. In other words, exports from non-petroleum,
industrial products are expected to rise to 150 billion Saudi Riyals. Annual
income from non-petroleum industries to the national budget is now barely
10%, or 60 billion Saudi Riyals.
economic efforts come in correspondence with parallel measures to meet
future demands for skilled labor through improving the educational
curriculum and the position of women in society. It is hoped that change in
the economic base of Saudi society will eventually lead to change in the
traditional cultural values that have been hindering social progress.
Industrialism and capitalist economy usually go hand in hand with
entrepreneurial spirit and liberal politics. If we look back to the history
of the Western World, we find that it was the industrial revolution that
awakened Europe from the slumber of the middle ages. Industrial and economic
progress had undermined the authority of the Church in world matters.
Substitution of secular for ecclesiastical authority and freeing of thought
from the dominance of the Church were conducive to business growth, which
depended on speculation and rational inquiry. Greater freedom from
governmental restrictions was thought to be advantageous to the economy,
which thrives under the stimulus of self-interest and freedom of choice.
Realization of self-interest as the motive force of conduct is inherent in
the liberal political philosophy. This rationale is the basis for the famous
maxim laissez faire. Economists and businessmen, rather than
intellectuals, are in a better position to campaign for rationalism,
liberalism and secularism, since such values are good for business.