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SAUDI ARABIA ON THE VERGE
OF AN IDUSTRIAL REVOLUTION

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.

Saudi Arabia possesses the largest natural resource reserves in the world. More than one-fourth of the worlds 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 kingdoms economic development.

There 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.

Such 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.

To 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.

A 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.

The industrial 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 70s 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.

The 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.

Maadin 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.

These 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 position among the 89 industrial nations, instead of its current 53rd position. 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 countrys 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 abroad.

On 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.

It is 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.

These 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.

 







  

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