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Eastern Province, an economic diversifier

Interview - November 16, 2012
Abdul Rahman A. Al Wabel, Secretary General of the Asharqia Eastern Province Chamber of Commerce, speaks with United World about the competitive advantages his province offers and the ability of Eastern Province to keep ahead of mounting demands from a growing national market

As the Secretary General of a leading institution in the Middle East, what is your personal view of His Royal Highness the King’s vision?

The Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz announced a record SR690 billion (USD184 billion) surplus budget for the year 2012. This budget clearly reflects the deep interest and vision of HRH the King in advancing and enhancing the socio-economic features of our country. The budget has allocated SR168 billion, which represents 24% of total budget and a 13% increase from the preceding year’s figure, for the education and training sector and this is an indicator for the increased interest in supporting and developing human resources and manpower that will participate directly in creating more new job opportunities for Saudis.

No one can neglect the very important role of improved infrastructure in creating an attractive investment climate for the private sector especially in industry and trade, so the amount of budget spending allocated for transport and telecommunication was SR35.2 billion, which represents 5.1% of total budget and a 40% increase in the preceding year’s figure.

Also, the Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz has a deep commitment in encouraging the SMEs and private sector through availability of loans from different government funds. The amount of funds allocated reached SR440 billion till 2012.

In what stage of development do you find the commerce and industry of KSA, and especially in the Eastern Province?

There are many indicators to prove that the kingdom has reached a very advanced stage of development: the kingdom has increased its participation in world trade – indeed the World Bank ranks Saudi Arabia 15th among 173 countries with respect to the export of goods as a share of world goods exports for 2012 mainly due to oil exports. Despite that, the kingdom is exerting great efforts to diversify its domestic production concentrating on the industrial sector and that has resulted in increasing the share of that sector’s contribution to the national GDP and exports. The country’s future is bright and will witness more developments.

The GDP has improved over the years. The GDP of the Eastern Province reached SR788 billion by 2009 which represents 56.4% of the country’s total GDP, while the GDP of Eastern Province excluding the oil and gas sector reached SR177.4 billion, which represents 22.6% of the country’s total GDP excluding the oil and gas sector.

The average annual growth rate of Eastern Province’s GDP excluding the oil and gas sector was about 11.6% between the years 2005-2009. The industrial sector had the largest contribution to Eastern Province’s GDP (excluding oil and gas) representing 40.6% of the total, followed by the real state sector and the financial service sector (11.4%), commercial sector (8.1%) and then the construction sector at 7.2%.

With regards to the external trade sector, Eastern Province’s total exports of reached SR624 billion in 2009, representing more than 89% of the country’s total exports excluding re-exports.

What have been the key macroeconomic and political initiatives in the past 10 years that have given Saudi Arabia and Eastern Province an edge?

According to the World Bank’s Doing Business Report 2012, Saudi Arabia was ranked 12th and this is a result of tremendous developments and improvements in the procedures of starting a business, time required for dealing with construction permits, access to energy and electricity, registration of properties, protecting investors, paying taxes, and trading across borders.

This result was due to a set of procedures and policies that have been applied during the latest period, among these are the opening of the King Abdullah University of Science and Technology – Saudi Arabia's first co-educational university. As part of its effort to attract foreign investment, Saudi Arabia acceded to the WTO in December 2005 after many years of negotiations. Furthermore, the government has begun establishing six "economic cities" in different regions of the country to promote foreign investment and plans to spend USD373 billion between 2010 and 2014 on social development and infrastructure projects to advance Saudi Arabia's economic development.

At the level of regional integration, a customs union was formed in 1999 and came into effect from 2003 among countries of Gulf Cooperation Council (GCC: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates). Also, the kingdom is a member of GAFTA within the Arab region starting to apply FTA since the beginning of 2005.

How would you evaluate the progress in terms of freedom to do business in the kingdom and around the GCC?

If we would talk about the regulatory framework, it is relatively improving. Forming a business has become less time-consuming, and licensing requirements have been eased. With no minimum capital required, starting a business takes only about three procedures and five days. There is no mandated minimum wage. Regarding opening markets, the trade weighted average tariff rate is modest, at 3.9%, and it is very low and very suitable for FDI.

There are also two principal strategies behind Saudi Arabia’s economic development and diversification objectives. These are: (i) privatization and (ii) free market strategies. Saudi government has paid special attention towards implementing these policies. A steady increase in the contribution of private sector to GDP measures the extent of success in privatization policy. During the period from 2006 to 2009, the private sector, at current prices, grew by 6.9%. Privatization of the Saudi economy is an ongoing process, which has been reiterated over several Five-Year Economic Development Plans, since the early 1970s.

Also, Saudi government has consistently committed itself to provide investors with a favorable, safe and stable business environment. Because of the government’s genuine commitments, over the years, Eastern Province has been transformed into a safe hub for economic activity. This stability will be sustained because of Inherent governance institutions, wisely chosen strategies, and firmly undertaken safety and security measures

Mr. Al Athel, Secretary General of RCCI, pointed out in our interview that the demand for housing, metal, real estate, and oil will keep spiraling up as the economy diversifies, construction soars and the population growths. What is your perspective on the demand behavior?

There are many studies and indicators to show that there is an increasing demand in those sectors especially in real estate and housing especially in Eastern Province due to increased standard of living and income in Saudi Arabia, increasing population growth rates, abundance of essential and public services, infrastructure elements and logistics, economic recovery and civilization, tourism boom, social and security stability and large expected revenues from real estates sector and various motivations for purchasing residential estates.

According to recent estimates, Saudi Arabia needs an investment of about SR1.3 trillion to construct 2.4 million housing units between 2011-2020. This indicates the magnitude of expenditures required by both government and private entities in order to close the supply and demand gap. The growing demand in the housing market will create many opportunities for both commercial banks and real estate developers to take on more active roles.

In the medium to long-term, the mortgage law will have a positive impact on increasing home ownership, as lenders gain more confidence that the law will provide needed protection. These new initiatives, which are aimed at addressing the housing market across different income groups, will gradually remedy the supply-demand imbalances toward equilibrium.

Also, the government programs, specifically the Real Estate Development Fund (REDF), provide housing assistance to Saudi citizens in the form of interest free loans. According to 2010 data, the REDF provided loans in the amount of SR6.7 billion. The loans were disbursed for financing the construction of owner occupied units. Loan repayments in 2010 stood at SR5.9 billion. The REDF has disbursed SR172 billion loans for the construction of nearly 700,000 homes since its inception.

What are the comparative advantages of investing in Eastern Province?

Eastern Province has many comparative advantages of investing, including the strategic location that makes it a strategic gateway to international trade and tourism. Eastern Province, with more than 33% of Saudi Arabia’s total area, is the largest province in the kingdom. The size of the market also plays an important role in attractive private sector investment as the population of Eastern Province represents more than 15% from the country’s total population. In addition, the GCC countries near the Eastern Province form an enlarged market as a result of economic integration within GCC and also the improved infrastructure that eases traveling and transporting. 

The most unique feature of Eastern Province is the enormous natural resources, particularly oil and gas. The region is located on the top of the largest ocean of underground oil reserves in the world. It has more than 20% of world’s total 1.3 trillion barrels of proven oil reserves. Saudi Arabia has more than 100 oil and gas fields, out of which more than 50% of its oil reserves are contained in eight fields in Eastern Province. Also this led to creating advanced networks of roads, railways and other infrastructure including electricity and water networks, we can’t ignore the importance of the King Abdul Aziz Port at Dammam in facilitating trade and transport activities. 
Eastern Province, because of its vital energy industries, has competitive advantages in energy- and/or hydrocarbon-intensive industries such as Petrochemical, Steel, Cement and Water Supply industries. Investment in such industries not only allows Saudi Arabia to create more value-added out of its energy resources, but also helps the country to better diversify its economy. Tourism resources are another advantage of eastern province as it enjoys the abundance of beautiful beaches and many archaeological historical sites

What is the role of companies such as ARAMCO and SABIC in the Eastern Province and how does it act as a seal of quality for everyone else?

Saudi Aramco has concentrated on serving the communities in which it operates, as well as Saudi Arabia as a whole. The company has built 123 schools in the Eastern Province serving some 54,000 Saudi and other resident children. It helped develop Eastern Province's electrical power grid and carried out other major infrastructure projects at the request of the Saudi Government. Saudi Aramco is the single larges employer in Saudi Arabia outside the Government. The wages it pays and the goods and services it buys in the local market help fuel the regional and national economy.

The company awards most of its contracts to fully Saudi-owned or joint-venture businesses. Saudi manufacturers and vendors have supplied nearly 90 percent of the material purchased by Saudi Aramco in recent years.

Regarding SABIC, it took responsibility of the ambitious Saudi industrial program and established industries that would invest in the country's hydrocarbon and mineral resource and market its products in the local and international markets.

SABIC is the key player in petrochemical industry in Saudi Arabia. As a result, Eastern Province of Saudi Arabia is now not only the dominant regional petrochemical producer, but also a key global player in this industry. The Province is home to the world’s largest producer of Methyl Tertiary Butyl Ether (MTBE), glycols, granular urea, polyphenylene, and polyetherimide; second largest in methanol; third largest in polyethylene; second largest in ethylene glycol, and fourth largest polypropylene.

Overall, SABIC is one of the top ten petrochemical companies in the world, even though its production is not limited to petrochemicals.

Also, both ARAMCO and SABIC have committed social responsibilities in areas such as education, training and environment protection.

How does the strategic location of Dammam/Khobar, next to Bahrain and close to Kuwait, Qatar, UAE and Oman give the Eastern Province an edge?

The Eastern Province has a strategic location in the eastern part of the Kingdom of KSA, overlooking the Arab Gulf and having common borders with Kuwait, Bahrain, Qatar, the United Arab Emirates, and the Sultanate of Oman. This strategic location encourages the bilateral economic relations between the Eastern Province and the nearby GCC countries especially in trade, investments and tourism relations.

The land and sea means of transportation of goods between these countries helped expand Saudi markets, and thus supported the kingdom’s trade exchange with both Gulf and non-Gulf countries, for example the volume of Saudi imports passing The King Fahd Causeway between Khobar and Bahrain reached in 2010 about SR19.6 billion, which represents more than 5% of the kingdom’s total imports.

What have been the key historical moments in Asharqia’s development and management throughout the years?

The Eastern Province Chamber of Commerce and Industry (EPCCI) was established in 1952. Since then, it has been playing a vital role in the development of local trade and industry. To provide better services to its over 45,000 current members (as of Oct. 2012), the EPCCI has set up a number of departments to serve the province’s business community.

The first branch was established in Jubail that offered subscription, authentication and commercial service. Currently it has three branches in Jubail, Al Khafji and Alqatif, the first branch was setup in Al-Jubail. In 1995, the EPCCI organized a huge industrial conference that focused on the strategies for the development of the Gulf industry.

Since then, the Eastern Province has been known as the “Capital of the Gulf Industry”. In September 2000, the EPCCI established the SMEs Center to help Small and Medium companies to develop their business opportunities. In October of the same year, it established a WTO Unit - the first specialized unit in the kingdom which devoted to help the Saudi Industry to face the challenges from Saudi Arabia’s accession to the WTO. In May 2004, the Chamber organized the First Saudi Arabian International Gas Conference. It took place at an opportune moment just after the Saudi Aramco signed a number of gas deals with international oil companies (IOCs) such as Royal Dutch/Shell, Total of France and other companies from Russia, China, Italy and Spain to explore and develop Saudi upstream gas projects. Representatives of these IOCs made their presentations at the conference highlighting trade and investment opportunities for local as well as international contractors and private sector companies. In 2008, the Chamber established a new department called "VIP Center", which is exclusively designed to improve quality of services to its superior class members. The center offers all kinds of Chamber's services to its VIP members. In 2009, it also established a Businesswomen’s center which is aimed at providing all kinds of membership services to its women members. The EPCCI currently has more than 1000 women members.

Some of the most impressive moments came in the 2009-2010 period when the Chamber, in order to improve the quality and management of customer services and information, received the ISO 9001 Quality Management System, ISO 27001 Information Security Management System, ISO 10002 Customer Satisfaction, and BS 259999 Business Continuity certificates. Another achievement is the Chamber’s adoption of the new Oracle System which is planned to be applied by 2013; the system is designed to provide full electronic services to its members.

How has the chamber managed to develop long lasting and reliable business relations around the EP, Kingdom, the Gulf and the world? 

At the national level, all the chambers in the kingdom serve as a unified voice for their members and a representative of the Saudi private sector. The Asharqia Chamber, through its sectoral committees, represents more than 50 thousand business organizations and individuals. In that sense, the Chamber in cooperation with other chambers in the kingdom was instrumental in persuading the government to adopt many economic policies and regulations; develop new markets; build new economic cities; and keep organized business strong and increasingly effective.

At regional level, the Gulf, the Chamber engages in a broad spectrum of activities, ranging from informing and counseling its members on key gulf economic developments to conducting studies and issuing reports, bulletins, booklets, and periodicals on the related gulf region issues. In addition, the chamber maintains a vigorous stance in making its policies and members' viewpoints to the council of Saudi chambers regarding all regional polices.

At the global level, the Chamber plays a vital role in enhancing the relations between its members and business community all over the world. The Chamber holds regular meetings between its members and foreign trade delegations of principal commercial partners of KSA.

What are some of the resources that Asharqia puts into action to get businesspeople together and enhance the business environment?

In addition to VIP Center which is devoted to serve the private sector, the Chamber’s Businesswomen Center has undertaken a unique program to identify trade and investment opportunities as well as employment opportunities for women. The Chamber has also, established Investment and Local Content Center in order to enhance the supply chain of business and promote investment opportunities in the kingdom. Furthermore, the Chamber established a specialized Events department that is responsible for organizing business conferences in different fields to develop the business environment in the Eastern Province and the kingdom.

What is your management relationship like with key stakeholders of the chamber and how do you consolidate your communication with them?

At the Chamber, we aim to provide unique and high quality services that meet the aspirations of our members and consolidating the communication with our members, thus realizing the wishes of our members in light of the values and principles of our society.   Management of the Chamber is through the Board of Directors. The Board of Directors is comprised of 18 members, including the chairman and two deputies. 12 members are elected by members and 6 assigned (3 industrialists and 3 commercial traders). The Board represents the business community in the Eastern Province. The executive committee of the Chamber is elected by the Board and are responsible for carrying out the yearly executive plan of the Chamber. The general assembly which represents the membership of the Chamber is provided with annual report which contains all activities of the Chamber throughout the year. As a traditional practice, the Chamber holds monthly meeting for its members and organizes a yearly conference under the patronage of his Royal Highness Prince Mohammed bin Fahd, the Governor of the Eastern Province.

What is your role as the link from the private sector to the public sector? How do you encourage PPP (Public Private Partnerships) among your members and the state?

The Chamber plays a vital role as a link among its members. The Chamber organizes meetings, seminars and symposia to discuss latest developments in trade and business, new laws, rules and regulations formulated by the government.  The Committees’ department in the Chamber is considered as a link to the Eastern Province’s private sector. The main goal of this department is to understand, promote and follow-up the common interests of business establishments operating in the economic sector in the region and highlight them in the media.  It also holds meetings with the executives of different economic activities and forwards proposals to overcome the difficulties that may face from such activities. Through the Committees’ department, the Chamber is achieving more cooperation among the existing organizations and providing assistance for incorporation of the companies that may play positive role in enhancing integration among the organizations of the sector or strengthen their relationships.

In addition, the Chamber encourages the positive dialogue and partnership with the government by studying the effects of the applicable or the proposed economic policies or laws after they are referred to the Chamber by the concerned official authorities. The Chamber sends the opinions of the Chamber members regarding these policies or laws by submitting recommendations on such policies or improvement of such laws. Sometimes, the committees in the Chamber send representatives to meet officials in the Ministry of Commerce, Saudi Arabian General Investment Authority (SAGIA) or any other governmental entities if it is needed to address or discuss economic issues.

What are the plans for the future in terms of strengthening the chamber’s current activities and getting involved in expansion as well as larger reach?

As early as the 1952, businessmen in Eastern Province realized they needed a commercial and trade organization to represent their interests in the wider community. Since that year the chamber has evolved. The membership reached approximately 42 thousand members last year. Not only the services but also, the activities of the Chamber have been developed to meet the needs of business community in the Eastern Province.

How do you reach out to foreigners accessing or established in Saudi markets?

Well, we in the Chamber understand and realize the importance of foreign investment and the importance of trade with foreigners. As you know the kingdom adopts free market principles. In this context the Chamber’s centers like Information and Studies Center conduct economic and trade research reports periodically and provide its members with all GCC and other international publications. The Chamber also prepares and submits economic and commercial information about the Eastern Province; studies and researches connected with local and global economy; and all available information about the foreign companies and traders that operate inside and outside the kingdom. Through the Local Content and Investment Center, the Chamber helps its members to make partnerships with foreign investors and submit information of investment opportunities in kingdom and Eastern Province in particular.

What is the role that the youth has today in the companies represented in this chamber?

According to the official statistics, the youth (aged 20-40 years) has a vital role in the working force; the youth’s contribution to Saudi working force will reach 66.4%. This means that we face a big challenge to create more jobs. We have much concern to create jobs for Saudis in the private sector. Official Survey (2010) showed that private sector employed approximately 7.0 million workers. Saudis’ contribution to the working force did not exceed 10.4% with 724,655 Saudi workers.
What is your view regarding human resources in terms of advancement, training and retention in the companies? And what is your point of view regarding “Saudization”?

Well, the management of human resources in the new economy is a challenge for all companies. I believe it is very important for companies to train and develop their employees to gain competitive advantage in the market. Companies normally would like to employ trained employees. For that reason Saudis shall acquire training and try to develop themselves before applying for jobs in the private sector. The Chamber recognizes the importance of training for jobs, so that it established a training center.

Furthermore, the Chamber established the Eastern Province Recruitment Center .the center specializing in employing qualified Saudi citizens from different parts of the kingdom holding various qualifications (Diploma, Bachelor, Master and Doctorate) in more than 150 different specializations from different faculties of Saudi and foreign universities. The Center registers the names of qualified youths and makes them available to member companies so that they could recruit suitable Saudi candidates.

The center has the most modern electronic recruitment system which consists of rich database of qualified candidates from both genders, where their applications are received and registered in chamber website. The Private Center members are able to utilize this service and save costs for advertising in newspapers and websites.
In my point of view, Saudi government has made tremendous efforts to implement Saudization program since 1975. Recently, the government has implemented “NITAQAT” Program to enhance Saudization in the private sector. I believe that the private sector will cooperate with the government to implement “Nitaqat” to enhance the Saudization program in the kingdom.

What are some of the practices put in place in to reduce environmental footprint and promote energy and resources conservation?

The issue of preserving the environment has generated great amount of interest among the business leadership in the Eastern Province especially in its major industrial areas in the kingdom. After growing environmental risks, the Eastern Province has launched stations project in various municipalities, four stations in total, monitoring and evaluating air pollutants. Two stations are fixed in the municipality of West Dammam and Khobar and two other areas in the city to monitor the air and record the level of pollution.

Asharqia Chamber has formulated plans through its "Environment Committee" for highlighting the importance of preserving the environment from industrial pollutants in order to preserve public health and protect the environment. The Committee continues to work on raising awareness on several tracks which includes protecting marine environments; protecting the air and land from industrial pollution; protection from pollution caused by oil and gases; maintaining the basic components of the environmental green areas; fight against desertification and soil erosion; and, conservation of groundwater from various pollutants and others.

How do you encourage a ‘Green Mind set’ from the Chamber?

Generally the Chamber encourages owners of factories and companies to adopt the concept of green industry as one of the basic options available to promote industrial development and sustainability in the region. These owners are further encouraged to incorporate plans, programs and the adoption of environmental specifications into their corporate strategies and work on its application in order to strengthen the green industries.

The Chamber prepares studies on means of reducing the damage and risks of environmental pollution and organizes workshops, seminars, and meetings involving regional and international organizations who are experts in the industrial application of green technology in order to raise the awareness for the owners of the factories that are environmentally risky.

Also the Chamber urges organizations to be more energy efficient; switch to low-carbon technologies; and expand the use of renewable energy in the industrial sector in the region.

What is your view on the power of media in current times and how can it affect a country or institution’s image either negatively or positively?

Media, in the modern era, has become a part of people's lives. The key foundations of any advanced country depend on three pillars: politics, economy and media. Media is the cornerstone in creating the conditions necessary and essential to the overall development of society as it works to provide data and information to the public and professionals as they can relate to the flow of investment.

The strategic role of the media led to the overall economic development by linking the businesses, consumers and the economy to each other and facilitated the interaction among them. 

There is no doubt that media has a major role in building the mental image of organizations, institutions and companies and countries.

As a chamber dedicated to integration, union and benefits for all, how does Asharqia make use of media for its own benefit?

Asharqia Chamber relies on hiring all the mechanisms and possibilities and technologies in communicating with various media in the kingdom especially in the Eastern Province to emphasize the role and importance of the private sector in the national economy and its development.

Also economic media in recent decades was able to impose its authority and domination of the general media scene and changed the orientation of media policies in various countries around the world.

Recently Asharqia Chamber was able to benefit from social media through the use of social networking tools in order to reach the objectives of the Chamber in marketing campaigns and event management in a cost-effective manner.