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Logistics, finance, labor and technology: the Saudi formula for diversification

Interview - November 11, 2015

From explosives to pharmaceuticals to fertilizers and consumer goods, the intriguing mix of activities of the Saudi Chemical Company reflects the diversity of opportunities for business in the kingdom. CEO Dr Mohammed Al Badr explains the panorama of the company’s involvements and the challenges to economic diversification of the nation’s economy. 



What are your perspectives on Saudi Arabia as a developing economy, and how exciting or interesting is it from a business perspective?

First of all I would like to shed some light on Saudi Chemical itself. Saudi Chemical is a joint-stock company; it’s ranked as the 62nd biggest company in the country, and it’s a holding company with five subsidiaries. These five subsidiaries started with Saudi Chemical Ltd., which is an explosive manufacturing company. Then there’s SITCO Pharma, a pharmaceutical distribution company; AJA Pharma, a pharmaceutical manufacturing company; and SINCO, the Suez International Company, for ammonium nitrate, which is the feedstock for the explosive manufacturing. And the fifth company is the Saudi Chemical Investment Company, which is a distribution company for medical devices and consumer goods. Saudi Chemical is an industrial investment company, with six factories, four for explosives, one for ammonium nitrate, and one pharmaceutical. That’s only to give you a perspective on Saudi Chemical.

Regarding the Saudi economy, as you know Saudi Arabia is among the top 20 economies in the world. It’s a stable country with a good relationship with the rest of the world, and enjoys a central position between the East and the West. With its oil and petrochemical industries exports creating 85% of its economy, Saudi Arabia has been trying to expand the economy and its industrial base, instead of relying exclusively on oil and petrochemicals.

One of our efforts in this strategy is to attract the international market and not only the local market. For the blasting business we have other clients in other countries; the GCC and Africa is our client base. The pharmaceutical factory is about to be finished; phase one of the factory is already finished now, and the second phase will be operating by the end of May. We are looking for distributors in other countries, such as Europe the United States and China, for our products. We have other factories in the pipeline that will be started with other international firms. These factories will be working for the international market, as well as the Saudi market.

What do you see as some of the main challenges in diversifying the economy, and what’s the key to success in achieving some of the diversification in your business?

Logistics is number one – the ports, airports, free zones: these are some of the means to promote diversification and promote industry. For example, there’s King Abdullah Economic City, and Jazan Economic City, besides Jubail and Yanbu. These facilities will promote and attract more businesses and industrial projects, and support the logistics that they need in order to export their products.

You’re saying that logistics is a key enabling factor?

Logistics, finance, labor, technology providers, are a few factors. The technology is not a problem. Regarding the labor and Saudi Arabia’s population, the government has made a big effort in order to train and enhance the workforce, and we’re starting to see that the new generations have a better work ethic than before. For example, at our factory in Hail, 70% of the workers are Saudis; they are highly educated and have very good backgrounds.

Saudi Arabia invested in human capital and expanded the number of universities outside the main cities. We now have more than 30 universities, both private and public, and we’ve also sent more than 150,000 students to study abroad. This year we had 15,000 students who graduated from the United States alone. Human capital is very important in the economy.

About the finances, I think that we need more banks; we need more specialized banks, like export-import banks. Now there are some financial services, but they’re not up to the level to support import-export services. Most countries have export-import banks. In Saudi Arabia there is a development fund, which promotes exports, but it’s not a commercial bank.

Would you say human capital is improving in the country with all the investment?

I’ve been in the private sector for more than 20 years, I’ve seen a number of Saudis entering the work place, and I see that the private sector is also maturing. In the banks, and the banks’ insurance, the majority of workers are Saudis. So we’re getting there.

Saudi Chemical plays a really strong role in training people, not just developing your own staff but developing the skills of your clients and the community as well. How important is it to invest in training?

For any company to achieve efficiency, first it needs to be well defined and transparent in terms of processes and organizational structure. Everybody must understand that the quality of work has to be improved.

In Saudi Chemical we are implementing ISO for safety and for the quality of our products. In our administration and operations we are implementing Lean Six Sigma to develop Standard Operating Procedures (SOPs). With Lean Six Sigma the staff are trained to develop the SOPs themselves, and then they adapt it to their day-to-day work. In this way, everybody feels secure in their work, we create organizations with quality and a happy environment for the employees to enjoy working and feel loyal to the company.

Training is an investment; it enhances the performance of the staff, and gives the company a competitive edge in the global economy.

You mentioned that in Hail you have 70% Saudis working at your plant, which is way above the market average. How has “Saudization” as a policy affected the company, and how did you adapt to it?

Where there is a will, there is a way. In the explosive factories we have also 60% Saudis, who are away from their towns, because each factory is at least one hour away from each town. We have good staff.

In terms of the profile of Saudi Chemical, you not only have explosives and blasting as a business, but also pharmaceuticals. One is used to destroy and one to heal people.

One to destroy germs and viruses, and the other to build roads.

It’s a strange mixture. How did you happen to develop this mix as a business?

I have seen many companies which work in the blasting that also have a pharmaceuticals component. It all comes under chemicals umbrella. It comes together.

You mentioned that you have other factories in the pipeline. What kind of developments can we see from a strategic perspective at Saudi Chemical?

It will be in the cluster. We are trying to utilize our experience in the scope of work that we already have.

How important do you think the opening of the Saudi stock market for international investment is for industry and the business community?

Opening the international market will educate the Saudi marketplace, it will make it mature. We will exchange experiences with the international market’s big players. I’m sure that international investors will study opportunities carefully, and then invest in feasible investments and feasible opportunities, which will be reflected in each of the companies here that will have to change their strategies to make them appeal to the international investors. We also expect these international investors to be board members; in this way it will also enhance the decision-making and governance for the capital market in general. It will change the market for the better.

We’ve found in the country companies struggle with developing high international standards. How did you achieve this at Saudi Chemical?

Each one of our companies has a strong foundation, starting from interacting with international companies. We developed the Standard Operating Procedures, and the governance procedures during the course of time, exchanging experience with our international partners.

Are you focused on growing the company or do you have a rather stable strategy?

We are focusing on expanding our industrial projects.

Is this in the blasting area or in pharmaceuticals?

As a public company, we cannot disclose any new projects, unless we disclose them in the capital market first. But yes, we are expanding the scope of the company and the industrial cluster of our specialization.

Being involved in the pharmaceutical and medical devices sector, what is your perspective on the performance of pharmaceuticals and health care in Saudi Arabia?

The sector is promising, and not only in Saudi Arabia. When you are in this industry your market is not only your country, it is the world. The Saudi Food & Drug Authority is following the quality of the pharmaceutical and health services, they are the regulator. They are strict. So, we can compare ourselves to the European Union Food & Drug Authority. In this way, when you have products like these enjoying this type of quality, they appeal to the international market.

Increasingly in Saudi Arabia is the culture of investing in communities, things like corporate social responsibility. How important is that at Saudi Chemical?

We have several initiatives. First of all, we donate to a charity association; this is a basic contribution. But we also have a research and development contribution to several academic institutions, in order to develop some research in the local context. For example, diabetes in Saudi Arabia and its genetic nature. We have international principles that we deal with; they have the experience and the technology. Also they are in Saudi Arabia universities, like King Abdulaziz University of Science & Technology. We try to put them together and to support research and development.

Many people have told us that Saudi Arabia needs less the money from investors, because it’s a very liquid market with a lot of wealth, but it’s more about technology, expertise, processes, and the way of doing business. Do you agree?

I agree 100%. The successful companies and organizations are those which started from international experiences. For example, Saudi Chemical for explosives started with Nitro Nobel in 1972, and then we bought their shares. SITCO Pharma also started with the principles and now it’s their business. We have corporative efforts in terms of marketing, regulatory affairs; we work closely with international companies. In general, even the government departments, which started by international experience, they are now enjoying a high quality; they are different.