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Seven-fold increase in manufacturing adds value

Article - June 30, 2015

Private-sector manufacturing companies are playing a key role in the kingdom’s socioeconomic development and diversification


As Saudi Arabia looks to add diversity to its oil-based economy, the government has prioritised the development of manufacturing.

According to the Saudi Industrial Development Fund, the number of industrial units in the kingdom has increased from 198 in 1974 to 6,471 today.

Capital investment in manufacturing has risen more than seven-fold during the same period to SAR883 billion ($222 billion) in 2013, up from SAR12 billion in 1974. Manufacturing currently contributes about 10 per cent to Saudi Arabia’s GDP, but it has the potential to make up a much larger share of the kingdom’s wealth.

Saudi officials have long recognised that fact. Around 25 years ago, they launched a Made in Saudi Arabia branding campaign, aimed at “developing a strong manufacturing base in the country,” says Abdullatif Al Abdullatif, CEO of the family-owned Al Abdullatif Industrial Investment Company. 

The government-backed initiative offered Saudi businesses incentives, including financial ones, to transform companies that merely bought and resold products into manufacturers that produce finished goods.

With the leg-up from the government, Al Abdullatif Industrial Investment Company moved from importing and selling finished products, mainly carpets, to manufacturing products itself and then exporting them – often to the same firms from which Mr Al-Abdullatif’s father used to buy finished products. 

Today, the Saudi government continues to support manufacturing by investing in infrastructure, building manufacturing hubs labelled industrial cities, and setting up the Saudi Industrial Development Fund (SIDF), which provides loans and advisory services to promote the industrialisation of the kingdom. 

In its Comprehensive Growth Strategy, released at the G-20 meetings in Australia last year, the government also acknowledges the “need to adopt a set of serious steps, including the development of educational and training curricula guided by international standards” to try to improve the quality of the workforce.

Indeed, lack of expertise among Saudi workers is a problem, says Mr Al Abdullatif. To rectify this, his company has set up centres “to provide training to locals who can then take that expertise to develop their own responsibilities over the longer term.”

Another company, Zamil Industrial – a regional, if not global leader in the manufacturing of air conditioning systems and pre-fabricated steel structures – offers training opportunities that focus on instilling a strong discipline and work ethic, says CEO Abdulla M. Al Zamil.

“We don’t need nuclear physicists or biochemists,” he explains. “Most of the workers that we need are in semi-skilled roles. We need to start working on ethics and discipline as a priority over skills sets.

If you create a foundation in work ethic and discipline, teaching skills on the job is a relatively straightforward process.”

Saudi Arabia already has a foothold in midstream manufacturing: it produces plastics and petrochemicals, as well as aluminium.

But just as the country is trying to diversify away from all things petroleum-related, it is also trying to develop new areas of manufacturing and move even further downstream in the manufacturing life-cycle.

In other words, the Saudis are looking at turning the plastics they produce into containers and the aluminium into automobiles and aeroplanes.

Mr Al Abdullatif says that sort of diversification of the manufacturing sector is an essential step toward tackling another problem: high youth unemployment. Approximately half the population of around 28.8 million is under the age of 25, and almost one in three of those youngsters do not have a job. 

“The oil sector can create employment to a certain extent, but for there to be really widespread employment opportunities created by the private sector, manufacturing has to play a key part,” Mr Al Abdullatif explains.

“As far as we can see, it won’t only be huge companies developing the manufacturing sector; it will also be small and medium-sized enterprises.” 

Both Al Abdullatif Industrial Investment Company and Zamil Industrial have a strong global presence. Mr Al Abdullatif’s company exports to some 60 countries throughout Asia, Europe and the Americas, and is looking to open new markets in Ghana, Nigeria, Ethiopia and Sudan. 

Zamil Industrial employs more than 14,000 people in 55 countries and operates manufacturing facilities in Saudi Arabia, the United Arab Emirates, Egypt, India, Vietnam and Italy.

The company derives around 30 per cent of its revenues from outside Saudi Arabia – selling its products in more than 90 countries around the globe.

Empowering women

Zamil Industrial is also something of a pioneer in Saudi Arabia, not only when it comes to developing the manufacturing sector but also when it comes to employing women.

However, it has not always been easy being a trend-setter. When the company first began taking on women workers, Zamil Industrial had to invite relatives of the women to its factories to give the working environment the once-over, the CEO told the Global Competitiveness Forum when it was held in Riyadh in January.

Once the families gave the go-ahead for a woman to work at Zamil, she would undergo nine months of training to improve her technical and communication skills and then start work on the factory floor. 

Today, more than 100 women work in the company’s Saudi Arabian plants. Mr Al Zamil says his family-run company was one of the first to encourage the employment of Saudi women in the industrial sector, particularly in the eastern region of Saudi Arabia where it is headquartered.

“Initially we encountered a great deal of resistance,” Mr Zamil recalls. “We wanted to enter the semi-skilled market, from a needs perspective, as we often found this category of female employee needed the job far more than more highly skilled counterparts.

They may need the salary to support their families, or to become a breadwinner and an integrated part of their families.”

Hiring low-skilled women “created an incredible culture of discipline, with attrition rates at almost zero,” says Mr Zamil, who adds that many of the women who work on the factory floor also found new confidence that pushed them to seek education opportunities that they might never have imagined were attainable for a woman.

He recalls the story of a young woman named Samar Al Zahrani, who could neither read nor write when she came to the company. “Given her level of education, she was initially declined employment with Zamil Industrial,” he says. 

Nevertheless, the young woman insisted that she be given a chance, telling the CEO: “I know you don’t look for education as much as attitude, character and enthusiasm.”

He agreed to take her on. “She has proven to be amazing employee,” he adds. 

Ms Al Zahrani has gone on to her middle school studies and has set her sights on becoming an engineer.

She is the head of the shop floor and recently won an award for Mr Zamil’s most committed Saudi female employee.

“We have created a platform at Zamil Industrial where women can reach their full potential, and we are extremely proud of this,” says Mr Zamil.

The company’s jobs-for-the-girls initiative is also offering women jobs in accounting, engineering design, human resources and information technology, and the CEO tells his male colleagues “that the key threat to them is not international workers or expats, but from their female compatriot employees” who are rising.

Powering diversification

Saudi Arabia’s burgeoning manufacturing sector and well-entrenched oil industry need power to run.

That power comes from the Saudi Electricity Company (SEC), which Chief Executive Officer Ziad bin Mohammed Al Shiha calls “the battery and the energy that powers the kingdom, for the kingdom to power the entire world.”

“We not only realise our importance to the kingdom in terms of bringing electricity and power to the operation of the kingdom itself, but we are talking about bringing power to the commercial centres, to the petrochemicals industry, to oil and gas exports out of the kingdom, to hospitals, schools, and everything that you can see,” he explains.

Most power in Saudi Arabia comes from hydrocarbons, but Mr Al Shiha says the kingdom is making an effort to move into different power sources, including tapping into its abundant solar power potential, and to improve efficiency in power generation. 

“Last year, for example, we saved 12 million barrels of oil equivalent just by increasing the efficiency of our supply,” he notes.

“That translates into saving hydrocarbon resources, saving the environment and reducing carbon dioxide emissions.” 

Like many Saudi companies, the SEC runs vocational training schools to “train our people, groom them and prepare them for this kind of occupation,” he adds. 

“We train them to become skilled technicians, to operate our generation facilities, and to understand the transmission and distribution infrastructure,” and to provide security at SEC facilities, Mr Al Shiha says. Around 7,000 graduates of the vocational programmes were hired by SEC in the past year alone.