Locating industries is key to resilience, so how can we accelerate it?
When global transportation networks were impacted at the start of the COVID-19 pandemic, many industries suffered. Global supply chain bottlenecks in many industries have underscored the importance of localization and served as a catalyst for change. The ones that flourished, at least in Saudi Arabia, were the industries that had higher levels of localization.
The plan to locate industries in the Kingdom is part of Saudi Vision 2030, which aims to diversify the economy and create more job opportunities for locals, as well as position the country as a industrial hub for the region.
Localization has also proven to make industries resilient to crises, as we have seen with the oil and gas industry over the past couple of years. The Kingdom has continued to provide the world with a reliable energy supply despite the challenges imposed by the pandemic.
This success is mainly due to its desire to increase national value creation through programs such as Saudi Aramco’s In Kingdom Total Value Add (IKTVA) program, which was launched in 2015. Such a program, if it is applied to other industries, could further boost localization efforts in the country, bringing us closer to our goal of becoming an industrialized nation.
The advantage of IKTVA is the flexibility it offers businesses and the sense of ownership it gives them in their location plans. It enables Saudi Aramco suppliers to develop a five-year action plan that addresses their investments in the Kingdom, local hiring, supplier development, research and development, and sourcing efforts . The program provides companies with incentives to achieve their goals, as their IKTVA score is tied to their potential to do business with Aramco.
A full transformation and localization of industries will take time, but it is good to see that the private sector has already made progress. The Saudiization rate in the private sector was about 17% the year Saudi Aramco launched its IKTVA program. This figure now exceeds 23%. On top of that, local purchases of goods and services from Aramco suppliers have tripled since 2015, Amin Nasser, President and CEO of Aramco, said at the IKTVA forum and expo in 2020. .
It would be great to see such numbers replicated and increased across Kingdom industries, but to see that we need to overcome some key challenges, such as closing supply chain gaps and finding highly skilled workers who will help us locate our industries.
Manufacturing is a complex process and even if companies manage to locate their manufacturing in Saudi Arabia, it is inevitable that they will need to import certain parts or components from abroad as they are not available in the country or local alternatives do not meet required standards. . These are the gaps in the supply chain that need to be filled in order to move us closer to our goal of becoming a manufacturing hub and owning our industries.
An effective way to fill supply chain gaps and reduce our import levels is to set up joint ventures with overseas suppliers and encourage them to manufacture their products in the Kingdom, bringing in know-how and transferring their knowledge to the Saudi workforce.
An example in which this strategy succeeded in the energy industry was the formation of Enpro Saudi Arabia Limited, a joint venture between Enpro Industries Pvt. ltd. India and Bandariyah Intl. Company Ltd., for the manufacture of lubrication skids and gas seal panels in Saudi Arabia.
With the global economy entering a recovery phase, supply bottlenecks will eventually be eliminated, but this should not lead to a slowdown in localization momentum.
Under Siemens Energy’s Supplier Development Program, Enpro Saudi Arabia has become a market leader in the country. With continued support and guidance, Enpro has successfully developed local manufacturing capabilities and achieved Aramco Qualified Manufacturer status.
Through this successful supplier development, it is not just Siemens Energy that has benefited from localized key equipment for the oil and gas industry, but all relevant original equipment manufacturers in the industry. Enpro Saudi Arabia has so far achieved 30% localization and continues to improve on this figure. By 2024, the supplier will have increased its location of contractors, labor and manufacturing by an additional 9% for gas barrier systems. During the same period, the company’s lubricating oil systems will experience a 5% increase in localization.
We need to see more joint ventures like this, across all sectors, to fill the supply chain gaps that are slowing our progress in locating industries in the Kingdom.
The other challenge facing the localization of industries is to find enough highly skilled Saudi workers – trained according to the latest market demands – to fill key positions in industry to allow the Kingdom to be competitive in the world. global scale. There are many mega-projects going on in the Kingdom and not enough talent to go around, which makes the talent environment very competitive and leads many companies to resort to hiring expatriates.
Solving this problem will require collaboration between the private and public sectors to create training programs that develop young Saudis and increase their skills according to market needs, to ensure that the talent pool is ready for the labor needs. work.
A successful model is the Misk Development Program, where top Saudi talent is selected to train abroad at some of the world’s top companies, gain international exposure and bring their new skills back to the Kingdom.
The creation of accelerated training programs has also proven successful in many companies and can help fill the skills gap in the country, focusing on certain skills that we need to develop in our industries. Such a condensed program would prepare students for the required skills in 18 to 24 months instead of five years. Companies must identify the skills to be developed and recruit new graduates in these programs.
The Kingdom is blessed with a young and energetic population who want to see their country transformed for the better. And with visionary leadership to drive transformation, these are the two main ingredients for success when it comes to localizing the industry. We have both in abundance, so I’m confident we’ll reach our goals in time.
A few months ago, Siemens Energy celebrated the completion of its industrial hub expansion for the region, which localized the energy value chain under one roof, making us more self-sufficient and resilient in the face of challenges. . At the expansion ceremony, Prince Abdulaziz bin Salman, Saudi Minister of Energy, announced a plan for a broader localization program that will see 70% of energy sector products localized by 2030.
With the global economy entering a recovery phase, supply bottlenecks will eventually be eliminated, but this should not lead to a slowdown in localization momentum. We must always remember our ultimate goal of becoming an industrial hub for the region and let that ambition guide our action, instead of reacting to market circumstances.
• Mahmoud Sulaimani is Managing Director, Siemens Energy Saudi Arabia.
Disclaimer: The opinions expressed by the authors in this section are their own and do not necessarily reflect the views of Arab News