DIVERSIFYING IN NEW DIRECTIONS
The sign of a mature industry is its ability to produce a diverse range of products needed by the domestic market and to export surplus production to other countries. On that basis, Saudi Arabian industry is well on its way to becoming a truly diversified and mature segment of the economy, one that is expected to see its contribution to the nationís overall development continue to grow in the coming years.
As with other sectors of the economy, the growth of industry accelerated with the introduction of the First Five-Year Development Plan in 1970. Prior to that, industrial growth occurred at a slower, more measured pace and did not encompass all areas of industry. The development plans introduced cohesion and a steady expansion of heavy, medium and light industries.
While the government was building a modern infrastructure that would be vital to overall development and industrial growth, it took a series of steps intended to jump-start industrial expansion and encourage greater private sector involvement. A major step was the establishment of specialized credit institutions that provide long-term interest-free loans that can be used to finance up to 50 percent of the cost of new ventures, whether in industry, agriculture or commerce. The Saudi Industrial Development Fund was set up in 1974 to provide loans specifically for the start-up of new industrial ventures and the expansion of existing ones. The fund has provided loans worth more than 35 billion Saudi riyals (9.33 billion U.S. dollars) for the establishment of more than 1,700 factories.
Additionally, specialized agencies were established within ministries to provide technical support and access to information systems to help local manufacturers target the best markets for their products.
Meanwhile, the Saudi Arabian Basic Industries Corporation (SABIC) was created in 1976 to establish heavy industries that were too costly for private entrepreneurs, and that were essential for the provision of raw materials for the operation of medium and light industries, which are almost exclusively the domain of private companies. SABIC immediately set about establishing a network of major industrial complexes in the industrial cities in Jubail, Yanbu and Jeddah. These facilities used the by-products of oil industries as feedstock to produce fertilizers, chemicals and resins that in turn serve as feedstock for secondary industries. By 2000, SABIC had increased production capacity at its 15 plants to 30 million tons of basic chemicals, intermediate chemicals, polymers, fertilizers and metals, and announced plans for further expansion to 48 million tons by 2010.
The establishment of eight industrial cities on sites chosen for their proximity to sources of raw materials and ease of access to major domestic and international consumer markets further encouraged industrial growth. Most Saudi industrial plants are situated in these cities, which offer all the required services, from telephones and transportation to water and electricity.
The result has been a spectacular growth in industrial activity. The number of factories rose from 199 with a total capital of 2.78 billion riyals (741.33 million dollars) in 1970 to more than 2,500 with a capital exceeding 170 billion riyals (45.33 billion dollars).
Industrial products make up more than 90 percent of the Kingdomís non-oil exports, which rose 14 percent in 2000 to 24.8 billion riyals (6.6 billion dollars). Topping the list of exports to some 90 countries are petrochemicals, plastics, metal goods, construction materials and electrical appliances. As an example, Saudi steel mills have begun exporting steel to Japan and other southeast Asian countries, as well as to Mexico.
The private sector contributes almost 42 percent of the nationís gross domestic product (GDP) of 618 billion riyals (164.8 billion dollars). Industrial goods constitute more than a quarter of this figure.
Not content with the spectacular achievements of the past three decades, the Kingdom has set the stage for entry into a new era of economic growth and diversification. The Seventh Development Plan (2000-04) provides some insight into Saudi Arabiaís vision for the future. It focuses on making Saudi industry more competitive in both domestic and foreign markets. This will further increase output, enhance exports and enable domestic companies to meet the needs of the local market, which will further reduce imports of industrial and consumer goods. The plan projects average annual growth rates of eight percent for the non-oil industry.
Another measure of future economic and industrial growth is the amount of electrical power consumed and the nationís generation capacity. As the general economy, and along with it industry, grew after the introduction of the development plans in 1970, the government installed a network of plants, transmission lines and distribution lines, increasing power generation capacity more than 20-fold to 23,800 megawatts in 2000. According to reports published recently by the Ministry of Industry and Electricity, power generating capacity is expected to reach 70,000 megawatts by 2020 to meet increased demand by private and industrial consumers. Excess production will be exported via a grid connecting the six member states of the Gulf Cooperation Council (GCC).