To achieve Vision 2030, Saudi Arabia is growing and diversifying its economy: the industrial and manufacturing sectors in particular has the ambition to drive this diversification. The development and growth of the industrial and manufacturing industry is being catalyzed by attractive ecosystem consisting of industrial cities, well-developed infrastructure, high quality utility supplies, and a well-established logistics network.
Facts & Figures
Industrial and Manufacturing Value Proposition
The food processing industry in KSA is established and well-positioned to grow at a considerable pace over the forthcoming years. Domestic, regional and international demands for Saudi food products has been increasing year on year, with seafood, dates and halal foods leading the way. The Kingdom is famed for its authentic Makkah/Medinah Halal food products and has the potential to turn the SAR 4.9 trillion (US$1.3 trillion) global Halal market in its favor. This sector also benefits from a well-developed ecosystem that is ready to meet the high standards and growing demands of the expanding marketplace. Investors should feel confident about the Saudi food processing sector given its established excellence and lucrative prospects.
Large and growing local and regional market
Saudi Arabia’s Food and Beverage (F&B) market is the largest and most attractive of the Middle East. Valued at SAR 169 billion (US$45 billion) and growing at a rate of 6% over the next 5 years, this market is showing no signs of slowing.
Growth is being driven by the expanding population and an increase in the number of Hajj & Umrah visitors. In 2016, the Saudi food industry accounted for a sizeable 12% of GDP, highlighting its importance as a leading KSA sector. The average household is reported to spend 18% of total expenditure on F&B, which is a domestic demand that amounts to 60% of total consumption in the GCC. In 2015, imports exceeded SAR 41.25 billion (US$11 billion), which raises the prospect of significant import-substitution opportunities for Saudi F&B producers to serve the untapped local demand for dairy, meat and fruit products. Furthermore, F&B players in Saudi have easy access to growing and under-supplied markets in the GCC and MENA regions, such as the SAR 3.75 billion (US$1 billion) dairy export market.
Made in Makkah/Medinah authenticity advantage in Halal food production
Saudi Arabia is the motherland of Islam and home of the two holy cities of Makkah and Madinah, positioning it as uniquely qualified to lead the global Halal food market. KSA enforces rigorous Halal food standards, ensuring the optimum quality and authenticity for this market. The global Halal food market size is currently SAR 4.9 trillion (US$1.3 trillion) and is expected to grow at around 12% per annum, presenting attractive export opportunities for KSA-based producers baring the "Made in Makkah/ Madinah" authenticity advantage.
KSA's Halal market is forecast to significantly grow from its current size of SAR 22.5 billion (US$6 billion) due to substantial increases in the number of Hajj & Umrah visitors (From 20m today to 50m in 2030) coupled with the increased adoption of Halal in all types of food.
Abundance in dates & fisheries with great export potential
Saudi Arabia is naturally endowed with a wealth in dates and fisheries, making it a natural market for exports.
Saudi dates enjoy a unique advantage over competitors as KSA’s nutrient rich soil allows for the cultivation of Ajwa Madinah and Mabroum Sukari dates, leading to fantastic opportunities to produce large quantities of high quality and unique varieties of dates.
The world’s annual date harvest is estimated at more than 6 million tons, with the Kingdom producing more than 1.1 million tons per annum. This places Saudi Arabia among the top 3 global producers of dates with an 18% market share. The Kingdom’s 25m+ date palms cover 157,000 hectares of national land, growing over 300 types of dates. Production rates are steadily increasing at a time when global demand has also picked up the pace.
Saudi Arabia is now committed to unlocking the aquaculture industry and is on track to be the first country in the world to have national level Best Aquaculture Practices (BAP) certification. Ambitious targets have been set to increase the production of fish via aquaculture from 38,000 tons in 2016 to 530,000 tons in 2030. To enable this ramp-up, KSA aims to seek support from the private sector and to invest SAR 1.3 billion (USD$ 345 million) in infrastructure, R&D and marketing support. In essence, there is enormous potential for KSA to become a leading exporter of fish through it abundance in fish stocks and the exciting advancements of the aquaculture sector.
Shrimps, mackerels and crabs make up the majority of this demand and KSA’s own inhabitants are showing an increase in appetite for seafood. Domestic consumption is expected to grow by 8% per annum until 2030, which translates to a significant increase from 310 tons to 865 tons. This is driven by 2% CAGR population growth and an increase of 5% CAGR per capita consumption growth. Significant increases in demand have therefore raised the need for alternative and sustainable forms of fish farming.
A wide range of opportunities await the fisheries market to export high-quality seafood products to countries that envy the rich waters of the Red Sea and Arabian Gulf. Saudi Arabia’s waters are naturally endowed with 5 million tons of fish capacity. KSA is an approved exporter of seafood to the EU and has the potential to ramp-up its large production capabilities and exploit the insatiable demands of the export market.
Saudi Arabia has an established F&B industry that benefits from state of the art technologies and highly advanced packaging, storage and distribution networks. The sector is also recognized for its home-grown rich pool of talent with over 100,000 employees that are continuing to climb in numbers. Cold chain facilities are advanced and extensive, handling an increasing supply of goods requiring cold storage.
In tandem with the freight forwarding, warehousing and 3PL segments, the cold chain logistics segment has also seen significant growth in recent years. It grew at 4% CAGR from SAR 2.9 billion (USD $ 0.78 billion) in 2010 to SAR 3.56 billion (USD $ 0.95 billion) in 2015 and is expected to reach SAR 6.1 billion ($1.64 billion) by 2020. This will be attributable to the active participation by the pharmaceutical industry and the increasing demand for fresh/processed fruits, vegetables, meat and dairy. Saudi Arabia’s Almarai is the world’s largest integrated dairy company with over 22k employees and is listed by Forbes Magazine as a globally innovative business. Similarly, Al-Rabie is a dominant juice manufacturer in MENA with acclaimed notoriety and a thriving export market.
Investors should also note that the Saudi Food and Drug Authority (SFDA) have set high standards for KSA businesses to align with global best practices and to commit to Vision 2030 objectives that "ensure development & food security”.
The KSA construction sector is booming due to the multiple development projects that are taking place throughout the Kingdom. This is driving an urgent and growing need for building materials to satisfy construction demands, leading to record breaking consumption rates of cement, ceramics, stone and glass.
While the majority of building materials are imported today, Saudi Arabia is committed to exploiting the untapped potential of substituting imports with locally produced goods. Businesses that take on ventures to service the KSA building material sector can also look forward to capitalizing on export potential to growing GCC markets.
Large market with growing demand for Building Material
Saudi Arabia has a growing demand for building materials that is primarily being driven by the dynamics of the construction sector. Total spending over the past five years exceeded SAR 1.12 trillion (US $ 300 billion) and in 2017 spending hit an unprecedented SAR 270 billion (US $ 72 billion).
Saudi Arabia’s rigorous construction programs makes it the leading consumer of building materials in the region. The cement market alone has reached SAR 30 billion (US $ 7.9 billion), accounting for 53 million tons in 2016 and 1.5% of total world consumption. KSA also has a healthy appetite for ceramics, with a SAR 5.6 billion (US $ 1.5 billion) local demand primarily driven by the need for tiles (70%) and sanitary ware (20%). The KSA stones market is valued at SAR 3.75 billion (US $ 1.0 billion), whilst the glass market size is worth SAR 1.875 billion (US $ 0.5 billion).
Moreover, the market is expected to grow at an annual rate of 7%, reaching a value of SAR 700 billion (US $ 186 billion) by 2030. Large-scale projects are the biggest drivers of demand growth in the building material industry, with NEOM city, the Red Sea project and Vision 2030’s goal of building one million new residential units over the next five years being top of the list.
With the above in mind, KSA’s growing demand for building materials cannot be overstated.
Untapped potential to substitute imports of Building Material
Saudi Arabia is currently importing massive amounts of building materials to satisfy its large-scale construction program. Despite the Kingdom’s heavy reliance on imports, there exists considerable potential for import substitution for a wide range of building material.
For example, in 2016, marble made up a 90% import share of local demand, with total expenditure reaching SAR 1.2 billion (US $ 320 million). Although Marble deposits are abundant in KSA, the natural stone is mostly imported due to the lack of local resources. Furthermore, in 2016 Tiles also had a high share of imports as a percentage of local demand (70%), with total local expenditure of SAR 4.12 billion (US $1.1 billon)
With demand set to continuously increase, KSA is preparing to release the untapped potential of its local resources and is welcoming proposals from accomplished investors interested in facilitating this process
Significant export potential to neighboring growing markets
In 2017, the GCC construction market reached SAR 600 billion (US $ 160 billion) and is expected to grow at a rate of 10% over the next five years. With its strategic location, close proximity to neighboring countries and world-class infrastructure, players in Saudi Arabia have the opportunity to tap into the large and growing GCC construction market.
In 2016, Saudi Arabian businesses exported large quantities of ceramics and glass within the GCC, amounting to SAR 262 million (US $ 70 million) worth of ceramics and SAR 500 million (USD 133 million) worth and glass.
As the Kingdom begins to exploit the untapped potential of its domestic building material resources, significant export potential exists to satisfy the growing demand from neighboring markets.
Well-established ecosystem for the sector
The KSA building material sector benefits from a well-developed ecosystem comprising of a sweeping transportation network, a robust financing system, innovative R&D teams and a strong pool of talent. The Kingdom’s ports and roads are well-developed and subject to significant improvement programs, allowing for the seamless transportation of building materials within KSA and throughout regional markets. In terms of financing, investors seeking to build cement production facilities already have access to loans of up to 75% with repayment plans of up to 20 years. In terms of R&D and innovation, KSA’s leading universities have established strong research centers with an active focus on building materials, such as the Center of Excellence for Concrete Research and Testing at KSU and the Center for Engineering Research at KFUPM. Furthermore, some private sector players have established several research centers to boost the development of sector.
Saudi Arabia is embarking on the most ambitious infrastructure transformation in its history, signaling a revolution for the Kingdom’s industrial sectors. Demand for equipment and spare parts is set to go through the roof, with an anticipated expenditure of SAR 1 trillion (US $270 billion) to be spent on domestic industrial equipment by 2030. KSA is naturally considering how its localized industries could benefit from this demand and has endowed initiatives that promote the procurement of locally produced products. The government is offering support to investors that invoke significant cost advantages to businesses setting up their manufacturing base in KSA. Furthermore, the increasing demand for industrial equipment and spare parts throughout the MENA region sets the stage for lucrative opportunities to businesses that establish themselves in the Kingdom.
Whether your specialty is in defense, energy, renewables, water, petrochemicals or any of the other sectors servicing infrastructure, Saudi Arabia is ready to assist with turning ideas into reality.
Fast-growing demand for all industrial equipment driven by economic and industrial growth
Saudi Arabia is one of the world’s largest markets for industrial equipment and is currently valued at SAR 56 billion (US $ 15 billion). Local demand for industrial equipment is set to experience massive growth, with KSA anticipating to spend approximately SAR 1 trillion (USD 270 billion) on industrial equipment between now and 2030.
Demand is being driven by KSA’s Vision 2030 program that seeks to develop its non-oil sectors and effectively bring about an industrial revolution. For example:
- The establishment of the renewable sector of capacity to reach 9.5 GW by 2023 will lead to substantial increase in the demand for many groups of industrial equipment (e.g., generators, transformers, pumps, valves)
- Similarly, significant growth plans in desalination (annual growth of 8%) and reuse water production will lead to substantial increase in demand for water related equipment (e.g., filters, sludge thickeners)
Significant localization opportunities to boost demand for local products
Saudi Arabia currently imports 80% of its local demand for industrial equipment and machinery, valued at SAR 64 billion (US $ 17 billion). This sizeable demand offers significant potential for import substitution, leading the government and other market players to introduce local content initiatives that promote the procurement of locally produced products, thus significantly increasing demand for locally produced industrial equipment.
Driven by innovative programs, Saudi Arabia is set to leverage its considerable buying power across major state-owned enterprises to support local production. Significant initiatives include those led by SEC, SWCC, SABIC, the Ministry of Defense (AFED) and Aramco (IKTVA). For instance:
- IKTVA: ‘In-Kingdom Total Value Add’ program and is Saudi Aramco’s flagship localization initiative. IKTVA is designed to drive domestic value creation with the aim of achieving 70% localization of all spending on goods and services and enabling the export of 30% of Saudi energy sector products by 2021.
- Nusaned: SABIC's groundbreaking initiative that aims to raise the level of localization of industrial technologies, services and products to 72% by 2025.
- Saline Water Conversion Corporation’s (SWCC) localization program is tasked with increasing local content by 1% per annum (currently at 6%) and auditing suppliers for compliance with localization measures.
Financial & non-financial support by the government for investors
Several entities and support programs have been put in place by the government to encourage investments in the sector within KSA.
The Saudi Industrial Development Fund (SIDF) is one of the authorities that have been set up by the government to support investors. SIDF provides financial and advisory services that are needed to support the growth and development of localization. SIDF has supported hundreds of industrial joint ventures and provided more than SAR 52 billion (US $ 14 billion) in soft loans, of up to 75% of project financing, since its inception in 2016.
The Saudi Industrial Property Authority (MODON) has been set up by the government to oversee the development of industrial cities. MODON is to ensure that industrial cities develop integrated infrastructure and services that are of the highest global standards and specifications. Furthermore, MODON is to create special industrial zones offering cheap rates for land (from USD 0.26 per m2) across 35+ cities.
Furthermore, KSA provides several advantages with respect to import duties and utility costs.
- Import duties
- Refund to importers/ exporters of raw material imports that are processed in Saudi Arabia and re-exported as more finished products
- Exemption on authorized imports for industrial establishments (e.g., materials, equipment, machinery)
- Low utility costs
- Power at SAR 0.18 per kWh ($ 0.048 per kWh) for industrial sector
- Water at SAR 1.8 – SAR 5 per cubic meter (US $ 0.5- US $ 1.35 per cubic meter) - based on volume
- Natural gas at SAR 4.6 per MMBTU (US $ 1.25 per MMBTU)
- Ethane at 6.5 per MMBTU (US $ 1.75 per MMBTU)
Attractive export opportunities to MENA and GCC region with government support
Demand for industrial equipment and spare parts from neighboring MENA and GCC countries is increasing substantially. Saudi Arabian players have the opportunity to serve this expanding market and capitalize from this demand:
- Regional markets have noticeably increased their oilfield services and equipment (OFSE) expenditure to pay for pumps, ESPs and turbines. GCC and MENA countries requirement for OFSE is expected to grow at 6% per annum to reach SAR 147 billion (USD 39.4 billion) by 2020.
- Electricity demand from the region is similarly expected to grow at 7% per annum to reach 417 TWh in 2020. This will have the effect of increasing demand for certain equipment such as batteries, transformers and switchgears.
- Spending on water and wastewater infrastructure is expected to grow at 11% per annum to reach SAR 18 billion (USD 4.9 billion) by 2020, increasing the demand for membranes, compressors and pipes.
- Petrochemical capacity is expected to grow at 5% per annum to reach 135 Mtpa in 2020, which will increase the demand for cracking tubes, chillers and dryers.
Manufacturers benefit greatly from the Kingdom's geographic proximity to the MENA region as it represents an export market with huge potential.
Saudi Arabia is one of the world’s biggest spenders on defense, allocating a substantial portion of its total expenditure to this sector. Vision 2030 outlines a clear intention to continue investing in defense but with a goal of localizing 50% of its military spending, creating more job opportunities and enhancing the capacity of the Saudi economy. Saudi Arabian Military Industries (SAMI) has been established as the main contractor for the government and is embarking on long-term joint ventures that will facilitate this process. Great progress is being made through partnerships that are fostering the domestic based defense ecosystem, opening up opportunities with multiple international players to share high capabilities and advanced knowledge across all segments of defense. In short, the Kingdom is positioning itself to be a military power that will maintain security and stability for its people.
One of the world's biggest spenders on defense
The defense and security market in Saudi Arabia is among the most lucrative in the world. 2017 saw the Kingdom spend approximately SAR 225 billion (US $ 60 billion) on its military, which equates to 28% of its total budget and places it 4th in the world in terms of defense spending. Military expenditure includes SAR 10.2 billion (US $ 2.7 billion) for building advanced systems and capacities, SAR 3.5 billion (USD 933 million) for military education/colleges and SAR 26.5 billion (US $ 7.1 billion) for military medical services. Defense expenditure is expected to increase by 7.5% CAGR in the next couple of years to reach SAR 300 billion (US $ 80.8 Billion) by 2022.
Today, security is a key national objective primarily concerning KSA departments of homeland security, counter-terrorism and cybersecurity. Homeland security is expected to record a CAGR of 5% over the next 5 years and to increase from around SAR 97 billion (US $ 25.8 billion) in 2017 to around SAR 125 billion (US $ 33.3 billion) by 2022. Cybersecurity has also become a top defense agenda, which is a market with an annual growth rate of 14.5% that is expected to grow to more than SAR 13 billion (US $ 3.5 billion) by 2019.
Market assurance through well-established governance
The KSA government has taken significant steps to support its military industrial complex and has a strong ambition to develop the defense sector further. In May 2017, SAMI was established to become the main defense contractor for the government, to become an offset partner for foreign defense companies and to support the localization of the industry. SAMI intends to establish long-term joint ventures with a range of international and domestic original equipment manufacturers (OEMs).
By partnering with both local and international companies across its four business areas, SAMI aims to manufacture products and provide services for air systems, land systems, weapons and missiles (including ammunition) as well as defense electronics inside the Kingdom.
In August 2017, General Authority of Military Industries (GAMI) was established with the role ranging from the management of procurement for the Saudi military to managing defense industrial R&D and the transfer of technology.
Commitment to localize the defense industry
In accordance with Vision 2030, Saudi Arabia has set ambitious targets of localizing its total of military equipment from the current 2% level to 50% by 2030, which will naturally create an exciting market for investors.
The Kingdom has already started developing part of the sector's value chain, such as spare parts, armored vehicles and basic ammunition. In recent years, localization efforts have been on-going through multiple joint ventures (JV) and partnerships between top foreign companies and local players. For instance:
- BAE systems has created over 5,000 high-skilled jobs and capabilities in Saudi over the past decade.
- In 2015, Boeing, SAEI and Alsalam Aircraft Company established a JV to open Saudi Rotorcraft Support Center in-country helicopter MRO facility.
- In 2015, Lockheed Martin opened an in-country sensor maintenance facility in partnership with Saudi based Advanced Electronics Company.
- In 2016, Sikorsky and TAQNIA Aeronautics signed a deal for the in-country final assembly of S-70 Black Hawk helicopters.
Yet, the ambition is to expand to higher value and more complex equipment (e.g., as military aircraft manufacturing), hence GAMI was established to oversee the localization of the sector. GAMI will promote co-production, licensing and knowledge transfer by creating partnerships between foreign defense companies and local players.
R&D and partnerships fostering the ecosystem
A strong ecosystem is being developed in KSA defense through R&D, partnerships and private sector participation. SAMI has committed to invest over SAR 6 billion (US $ 1.6 billion) in R&D and aims to create over 40,000 jobs by 2030. GAMI has been mandated to manage and allocate R&D funds in defense and to set-up additional R&D centers.
In 2017, Lockheed Martin partnered with KACST to provide on-the-job training in advanced manufacturing. Also, in 2017, Raytheon and SAMI announced strategic partnership focused on creating indigenous defense, aerospace and security capabilities in the Kingdom.
Maximum Potential Investment
The aquaculture sector is the fastest growing food production sector in the world. By 2030 it will be the source of two-thirds of the fish we consume, according to estimates. Consequently, the Kingdom of Saudi Arabia is in the process of greatly developing this sector by taking advantage of the many comparative advantages available. This, in turn, will contribute to achieving the objectives of this sector.
All the factors that produce many types of high quality seafood are available thanks to perfect environmental and climatic conditions. The investment in aquaculture is a logical step due to the growing need in local markets and the continuous demand in international markets. Therefore, the Government of Saudi Arabia has committed itself to developing this sector to its maximum potential. This commitment includes investing in infrastructure, research and development, marketing as well as supporting the sector with SR 1.3 billion.
Saudi Arabia is working to meet the highest standards in the aquaculture industry and build a sector of abundant potential. Investment opportunities are now available and will continue to be available with the addition of 15 new sites along the Red Sea. These new sites have recently been identified as the most suitable for aquaculture.
Ideal environmental and climatic conditions
Saudi Arabia has the right locations to produce high quality seafood along its 2400km western coastline on the Red Sea.
Aquaculture requirements are ideal in the Red Sea due to the available environmental and climatic factors that contribute to the sustainability of this industry. The most important factors being water purity, suitable water salinity, low waves and others.
Additionally, the accessible depths are suitable for the use of floating marine cage systems ranging from 20 to 50 meters in depth which facilitates the operation and maintenance of fisheries. Also, the variation of coastal temperatures from 18°C in the north to 30°C in the south allows the production of different species of fish. All these factors confirm that the Red Sea coastlines of Saudi Arabia possess the appropriate environment and climate for aquaculture on a global scale.
Local Market Growth and Great Export Potential
The local seafood market is booming in Saudi Arabia and consumption is expected to grow annually by 8% until 2030. Population growth is expected to increase fish consumption in the Kingdom to reach 555,000 tonnes by 2030.
Declining growth in natural fisheries and the introduction of more stringent import regulations paves the way for aquaculture in the Kingdom to become the main source of seafood for the local market.
In addition to meeting the growing demand for local consumption, Saudi Arabia is strategically located making it a source of seafood and allowing it to cater to the needs of GCC markets as well as European and Asian markets.
Government commitment to grow the sector to its full potential
Saudi Vision for 2030 aims to establish safe and strategic food reserves through the development of the aquaculture industry. In line with this vision, the Ministry of Environment, Water and Agriculture has launched a special program to raise the aquaculture sector’s production of seafood to 600,000 tonnes by 2030. This program is allocated SR 1.3 billion that are dedicated to achieving the objectives of this sector through investments in infrastructure, research and development programs and marketing campaigns. Saudi Arabia's adoption of strict product safety regulations and leading quality assurance programs have resulted in the Kingdom becoming renowned for its high-quality, safe marine products. This has contributed to the rehabilitation of cultivated marine products in Saudi Arabia in order to adhere to all standards required by importing markets.
Lucrative Opportunities Await Investors
With 2,400 km of coastline on the Red Sea, value chain opportunities for fisheries are expanding. Investors will now benefit from various initiatives within the aquaculture sector in the Kingdom. These include: investment in the establishment of feed mills, hatcheries, fisheries and packaging and product processing plants.
After a thorough survey of the Red Sea coastline, the Ministry of Environment, Water and Agriculture identified 15 additional sites. These sites are considered suitable for aquaculture projects as they conform to the standards adopted by the Ministry which are based on best international standards. This promotes investor confidence in the industry.
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Investment Highlights - Winter 2020
In this fourth edition of “Investment Highlights” brought to you by Invest
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