Partners from the ground up
From supplier to local manufacturer
The partnership between Saudi Arabia and GE is one that dates back to the very early days of the modern Kingdom of Saudi Arabia. At the time of its unification in 1932, Saudi Arabia had little or no infrastructure, as well as few companies that could deliver mega-projects to international standards. In that context, major international contractors provided the Saudi government with reliable support for the construction of road, power and water networks, and helped service the Gulf’s first oil operations.
The history of Saudi Arabia’s economic development and GE’s scope of operations in the country shows a close correlation and presents one of the best examples of foreign investor partnership with a developing state. GE was one of the first international firms that supported the Kingdom’s infrastructure development in the 1930s and is today one of the largest foreign investors in Saudi Arabia, with over 80 years of continued operations in the country.
In the 1930s, it was GE’s frame gas turbines to be used in the Kingdom’s first oil discovery, and just a few years later GE’s power turbines contributed to the electrification of Makkah. In 1950, Saudi Aramco completed the world’s longest oil pipeline linking eastern Saudi Arabia with the Mediterranean Sea. This 1,212km Trans-Arabian Pipeline employed GE’s frame 3 gas turbines to power its pumping stations. In the 1960s, GE’s frame 5 gas turbines were used in Riyadh’s first power plant.
As the Kingdom’s economy grew increasingly dependent on its oil resources, the Saudi government started to issue five year development plans in 1970, with economic diversification at its core. In parallel, GE’s relations with Saudi Arabia started to evolve from being an external supplier to a local investor. In 1976, the company started some early stage industrial localisation by entering in a joint venture agreement with Tamimi Power and Industrial Group for the creation of Middle East Engineering Saudi Arabia, a facility in Dammam offering repair and overhaul services of GE’s generation equipment in the region.
Today, Saudi Arabia’s initiatives to diversify the economy have gained a new impetus under Saudi Vision 2030 policies. More than ever, investors are evaluating major investment opportunities to partner with the government in the localisation of industrial and manufacturing operations – a necessary step to grow and diversify the Kingdom’s economy, generate skilled jobs and promote long-term economic sustainability. Therefore, foreign investors to the Kingdom are asked to look at ways to grow the local non-oil industrial base and address traditional challenges faced by regional industries, such as nascent local value chains.
Once again, GE’s investment in the country responded well to the government’s input and in 2012, GE launched the Project Kingdom investment plan. Aligning with the Saudi national agenda, the project aimed at developing a fully localised industrial ecosystem based on six main components: manufacturing and services, local supply base, research and development, training, talent development and workforce development.
A stream of targeted investments
In 2012, as part of Project Kingdom, GE committed to significant investments to back the country’s plans in terms of localisation, economic diversification and innovation. The investment focused on three key areas: innovation and business development, health care and energy. In March 2015, additional new programmes were announced to further the company’s localisation efforts, build research and innovation capacity, and create jobs in advanced manufacturing and software analytics.
Just one month after the launch of Saudi Vision 2030 in April 2016 by HRH Crown Prince Mohammed bin Salman, GE signed a memorandum of understanding (MoU) for $3bn worth of joint investments with Dussur, an investment initiative by Public Investment Fund, Saudi Aramco and SABIC to expand localised manufacturing in Saudi Arabia.
In October 2016, several agreements were announced with key partners such as the Ministry of Health, Saudi Aramco, Saudi Electricity Company, Saudi Telecom Company and TAQNIA. These agreements focus on areas such as digitisation, asset performance management, optimisation and advanced cybersecurity solutions for industrial environments. Finally, on the occasion of President Donald Trump’s visit to Saudi Arabia in May 2017, GE signed MoUs with Saudi partners valued at $15bn – across multiple sectors and partners aimed at creating a diverse and sustainable economic platform.
An advanced industrial center
The investment initiatives undertaken by GE over the course of the past few decades have most notably led to the expansion and launch of two major global industrial hubs, namely: GE Manufacturing & Technology Center (GEMTEC) and GE Saudi Advanced Turbines (GESAT), a joint venture between Dussur and GE.
GEMTEC is what best exemplifies the investor’s bid to create a local industrial ecosystem. Beginning its operation in 2012, The 17,000-sq-metre facility – about three times the size of an American football field – employs more than 500 skilled workers and is the first comprehensive manufacturing ecosystem for the power and oil & gas sector in the MENA region. It is also the largest GE gas turbine maintenance and repair facility in the world.
GEMTEC has manufactured 12 gas compression trains for phase one of Saudi Aramco’s Master Gas System expansion project in the Kingdom. The first gas compression train was delivered in January 2016. Six more gas compression trains, each with an aero-derivative gas turbine driving a centrifugal compressor were delivered in March 2017. The first “Made in Saudi” heavy-duty gas turbine was shipped in the December 2016. This 7FA.05 gas turbine was for the Waad al Shamal project.
As part of additional commitments to invest in localised innovation in Saudi Arabia, GE opened the Hot & Harsh Global Research & Development Center at GEMTEC. The center focuses on the effects of high temperature, dust, corrosion, erosion, duty cycle and fuel harshness which have a critical impact on the reliability and efficiency of power plants in the MENA region. The center employs 25 researchers and 10 engineers and lab technicians. It has so far registered 10 patents, with another five patents under review. The findings from the current research will be deployed in the gas turbine manufacturing and repair facilities at GEMTEC and have potential applications in countries with similar environmental challenges as Saudi Arabia.
GESAT was established in Dammam in June 2017 to manufacture heavy duty gas turbines and components in the Kingdom. The 9000-sq-metre facility manufactures 7FA.05 gas turbines and 7H gas turbine accessory modules, and exports them from Saudi Arabia to over 20 countries. GESAT is the only facility in the MENA region to manufacture hot gas path components for gas turbines. In 2018, GESAT will export two 9FA gas turbines to Bangladesh, complete with new advanced gas path upgrades.
As part of the Project Kingdom investments announced in 2012, combined both facilities today manufacture and repair H-class gas turbines, which the company describes as the world’s largest and most efficient of their kind, as well as the latest gas turbine technology available globally.
A sustainable industrial ecosystem
The investment made by GE to create a local industrial ecosystem has pursued two main objectives. First, it enhances GE’s competitiveness in a G20 market and supports the local investment’s sustainability in the long term. Second, it impacts a number of economic indicators that are central to the Kingdom’s Vision 2030 policies. Among the key targets for 2030 the Kingdom aims to:
The success of GE’s investment partnership with Saudi Arabia is once again based on the company’s strategic alignment to these goals, and its impact is best described by some key milestones.
Currently, GE employs over 4000 skilled workers in Saudi Arabia active across its primary businesses: aviation, power, health care, and in oilfield services through its recent acquisition of Baker Hughes, a GE company. Of these, 50% are Saudi professionals. GESAT and GEMTEC score higher than average in terms of employment of Saudi nationals, with a 55% and 70% rate, respectively. In addition, in 2014 GE inaugurated the All-Women Business Process Outsourcing Center & Digital Hub in partnership with Saudi Aramco and Tata Consulting Services. The center provides services in finance and accounting, human resources, supply chain, linguistics and digital technology. As of early 2018, the facility employed over 1000 women, of whom 85% are Saudi professionals.
In 2013 GE and the Saudi Aramco Entrepreneurship Center (Wa’ed) signed an agreement to support SMEs. The purpose of the partnership is to encourage Saudi SMEs to be active in the domestic manufacturing and services sector. Through this initiative, GE provided local suppliers with training and development on the latest technologies and provided them with the opportunity to become a global supplier and join GE’s global supply chain. As of February 2018 GE has over 2000 Saudi suppliers across all categories, with more than 150 ‘advanced’ Saudi SMEs suppliers being a part of the GE manufacturing ecosystem. The company aims to raise the number of ‘advanced’ SMEs suppliers to 300 by 2020.
In June 2016, GE held a Global Supplier Forum in Riyadh. The purpose of the forum was to encourage GE global suppliers to either establish or increase their presence in Saudi Arabia. The forum also encouraged local suppliers to network with GE’s global suppliers, hence becoming part of a global supply chain. In partnership with the Saudi Industrial Property Authority and SAGIA, the forum convened more than 500 partners and suppliers from more than 20 countries. After the Global Supplier Forum, 40% of the international customers and SMEs said they are interested in investing in Saudi Arabia.
Thanks to the establishment of the GEMTEC and GESAT manufacturing facilities, GE in Saudi Arabia exports parts and services to more than 70 customers in 40 countries across the Middle East, Europe, Africa and the US, generating over $100m in exports. Additionally, the All-Women Business Process Outsourcing Center & Digital Hub currently serves more than 55 countries.
Hisham Al Bahkali, President, GE Saudi Arabia
How would you describe GE’s overall experience as a foreign investor in Saudi Arabia?
GE’s experience as a foreign investor in Saudi Arabia has not only been successful but has exceeded expectations to a great extent. GE has been present in Saudi Arabia for over 80 years, mostly working in infrastructure development. However, the encouragement we have received from the Saudi government since 2012 has incentivised GE to shift investment towards developing several elements of the local ecosystem that support sustainability and diversification of the Saudi economy. A company like GE, with shareholders to report to, would not have entered into such a set of major investments had it not believed in the Kingdom’s vision and competitiveness as a global hub.
The company has received tremendous support from government partners like SAGIA and major customers, such as Saudi Aramco, SABIC, Saudi Electricity Company and Saudi Airlines. Even more importantly, GE strategically decided to further leverage Saudi Arabia’s competitive advantages: a young talent pool, the country’s commitment to an open economy and its location between three continents.
How competitive are Saudi Arabia’s investment incentives at a global level?
Despite the long-standing attractiveness of low input and utility costs, Saudi Arabia’s competitiveness has for many years been constrained by bureaucracy and red tape. Saudi Vision 2030 is removing barriers to foreign investment at an unprecedented pace in the Kingdom. Most procedures that used to take one month can now be completed in two to three days. Anything that used to take several days to process can now be done in one click. These not only include SAGIA’s investor licence process, but also Customs clearance, visa procedures, airport services and tax payment.
Even in the current economic environment, where the government is introducing new fiscal measures leading to a more sustainable economic and development path, the cost of doing business in Saudi Arabia remains very low by international standards. Land prices in industrial and economic cities are extremely competitive and measures to cut red tape are eliminating additional hidden costs we accounted for in the past. The change to today’s new environment is apparent for those of us who have been investing in Saudi for a long time.
What prompted the decision to establish a local industrial hub of the magnitude of GEMTEC?
In terms of significance, GEMTEC is not just another factory for either GE or Saudi Arabia. GEMTEC is GE’s largest maintenance and repair facility worldwide and the Middle East’s first comprehensive manufacturing ecosystem for the power and oil and gas sectors. It is endowed with advanced technology in terms of maintenance, repair and manufacturing. We are using it as a hub for export to over 40 countries.
In addition to Saudi Arabia’s strategic location, other conditions have emerged in recent years to incentivise the establishment of such a facility. Firstly, Saudi Arabia enjoys very favorable demographics. We decided to heavily invest in Saudi youth and trained our staff in field services. Our Saudi professionals are now completing service assignments across the globe and contributing to enhancing the Saudi country brand abroad. On top of that, GE has invested in the right technology. Previously, machinery from the Middle East would be shipped all the way to the US for repair and maintenance services. Today, our Saudi-based facilities have made this practice less desirable from a shipping and efficiency perspectives. The technology we installed at GEMTEC is, in some areas, even more advanced than GE’s counterpart facilities located in the US.
The absence of a strong value chain is often seen as a challenge to the growth of local industrial capacity. In what ways have you tackled this?
Small and medium-sized enterprises (SMEs) have had increased focus since we announced our partnership in 2012 with the Saudi Aramco Entrepreneurship Center (Wa’ed) with the aim to engage SMEs in the domestic manufacturing and service sector. Today we are strategically supporting the local SME value chain in two ways.
First, through the Global Supplier Forum, we invited between 200 and 300 of our GE global suppliers to visit Saudi Arabia. We introduced them to major local companies and in partnership with MODON, we took them on a tour of Saudi Arabia’s industrial facilities. By showing the success of GE in Saudi Arabia, we encouraged them to pursue the same path by teaming up with local SMEs and to become GE’s local suppliers. Around 40% of those companies have expressed their intention to invest in the Kingdom and some are now in the process of completing the necessary procedures with the government’s authorities.
Second, a few years ago we saw the need to strengthen the local value chain and empower Saudi SMEs, so we increasingly began sourcing products locally. We are reaching out to the SMEs already established in Saudi Arabia and helping them to become a qualified GE supplier, which enhances their global competitiveness. In 2016, 29% of the gas turbine systems at GEMTEC were made and supplied by Saudi-based SMEs.
What strategies has GE adopted for the training of Saudi staff?
Multinational companies like GE are always looking for the best talent. To this end, we have been working with the best universities locally, including King Fahd University of Petroleum and Minerals (KFUPM) and King Abdullah University of Science and Technology (KAUST). We keep close relations with top universities in the US and UK to monitor their pool of Saudi graduates. We built scholarship programmes with KFUPM, and since 2015 SAGIA has provided us with incentives to hire around 35 engineers graduating from US universities.
We have also established programmes that relate to female employment. Among these is the Saudi Women Development Forum, which is a three-day workshop that has been held for the past few years to improve the skillsets and leadership capabilities of female employees in a wide range of areas including in operations and human resources. At GE we invested in Saudi female professionals in areas such as finance, auditing and legal. We started hiring females in 2010, but at that time you would never see women in executive and senior executive positions. It is a major achievement that today we have Saudi women executives leading large pools of male and female staff in an industrial hub like GEMTEC.
What recommendations would you give to prospective investors looking to localise operations in Saudi?
Companies that are new to Saudi Arabia mostly lack information about the market. This is our first impression when we interact with our global network of suppliers. I would encourage prospective investors to go through the sectors prioritised by Saudi Vision 2030, such as mining, entertainment, military and logistics. There are strong incentives and support for companies willing to invest in these sectors. I recommend focusing on the Saudi Vision 2030 mandate and learning the best way to approach local regulations, customers and potential partners.
The government of Saudi Arabia regularly organises missions to meet local authorities and CEOs of major local companies. I have actively participated in these events and they are excellent opportunities for prospective investors to get introduced to the local market. There are several qualification requirements with local customers such as Saudi Aramco, SABIC, Saudi Electricity Company or Ma’aden. The new overseas offices to be established by SAGIA or the International Center for Strategic Partnerships can play an even more crucial role in streamlining some of these requirements.