BLUEPRINT FOR THE FUTURE
THE SKYLINE OF THE MAIN CITIES IN SAUDI ARABIA NO LONGER BELONGS TO PALM GROVES, BUT TO STEEL TOWERS AND ECONOMIC CLUSTERS. WITH BILLIONS OF DOLLARS IN OIL WINDFALL, THE KINGDOM HAS TURNED INTO AN OASIS FOR CONSTRUCTION. AND ITS COMPANIES ARE EXPORTING THEIR EXPERTISE.
articles & interviews
Blueprint for the future
A healthy outlook
Banking on a booming economy
Abdulaziz Al Turki
Building materials: The catalysts
Explosive Growth at Saudi Chemical
Saleh Ali Al Turki
Chemanol: Downstream Creativity
Ahmed Al Ohali
A talent for diversity
PME Safeguarding the kingdom’s natural assets
Abdulaziz Al Qahtani
Blueprint for the future
When Ibn Saud captured the dusty garrison of Riyadh in January 1902, it was just a small oasis town in southern Najd. Riyadh’s name is derived from the Arabic plural for orchard: most Saudi chroniclers refer to its beginnings as a Bedouin camp emerging around wells that made irrigated agriculture possible. Today, the former Ottoman-era citadel continues to bake in the harsh sun of the central plateau. But the skyline no longer belongs to palm trees and mud-brick constructions. Instead, it is perforated by steel silhouettes —beacons of a new age of engineering prowess.
The surge in oil prices, in tandem with high population growth, has led to a multi-billion dollar building frenzy in Saudi Arabia. Sudden growth has created a new demand for slick engineering and architectural elegance, as well as for innovation in building materials. Riyadh not only benefits from net oil exports, it also straddles a manufacturing corridor that links it to factories in Buraydah and Al Kharj.
An estimated $1 billion have been sunk into city earthworks. Housing demand has also spiked, with 600,000 new homes planned.
In the Olaya district, the heart and soul of down- town Riyadh, private firms are busy designing shopping outlets. A network of 467 kilometers of pipelines, meanwhile, supplies water from desalination plants in the Gulf.
The construction boom is also driven by infrastructure needs. If demographic trends continue apace, Saudi Arabia will need to funnel $123 billion into an expansion of its electricity grid by 300% over two decades. Road construction will require another $5.4 billion in investments.
A complete overhaul of water supply, including desalination plants and pipelines, will require $93 billion. Housing is worth another $6 billion, hospitals $5 billion and education facilities a further $2 billion. There is also buzz about a $3 billion causeway link across the Red Sea from Egypt’s Sharm Al Sheikh to Saudi Arabia’s coastal town of Dibah.
If one adds the earthmoving projects at new industrial parks and economic clusters, the Kingdom is smack in the center of a very lucrative market—the largest in the Middle East. And these figures hardly reflect private sector plans for office buildings, tourist resorts and entertainment centers. Spillover effects from the oil windfall are particularly being felt in commercial real estate along the Gulf. Between Al Khobar and Dammam, contractors are razing 3.4 square kilometres of waterfront to build villas, apartment buildings and a marina.
The Kingdom’s multi-billion dollar infrastructure projects are showcased at the fair, which caters to domestic and foreign bidders.
The Saudi development model has been cluster- based and multi-sector. Industrial parks like Jubail and Yanbu are the preferred formats for regional growth, job creation and technology transfer. Petrochemical plants in particular have generated a network of construction and materials-related SMEs that are now in a position to sell products abroad. Engineering giants like Saudi Oger and the Saudi Binladin Group, meanwhile, are courted for their state-of-the-art technology.
The bids are open to build petrochemicals, power plants, telecom net- works, desalination plants and more railroads. Business leaders and government policymakers met to coordinate the management of future infrastructure. Sponsored by Saudi Aramco, the state-owned oil company, and Saudi Basic Industries Corporation (SABIC), the main decision to emerge was the necessity of using mega-projects as an excuse to lift the skills level in construction and engineering. The Kingdom will thus have an edge in engineering excellence, which opens the door to opportunities in the region and beyond.
Saudi Arabia’s building frenzy will have changed more than the cities’s skyline. The construction boom will have lifted the skills of Saudi contractors so that their services are sold globally. Products like stone finishings, tension bridges and stress software for structural engineers will increasingly be seen as value-added Saudi exports. The net result is creativity and innovation like it has never been seen in the Arabian deserts.
SAUDI ARABIA HAS BEGUN TO EXPORT HIGH-QUALITY CONSTRUCTION SUPPLIES. WITH CHEAP ENERGY INPUTS, FACTORIES ARE ABLE TO PRODUCE EVERYTHING FROM TITANIUM OXIDE TO STEEL WIRE MESH.
Behind the boom in earthworks is a quiet revolution in downstream industries. With WTO entry, Saudi companies face a steep learning curve. The benefits, however, are at the end of the tunnel.
In the near future, building materials specialists will have to walk the extra mile to remain competitive. The construction market is 100% globalized and the Kingdom faces stiff competition from China. The Saudi government has taken steps to install quality controls on cheap building materials, which will help the domestic industry. In the meantime, R&D has extended the range of materials into hundreds of products.
“What one gains from the experience [of globalization] is the necessity to be flexible, imaginative, creative and customer-oriented. You just need to understand what the customer wants and you’ll be there in no time,”
says Talal Ali Al Shair, Group President of Shairco and Chairman of Cristal. Shairco is an umbrella group that owns Cristal, a manufacturer of titanium oxide coatings. For companies like Cristal, the WTO opened doors to new markets and drive up quality standards. “The challenge for any company will be competitiveness in new materials and new ideas. The product cycle has to be perpetual,” says Al Shair.
Downstream specialization is inevitable for manufacturers like Cristal. It has produced high-quality titanium oxide (TiO2) coatings out of its ultramodern plant in Yanbu since 1991. Imported ores are transformed into industrial coatings and sold as far as Singapore and the UK. In 2002, the Yanbu plant increased its production capacity from 70,000 metric tons per year of TiO2 to 100,000 tons. The output leap was programmed to meet a 3% rise in global demand.
Cristal relies on chlorine gas produced through anode reactions at the Arabian Chemical Center (ACC), a subsidiary unit also based in Yanbu. ACC uses membrane technology to produce chlorine for use in plastics, solvents, pigment, varnishes and other finishing products for the construction sector.
Technical complexity has pushed the Saudi Cable Company (SCC) up the value chain. When Khaled Alireza, Vice Chairman of Xenel Industries, returned to Jeddah in the booming 1970s, he noticed no one was manufacturing building wire. As a graduate of the University of California at Berkeley, the industrial engineer wanted to contribute to his country’s economic development. He saw that Japanese and US firms sold cable and high voltage wire at astronomical prices. So Xenel began SCC as another subsidiary at an industrial park. Soon SCC was manufacturing aluminum rods and electrical power cords for large construction projects. Its expertise in wire grew as customers required higher voltage. Xenel realized SCC also had to get into the business of installation.
Today, SCC is a turnkey contractor with operations in Jeddah, Riyadh, Al Khobar, Jubail, Istanbul and Manama. According to its president, Waheeb Linjawi, SCC was hired to mount cables over 400 kilometers of power lines in Pakistan. The company produces 265,000 tons of metal cable and another 265,000 tons of aluminum wire and copper rods. “We are considered the 10th largest cable manufacturer in the world. You cannot imagine the savings this company has made to the national economy in the last 30 years,” says Linjawi.
Quality, prices and delivery costs have earned SCC loyalty among giants like Saudi Aramco, the state-owned oil company. From its factories in Turkey, SCC is able to export extra high-voltage cable to Western markets, including the US. Now Linwaji wants to triple capacity and has already purchased the land next to the original factory complex in Jeddah. “The sky is the limit,” he says. As the voltage of his cables climbs, so does his business ambition.
“My goal is to make the Saudi Cable Company synonymous with quality products, so that when you mention SCC it will be like mentioning GM or IBM,” adds Linjawi.
The company with the Strength of Steel
A diversified private sector has opened a new economic space for Saudi Arabia
THE PETROCHEMICAL INDUSTRY OFFERS GREAT INVESTMENT OPPORTUNITIES WHILE CREATING SYNERGIES WITH METALLURGICAL PLANTS AND FINANCIAL SERVICES.
Although in absolute terms hydrocarbon production remains the bedrock of the Saudi economy, the non-oil private sector is now its fastest growing segment. Non-oil industry in general was the fastest growing sector at 10.1%, driven by increased petrochemical and metal production as investment poured into these two energy-based industries to take advantage of low feedstock prices.
Private sector dynamism is no accident: it is testimony to a series of five-year modernization plans that have been implemented since 1970. The plans have successfully paved the way for the emergence of a diversified, industrialized country.
The petrochemical sector is one of the most attractive segments in the economy for private and foreign capital, precisely because it is hard to beat Saudi Arabia in terms of competitively priced supply of feedstock.
Moayyed Bin Issa Al-Qurtas is the CEO of Tasnee, formerly the National Industrialization Company, a pioneer in the diversification of Saudi Arabia’s economy over the last twenty years, and the first industrial private joint stock company in the kingdom.
Since its establishment in 1985, Tasnee has focused on building up several core industrial areas in Saudi Arabia: petrochemicals, chemicals, metals and metallurgy, as well as its services business, which includes the marketing and distributing of its petrochemical products and other sectors such as automotive batteries and carton packaging. Growth across the companies in which Tasnee has equity stakes has been explosive in recent years; its chemicals unit Cristal has achieved record production levels of titanium dioxide (a pigment used in many industries), Rassas has doubled its capacity for recycling batteries for their lead, and Battariat has expanded its production to two million batteries per year.
Al-Qurtas pays tribute to the legacy of the successive five-year plans on the physical and social infrastructure of Saudi Arabia. “There was a very strong vision that industrialization is the way for growth in Saudi Arabia,” Al-Qurtas says. “Utilities are highly reliable and highly competitive. We are second to none in terms of the ability to supply products at very competitive logistics costs due to the excellent port facilities and the roads network in Saudi Arabia, and the links that we have with the rest of the world. It is very critical to produce competitively, but it is almost equally critical to be able to supply competitively,” says Al-Qurtas.
The petrochemical sector is one of the most attractive segments in the economy for private and foreign capital, precisely because it is hard to beat Saudi Arabia in terms of competitively priced supply of feedstock. The WTO allowed the kingdom to maintain its feedstock prices at low levels and did not require them to rise to meet global prices. Saudi Arabia can work within the WTO to cut global tariffs on its petrochemical exports.
This intense industrial activity by Tasnee and other private sector players in Saudi Arabia is having a knock-on effect on other sectors of the economy, notably on banking.
Abdulaziz Al Turki
Abdulaziz Al Turki is used to being in the spotlight. He is the CEO of Rawabi Holding, a major contractor based in Al Khobar. Since his group of companies started out more than 30 years ago, he has seen Saudi Arabia evolve into its own version of moder- nity, one that incorporates traditional values. In no uncertain terms he says the speed of modernity sometimes needs adjusting. Like the gears of a machine, there is no standard setting. Engineers are always looking for practical solutions after all. And that is what Rawabi Holding does on a day-to-day basis.
“We have our own vision,”
says Al Turki. Given regional in- stability, he says, now is a propitious time to send the message that Saudi Arabia offers businesses a safe and accountable environment. The country is undergoing a major industrial shift and society is opening up.
Although it has interests in IT, Rawabi Holding owes much of its success to the oil industry. With Saudi Arabia pumping close to 11.5 million barrels of oil per day (mbd), Al Turki thinks the spare capacity of 1.5 mbd is proof that OPEC’s swing producer is a re- sponsible partner.
But in this second industrial phase, Saudi Arabia has realized the importance of qualified engineering firms that can also double up as agents of change. Rawabi Holding is helping to do just that at petrochemical plants in Yanbu and Jubail. At both industrial parks, the feedstock for manufacturing industries will be natural gas. Saudi Aramco is building refineries there with a price tag of $50 billion, and Rawabi Holding is its preferred contractor.
“First of all, we are concentrated in oil and gas. Even if we have a partnership, we work on the infrastructure ourselves. I don’t think there is another company that can do what we are doing,” says Al Turki. The company manages a full workload in the kingdom with engineering solutions not only for oil & gas, but also for construction, utilities, telecoms, cargo logistics and manufacturing industries. Companies include Rawabi Hot-Hed, Geoservices, Re- mal Telecom Factory, the ABCORP Corrosion Control Group and Namma Cargo Services. The corporate slogan, unsurprisingly, is “Rawabi makes it happen.”
For the next five to six years, there are plenty of infrastructure opportunities in the pipeline. Drilling for oil is going on at fields from the Caribbean to the Barents Sea. Al Turki says companies have a hard time finding decent rigs. That is an emerging Rawabi niche — and a driving force for future business activity.
Explosive Growth at Saudi Chemical
EXPLOSIVES MANUFACTURER SAUDI CHEMICAL COMPANY IS PLAYING A KEY ROLE IN THE DEVELOPMENT OF THE KINGDOM’S OIL AND GAS SECTOR, AND IS EXPANDING INTO NEW LINES OF BUSINESS
The industrialization of the Saudi Arabian economy is being spearheaded by a range of private sector companies which are seizing the opportunities provided by the government’s development plans. The Saudi Chemical Company, an explosives manufacturer founded in 1972, is supporting the expansion of the country’s oil, gas and mining industries while also diversifying into the growing pharmaceutical and distribution sectors.
The history of Saudi Chemical mirrors the economic trends of Saudi Arabia over the last three decades. Initially a joint venture with an international partner, Sweden’s Nitro Nobel, and importing its products, it gradually switched to local manufacturing for all its production lines. In 1985 it became a wholly Saudi company, with foreign partners continuing to provide technical support. Then came the conversion to a joint stock company in 1998, followed by a stock market listing in 2001. As a public company, Saudi Chemical is now responding to shareholder demands by expanding into new growth businesses.
Managing Director Fahad S. Al Jarbou says that the company was established to serve domestic demand for civil explosives during the boom in construction and infrastructure in Saudi Arabia in the 1970s. Until the establishment of Saudi Chemical, all explosives were imported into the country;
“it was soon realized that there was a need for local manufacturing of civil explosives, to cut down on shipping and transporting dangerous explosive materials on our long roads”
says Al Jarbou. Al Jarbou has had a diversified career in several key sectors in the Saudi economy since graduating in applied electrical engineering from King Fahad University in Dharhan. In 1995 he became Managing Director and member of the board of the Saudi Chemical Company, following a period of running the family business and management roles in the steel and cement industries.
Throughout its 35 years of operations in the explosives sector, Saudi Chemical has been characterized by its commitment to safety and to quality. “In our business, especially in civil explosives, there is no room for ignorance or error,” says Al Jarbou.
The company’s international heritage is evident in this safe- ty and quality culture. “All our facilities were designed according to the highest Swedish standards for explosives facilities,” Al-Jarbou adds, “and all operations and handling of explosives are done according to strict procedures.”
Annual safety audits carried out by international companies help to keep standards high. The company’s other international relationships also allow it to maintain product quality: it sources its raw materials from the highest quality suppliers worldwide, and it adheres to strict manufacturing procedures. This commitment to quality and safety was crowned in 2002 with the award of ISO 9001:2000 certification by BSI. Mining is currently a key strategic sector for the diversification of the kingdom’s economy, and Al Jarbou expects Saudi Chemical to play a major role in this area.
“Mining is about to take off as a major resource in our economy, and as the only manufacturer of civil explosives in Saudi Arabia we are well positioned to provide the best ser- vice to this industry with a great deal of confidence,”
he says. “Our three factories in the three main regions, and a 35-year experience in this field will make us a first and best choice as partners. We cannot see our- selves outside the game.” The oil and gas sector is another growth area for the company. Saudi Chemical started producing the advanced Enviroseis seismic explosive under license from Austin International.
Enviroseis is approved by Saudi Aramco for use in its seis- mic oil and gas exploration projects. It is more environmentally friendly and can be used in areas that are unsuitable for exploration with traditional explosives.
Since listing on the stock market, Saudi Chemical has also accelerated the pace of its diversification into other areas, particularly in retail and distribution. It has expanded into the pharmaceutical sector with the acquisition of Sitco Pharma, the largest pharmaceutical distributor in the kingdom, representing major multinationals including AstraZeneca, GSK, Sanofi-Aventis and Eli Lilly.
“It’s been one of the best things we did,” Al Jarbou says. “It immediately boosted the size of the company, the volume of sales, its international reputation. Growth is the name of the game and public companies cannot stand still.” And that growth is paying in financial results.
Al Jarbou says that Saudi Chemical is now discussing acquiring a retail pharmaceutical business, and a company which distributes major perfume brands. “The retail company we plan to acquire is one of the best retail chains in the Eastern Province and they are going to expand to the other regions. They are very well positioned in the market and they have up-scale pharmacies.” As part of its growth strategy, the company is also investing in a third subsidiary, Petro Hunt Middle East Ltd. While perfumes and seismic explosives may seem unlikely partners, it is testimony to the strength and depth of the local economy that Saudi Chemical can now find business opportunities in both sectors and others.
Saleh Ali Al Turki
Nesma is a household name in Saudi Arabia. But such is its in- dustry spread, that the conglomerate spans everything from Inter- net access to cargo logistics, as well as its core business of con- struction and of infrastructure for the oil & gas sector.
“The more sophisticated the market becomes, the more you have to develop your services,”
says Saleh Ali Al Turki, President of the Nesma Group. Al Turki is a busy man. He also happens to be Chairman of the Jeddah Chamber of Commerce. Given his entrepreneurial curiosity, that is no bad thing.
“I like to be aware of everything. But over the years, I’ve learned that if I want my business to succeed, I need to find someone to help me,”
says Al Turki. In 2003, after attending a telecoms con- ference, he realized there were holes in his knowledge of the In- ternet business. So he gathered a strong management team to brief him on the long-term prospects. When he was named Chairman of the Al Birr Society, his first instinct was to find the right people to work with.
His risk-tolerance is behind the group’s diversification. Al Turki likes to test out ideas. In the process, Nesma becomes more adapt- able. When oil prices were low, Al Turki took heavy losses on the infrastructure side of the business. But it posted great profits in other areas, such as telecoms and hotel operations. “Since 1980, we’ve learned that the market might be stronger in some aspects and weaker in others. In the past six years, for example, our con- struction arm was not doing well. Today it’s our best business,” says Al Turki.
Al Turki is contantly on the lookout for business partners, recog- nizing the key role they play in the company’s development. “A large measure of our success depends on our ability to work with partners. In fact, our growth came through joint ventures,” he says.
“We are looking for partners in oil & gas to complement our busi- nesses.”
All the companies within the Nesma Group now have managing partners as a result of Al Turki’s corporate philosophy. He has grown accustomed to delegating work via his Blackberry. “In busi- ness,” he says, “when you get to a certain point of financial suc- cess, you begin to relax. Unless you want to grow.”
Chemanol: Downstream Creativity
A SPECIALIST IN METHANOL-BASED PETROCHEMICALS, CHEMANOL IS RAPIDLY EXPANDING ITS CAPACITY AND DIVERSIFYING ITS PRODUCT RANGE. IT WILL NOW PRODUCE ITS OWN METHANOL, LEVERAGING THE NATURAL RESOURCES OF SAUDI ARABIA FOR ITS COMPETITIVE ADVANTAGE
In the mid 1980’s, a new breed of Saudi entrepreneurs saw that there was high potential for using Saudi Arabia’s vast natural resources more effectively. Simply selling oil and gas was not enough; there would be much greater opportunities for growth and for wealth creation by moving up the oil and gas value chain andinvesting in the petrochemicals segment. With this idea, Mazen K. Allahiq Alnaimi founded SFCCL, the Saudi Formaldehyde Chemical Company Limited.
Alnaimi’s founding concept was supported by leading investors from Saudi Arabia and other GCC countries such as Al Zamil Holdings and Y.B.A. Kanoo of Saudi Arabia, Mazrui Holdings of UAE and Mohammed Jalal & Sons of Bahrain. Other investors included businessmen Fahad Al-Nafisi of Kuwait and Mohammed Al Mana of Qatar.
The company is rapidly becoming a world class producer of methanol-based products such as formaldehyde, methyl amines and derivatives. Based in the industrial city of Jubail, Chemanol is investing heavily in expanding existing facilities and adding capacity for growth. It will begin production of methanol for its own use to accelerate its drive into international markets with competitive, high value and environmentally friendly products.
“My vision is to create value from natural gas, not just burn it or sell it as methanol,”
Alnaimi explains. “Our new name ‘Chemanol’ is taken from ‘Chemicals from Methanol’.
It strongly under- lines our vision of leveraging natural gas resources by using methanol for down-stream products that add value to the industry, the country and our customers.”
Formaldehyde is the core business of Chemanol. The company produces around 400,000 tons annually of formaldehyde and derivatives and exports to over 45 countries; its 26 specialty products are used in 27 industries. It is a major supplier to the global oil field, textiles, paper, leather and rubber industries, which all use formaldehyde in their end products “Our mission is to make products that touch your life in ways unseen,” Alnaimi says.
Chemanol has come a long way since work began on con- structing one small plant back in early 1991, when the Persian Gulf War was raging, and when there were no privately owned companies in the petrochemicals industry in Saudi Arabia. “I was flying where no-one had flown before,” Alnaimi recalls.
The story since then has been one of constant strategic move- ment: growth of Chemanol’s installed capacity, and growth into new markets and new products. Between 1993 and 1995, Chemanol doubled its formaldehyde capacity and, as a way of diversifying its product portfolio, started to produce hexamine, which is used in a range of industries, including rubber, pharmaceuticals, and mining. In this period, the company almost trebled its revenues. In 1998 it expanded its capacity even more, diversifying into the emerging areas of resins and super plasticizers – and doubled its revenues again. All told, Chemanol has now implemented 19 projects of capacity expansion and product diversification in just 17 years.
“Vision does not endure without growth,” Alnaimi argues, “our story to date has been one of proving the concept, expanding the capacities, growing the markets and diversifying whenever possible.”
This expansion will result in Chemanol becoming one of the world’s largest producers of methanol derivatives like formaldehyde and amines. In addition to this downstream expansion, a key part of the transformation of the company will also involve a process of backward integration, as Alnaimi explains: “Instead of buying methanol, we will produce it at a lower cost. This will provide us with long term competitive cost advantages for our current products and our new products. We have begun implementing our future.”
In this highly globalized industry, international partnerships are one of the key factors for ensuring sustained success. Going into partnership with a Swedish company for the production of pentaerythritol, a basic raw material for paints and coating products, Chemanol is able produce the substance more efficiently, while its Swedish partner markets the products.
As in all successful business partnerships, this arrangement gears the strengths of each partner to the benefit of both. “We currently have many partnering arrangements for technology, licensing, and off-take agreements with companies outside Saudi Arabia. We examine all propositions that have synergies with our vision and with the attributes of our business.” says Alnaimi.
Ahmed Al Ohali
Until 1995, Saudi Arabia’s petrochemical industry was in the hands of state-owned companies. But private-sector players convinced policymakers to liberalize natural gas in order to jump start new petrochemical projects. SIPCHEM is a product of that era. Established in 1999, the chemicals specialist built its installations from scratch, complying with all the corporate-governance regulations laid out by the GCC.
“The company started out with SR500 million ($133 million) in paid-in capital, 65% Saudi-owned and 35% GCC-owned. The concept of SIPCHEM was to utilize flared gas, adding value to it through key products like methanol,”
says company President Ahmed Al Ohali. The project has gone through two capital injections in the past three years. Both methanol plants are operative and running on schedule. For the construction of an acetyls complex, Al Ohali has sourced finance from the Petroleum Ministry. Within 10 years, he hopes to produce five million tons of methanol a year. SIPCHEM will then become one of the top-three petrochemical companies in the Gulf.
Al Ohali works together with U.S.-based Dupont to export methanol and acetyls. In the future, the agreement may extend to advanced polyolefin products, a flexible alkyl useful as a synthetic lubricant for motor oil. Although still in its feasibility stage and worth $9 billion, it is another move by SIPCHEM to ensure that modern petrochemicals specialize in downstream derivatives that go beyond basic chemicals.
At its IPO, SIPCHEM’s shareholders sold 30% of their stake to Saudi and GCC investors. As the number of installations grows, it makes sense to allow the public to participate. It also gives Al Ohali a different perspective on where to lead the company in the future.
DESPITE A PERIOD OF UNPRECEDENTED WEALTH FOR SAUDI ARABIA, THE COUNTRY IS COMMITTED TO AN AMBITIOUS REFORM AGENDA. AND DELIVERING A WORLD-CLASS INFRASTRUCTURE IS CENTRAL TO THE GOVERNMENT’S PLAN FOR ECONOMIC DEVELOPMENT.
With $350 billion in new projects, Saudi Arabia has embarked on a significant economic development program with the goal of establishing the kingdom as a global industrial force. To support this aim, and to position the country as a regional transport and logistics platform, much of the investment is directed at the creation of a sophisticated infrastructure. From water desalination plants to improved health-care facilities, the government is upgrading capacity to meet the challenge of a growing and increasingly affluent population.
But nowhere is this more evident than in the country’s transport system. The country’s rail network has changed, on a massive scale. New lines link the east and west coasts of the country and population centers from north to south. The country’s ports and port-storage facilities have also been expanded as the kingdom seeks to establish itself as a regional transshipment center, in competition with established Gulf hubs.
Competition is also growing in the telecoms sector as the government has opened the market to a host of new operators. Competition for new mobile subscribers is expected to be fierce, but it is broadband that offers the greatest potential for growth, analysts say. Some 38% of Saudis have PCs, yet only 1% can currently access high-speed broadband.
From residential complexes to industrial clusters, large-scale construction continues apace, both as a result of the oil boom and as a catalyst for the development of the non-oil sector. The economic cities planned nationwide are central to this latter aim. However, despite the furious pace of development, environmental awareness is increasingly visible and some progressive steps have been taken to ensure sustainability is built into every new project.
A talent for diversity
E. A. Juffali & Brothers traces its roots to a shop set up by three brothers in the 1930s. Subsequently, they won the kingdom’s first electricity concession in 1945 for the city of Taif. Today, the business group includes Daimler-Benz dealer- ships, cement factories and petrochemical plants. Like many of Saudi Arabia’s family-owned businesses, it is based in the commercial capital of Jeddah. As Vice Chairman and Managing Partner of the group, Khaled Juffali has continued the family tradition of branching out into new sectors. His slogan is
“progress through diversity”
To achieve his goals, he banks on the group’s transparency, which is considered an asset. Clinching deals, after all, is only possible if one demonstrates a willingness to play by the rules. It sounds easy enough, but Juffali works hard to gain his partners’ trust through oversight and sound management.
“We have joint ventures, partnerships and each one is inde- pendent with its own management,”
says Juffali. The group has a history of being at the cutting edge of information and com- munications technology. In the 1940s, it was already partners with Siemens. In the following decades, technology-based ventures have been signed with Erics- son, Electrolux, Dow Chemical, Dupont, Michelin and IBM. “What we have done is to establish the best partnerships in our different industries,” says Juffali.
Today, Juffali sits on the strategy council of the Global Alliance for ICT and Development (GAID), a U.N. initiative launched in 2006. He thinks Saudi Arabia is moving quickly into the high-end of IT and telecommunications. Gadgets like Blackberries and iPods do not stay on the shelves for long. Analysts think Ap- ple’s iPhone will sell out the day models arrive in Asia in 2008. “Saudi Arabia is booming all over, but we haven’t seen anything yet. Wait till all those products hit the market,” he says.
As far as regional expansion, the group is branching into neighboring GCC countries. Juffali is convinced his selling point will continue to be transparency and business know-how. “They can choose whoever they want. But we’re not here for the short-term, as in a hit-and-run episode,” says Juffali. “when you get to a certain point of financial suc- cess, you begin to relax. Unless you want to grow.” In the future, the group will concentrate on its core business to expand in the kingdom. But Juffali also has his eyes set on philanthropy. Like other Saudi conglomerates, charity work is an important way to pay back to society. Follow- ing in the steps of his father, Juffali would like to set up dialysis clinics, hospitals for disabled children and daycare centers for patients with Down Syndrome. Education is also a primary concern.
Safeguarding the kingdom’s natural assets
RESPECT FOR THE ENVIRONMENT IS A CONSTANT IN BEDOUIN CULTURE.
NOW, A GOVERNMENT AGENCY IN SAUDI ARABIA HAS CODIFIED ANCIENT LAWS INTO INSTRUMENTS TO FIGHT GLOBAL WARMING.
When Saudis hear the word sustainability they don’t necessarily think of carbon emissions. Instead, the word is associated with the inter-relationship of life forms on earth. For thousands of years, the sustainable use of resources has been part of the cultural priming in the Arabian Peninsula. Sir Wilfred Thesiger, the British explorer, marveled at the way Bedouins in the Empty Quarter rationed local resources. Water, a scant commodity, was shared by different tribal groups.
The Presidency of Meteorology and Environment (PME) has incorporated this ancient belief system into its strategic planning. Its tenets are enshrined in the Basic Law, a charter of 83 articles that governs the kingdom day to day. According to Article 32, the Saudi authorities are responsible for protecting the environment and fighting pollution. In an effort to strengthen its environmental framework, the PME developed a new action plan. It included a slew of strict regulations to comply with the U.N. Commission on Sustainable Development.
So what does environmental sustainability mean in Saudi Arabia? Judging by the PME’s upgraded status as an implementing agency, it means serious business. Instead of restricting its mandate to legislation, PME officials can now enforce environmental standards and penalize non-complying parties. An example could be fines imposed on a company that illicitly dumps waste into the Red Sea or uses asbestos to cut costs at a building site. PME is also in charge of evaluating the country’s ecological health by conducting studies and collecting data. It carries out meteorological and climatic modeling to determine global trends.
The Presidency is a keen awareness builder. It supports education- al tools such as a Pan-Arab news channel devoted to wildlife. Armed with a set of bylaws, the PME has defined new controls for air and water quality, carbon emissions and hazardous waste. The standards are in synch with changes in international law. The PME also holds yearly meetings with neighboring countries to coordinate work in sensitive areas such as the Red Sea, home to a large coral ecosystem, and the Gulf, vital to the global economy due to the heavy transit of oil tankers. And the agency is keen to learn from the past.
“We now monitor cities that are up and coming from the very beginning. We make sure that they are environ- mentally friendly and as clean as possible, taking care to address the challenges we faced in our cities in the 1970s,”
says Prince Turki. In its first phase of large- scale development, the kingdom rarely included environmental impact studies. From day one, environmental impact is built into any industrial or earthmoving project. “All companies emit- ting gases or liquid discharges in violation of regulations have five years to correct themselves. If these are not corrected, the companies may be closed,” says Prince Turki. Evidence of the Saudi commitment to sustainable development is that Prince Turki’s ministerial duties are now on a par with other cabinet members. This allows the PME to coordinate tasks across ministries. As an example, Prince Turki cites his ability to consult with any Amarah (governor) on urban-planning issues, just as any other minister would. “We are putting a number of new staff in Riyadh, Jeddah, Medina and elsewhere for inspections. We have the power to inspect any facility, whether it is state-owned or private,” says Prince Turki.
The PME is particularly attuned to issues of global warming, which Prince Turki is quick to label a disaster. Saudi Arabia is a staunch supporter of lowering gas emissions from cars. “I’ll give you one statistic about the environment: At U.N. meetings, the environ- ment takes up 25% [of the time] at all the conferences. It is huge,” says Prince Turki. “Without clean air and a clean environment,” says Prince Turki, “life is not going to continue.”
The Earth belongs to us all
A healthy outlook
AN INCREASINGLY SOPHISTICATED HEALTH-CARE SYSTEM FACES THE CHALLENGE OF RISING DEMAND FOR ITS SERVICES. A LIKELY OUTCOME IS A GREATER ROLE FOR THE PRIVATE SECTOR AND MULTINATIONALS.
Saudi Arabia is building a reputation for medical excellence and sophisticated research and is attracting highly skilled staff from around the world to work in its modern hospitals and dedicated research facilities. But, like many European countries, the kingdom is expected to experience a sharp increase in demand for health- care services and will need to create a system that is more responsive to the needs of Saudi citizens.
A report from the global management consultancy Booz Allen Hamilton says population growth, an aging society, and the conditions that affluence often exacerbates, such as diabetes, cardio- vascular diseases and cancer, will mean that growing numbers of people will require access to world-class health care.
The percentage of people aged 60 and over is expected to more than double by 2020.
At the same time, obesity is on the rise, says the Booz Allen Hamilton report entitled The New Saudi Arabian Healthcare Market. In a bid to deal with increasing demand, there is a boom in hospital and clinic construction.
Center of excellence
The King Faisal Specialist Hospital and Research Center
Saudi Arabia boasts a number of specialist hospitals but perhaps chief among them is the King Faisal Specialist Hospital and Research Center (KFSH & RC) in Riyadh. Opened in June 1975 and named after His Majesty the late King Faisal Bin Abdulaziz, it is the kingdom’s largest hospital and has earned a reputation for innovation and excellence beyond Saudi Arabia. KFSH & RC is the kingdom’s national referral center for oncology, organ transplants, cardiac surgery and genetic diseases, among others. Before it opened, patients had to seek specialized treatment abroad. The state-of-the-art, 800-bed tertiary-care hospital provides specialized treatment and promotes medical research and education programs as well as working collaboratively with international medical institutions.
It employs medical professionals from around the world and its highly sophisticated 140,000-square-foot research center boasts expertise in biological and medical research, genetics and comparative medicine, among other specialist areas. Among the Centers of Excellence at the hospital is the King Fahad National Center for Children’s Cancer and Research – the only children's cancer center in the Middle East.
Modeled on the world- leading St. Jude’s Children's Research Hospital in Memphis in the U.S., the Center now accepts more new patients annually than St. Jude’s and provides both inpatient and outpatient services to pediatric hematology and oncology patients.
KFSH & RC’s King Faisal Cancer Centre (KFCC) cares for adult patients and has ambitions to become the leading international center for cancer research, prevention and treatment. Accredited by the World Health Organization as a Collaborating Center for Cancer Prevention and Control, KFCC is actively involved in institutional, national, and international research. Another of KFSH & RC’s specialist units is the King Faisal Heart Institute (KFHI) – a tertiary cardiac care delivery center with international standards of excellence. With its four clinical sections – Adult Cardiology, Pediatric Cardiology, Cardiac Surgery and Cardiac Surgical Critical Care – KFHI is determined to meet the kingdom’s growing need for all types of cardiovascular care. It aims to minimize referrals abroad, through cutting-edge research and advanced education.
Leading the development of a knowledge-driven economy
Jeddah, one of the oldest cities on the Arabian Peninsula, was also one of the first in the region to venture into the biotechnology field with the establishment in 2002 of the Jeddah BioCity Company. This venture is just one component of the kingdom’s concerted push toward a knowledge-driven economy.
Part-owned by the King Faisal Specialist Hospital and Research Center in Riyadh, Jeddah BioCity Co. aims to make Jeddah the center of the biotechnology industry in the Middle East.
“Jeddah BioCity is a futuristic concept that blends innovative research and manufacturing in an economic [zone] that will contribute to the welfare and prosperity of our society,” according to its Chair- man, Dr. Sultan Bahabri. The objective, he says, is to turn innovations into marketable products.
“This pioneering and unprecedented project aims to make Saudi Arabia the focal point of biotechnology in the Middle East region and Jeddah the focus of Saudi biotechnology.”
The company is in the process of creating a “BioPark,” a high- specification biotechnology research zone covering one million square meters in Jeddah’s King Abdul-Aziz University complex. In advance of this construction, however, Jeddah BioCity already provides a number of services to start-ups and companies locating a related facility in and around Jeddah.
For biotech companies that meet the criteria, investment is avail- able in the form of venture capital and non-guaranteed loans. Based on performance there is then the opportunity for further investment until the company reaches maturity, estimated to be between five and eight years after the initial investment. Other ser- vices available include up to 1,400 square meters of fully serviced laboratory space, including office and ICT facilities; pre-clinical research services; and the facilities of a number of departments of the King Faisal Specialist Hospital and Research Center.
An example of the work of the BioCity is its partnership in the foundation of Jeddah-based Arabian Pharmaceutical Products Co. (Arabio), which is establishing a factory in Mecca to manufacture human vaccines. This will be the first private company in the Arab and Islamic world to manufacture such products. Jeddah BioCity is also investing some $150 million in Genway, a company specialized in the manufacture of antibodies. Jeddah BioCity will have exclusivity to market the products in the Middle East, Europe and North Africa. One of the key aims of Jeddah BioCity is to hasten the transfer of technology and knowledge to Saudi companies and universities. This, it is hoped, will assist in producing a work force able to com- pete in the international biotechnology arena.
Banking on a booming economy
From its role in supervising commercial banks and setting monetary policy, the saudi arabian monetary agency (sama) promotes the probity oF Financial services . The following excerpts are taken from an interview with SAMA’s Governor, Hamad Al Sayari.
Standard & Poor’s recently rated the Saudi banking sec- tor one of the strongest in the Middle East. How would you evaluate it?
I would say it is solid, strong, highly capitalized and highly efficient with up-to-date technology and open to inter- national banking business and banking know-how, since many banks have joint ventures with major international banks. Supervision is helpful in keeping the banks strong, prudent and meeting international standards.
The banks operate in an economy sensitive to oil-price fluctuations and government spending, they are ex- posed to volatile real estate and capital markets and there’s a booming market for consumer credit untest- ed by economic downturn.
How is the banking sector hedging itself against such risks?
The whole economy is dependent to some extent on oil exports. The oil business represents about 1/3 of our GDP and a substantial proportion of government revenue. But being a major oil exporter with 25% of the world’s oil re- serves is also a source of strength for the banks. Regarding the issue of depending on government rev- enue, the government portion is coming down as the oil sector expands. If we compare the current cycle with those of the 70s and 80s when most growth was driven by government spending, we see that now the oil sector is investing heavily. We expect high rates of growth in the non-oil sector too, drawn by investment and consumer spending but also by private-sector investment — some of it internally generated and a large portion through credit extension from private-sector banks.
Consumer finance is growing significantly, but it is miti- gated by the securities the banks have. It only expanded when we had a new system of payment, where employee salaries are credited to their accounts directly. So that makes banks able to secure loans against the payments within guidelines. The bank should not loan more than the salary of the employee or what the customer can support and they are not allowed to take more than one third of the salary.
The real estate market is volatile in Saudi Arabia, the U.K., the U.S. and everywhere else. Stock markets are volatile everywhere. But it is [determined] by the state of the economy, by the state of the corporate sector, by current profits and expected profits. Yes, the stock market is very high and it is a source of concern, it calls for vigilance. When the index reached 5,000 to 6,000, we started to get worried, but the profits that came afterwards proved we were wrong and the market was right. We make sure that banks are adequately provided for, that they are not excessively exposed to lending for speculation. We have guidelines for the banks and we follow their activities.
We are fairly comfortable with the level of provisioning and level of risk assistance and risk coverage as regards their exposure to the capital market.
Will Saudi banks benefit from foreign competition?
Competition creates new services and additional oppor- tunities for customers. We recognize that newcomers will have difficulties competing with the old established banks in retail banking, but some of them will try. We know that some of them are targeting the whole range of services. Many of them are focused on wholesale or investment banking, there is more opportunity. Banks will benefit from the opportunities presented by an expand- ing economy.
What will be the impact of WTO membership on the banking sector?
Saudi Arabia has been much more open than a substantial number of WTO members.
Twenty years ago, Saudi Arabia more than qualified for WTO membership, but we didn’t pursue it aggressively until the last 10 or 12 years, and by then the demands on our entry were very high. But I don’t expect [a negative] impact on the banking industry because we were open even before we joined the WTO. We had international banks participating in our banks, we had banks work- ing in the kingdom which converted into local joint-stock companies with foreign partners, with management by foreign banks. And recently we gave more licences to in- ternational banks. It is going to be a positive impact, not a negative one.
Abdulaziz Al Qahtani
Abdulaziz Abdulhadi Al Qahtani has fulfilled his late father’s dream: to build a major player in Saudi industry that also has an international vocation. In the 1940s, the elder Al Qahtani established a con- tracting business, providing manpower and serv- ices to the burgeoning petroleum sector of the Eastern Province. In 1958, he built the first heavy oil & gas pipes that supplied local manufacturers. That led to a loyal customer base that is still with the Al Qahtani Group today.
“Our main clients are the oil service industry, and the food and beverage industry, including Pepsi Cola,”
says Abdulaziz Al Qahtani. “We also have a lot of demand from the petrochemical sec- tor, which allows us to diversify our business.” The port city of Dammam plays to his advantage as a gateway for cargo from around the world. It is also a main supply route for Riyadh. Dammam owes a lot of its emergence as a logistics node to local entrepreneurs. “My father was one of the early pioneers,” says Al Qahtani.
At Al Qahtani, diversification is a strong driver. The backbone is in petrochemical industries, from where the group draws most of its turnover. But increasingly Al Qahtani is involved in logistics, chemicals, real estate and mining. The group has a kingdom-wide distribution network for consumer products. In the Eastern Province, its sodium chlo- ride refineries produce heavy salt, which is later exported to Europe. It also produces edible salt used by domestic companies.
Still, Al Qahtani keeps an eye on risk by never straying too far from the original tracks. “This is the reason we are successful. We don’t just go into any industry, but focus on what we have already mastered,” says Al Qahtani. With any new line of business, his strategy is the same: make an enter- prise stand on its own. That means losses at one business will not affect its sister companies. At his mining operations, Al Qahtani has partnered with companies from South Africa and Australia. They often provide know-how in initial investments.
“It’s a give and take relationship”
In the end, business boils down to problem- solving and customer needs. To remain at the top of Saudi industry, Al Qahtani has put the group’s assets first. With market reforms underway, Saudi Arabia offers an ideal platform to develop new in- dustries. Al Qahtani mentions tax-free equipment and cheap energy inputs as two important factors driving growth. Over the next 15 years, he esti- mates, more than $410 billion of FDI will turn Saudi Arabia into an industrial hub. “I’d like to see who our partners for these projects will be, whether it’s the U.S., China or Europe,” says Al Qahtani.