Aramco’s In-Kingdom program will localize, boost economy
This week I will be talking about a game-changing program, designed to drive domestic long-term economic growth and diversification in our rapidly changing economy: The In-Kingdom Total Value Add (IKTVA) program.
The IKTVA is one of Saudi Aramco’s strategies to advance the development of the energy sector in the Kingdom. It is the foundation stone of an economic ecosystem that helps encourage local industries to do business in the sector, and, in turn, helps them to compete on a global level.
“Made in Saudi Arabia” is the slogan that will be crucial to the long-term economic well-being and growth of the Kingdom’s economy in the next few decades, and foreign investment will be essential in facilitating it.
In December 2015, Saudi Aramco announced it was introducing the IKTVA, which aims to double the percentage of locally produced energy and services contracted by the company to 70 percent, and increase energy exports to 30 percent, by 2021. The program will also train 360,000 graduates at 30 Saudi Aramco education centers by 2030. In 2017, the company made external compliance with the IKTVA mandatory for doing business with it.
All this is designed to tie in with the localization initiatives of the Saudi Arabia’s National Transformation Program 2020 and Vision 2030. Saudi Aramco, through the IKTVA, will promote local businesses and talent, providing numerous job opportunities for the Kingdom’s growing population and stimulating the diversification of the country’s economy.
Meeting the ambitious targets set by the IKTVA will not be easy, but it is essential if the economic and social transformation of Saudi Arabia is to be achieved.
The program has already boosted the localization of the Saudi economy from 35 percent in 2015 to 50 percent in 2018. Procurement of commodities from local companies by Saudi Aramco, as opposed to foreign vendors, has also doubled over that period.
Localization may require drastic restructuring of supply chains and distribution arrangements, as well as moving or re-establishing manufacturing or trading centers, for many companies operating here. This is likely to require significant investment in the Kingdom from international suppliers, but, though initially daunting, this may also provide an opportunity for other local companies, who know the market better, to enter into partnerships with multinationals to ease the process for them. That, in turn, can only lead to more growth.
Saudi Aramco is keen to facilitate the establishment of such partnerships, and companies willing to get involved can take advantage of the SR1.7 trillion ($453 billion) it will spend on localization projects over the next decade, to make the Kingdom a more inviting place to do business in.
• Basil M.K. Al-Ghalayini is the Chairman and CEO of BMG Financial Group.
