Opinion

Aramco IKTVA: The five letters that have come of age

Aramco IKTVA: The five letters that have come of age

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The announcement by Saudi Aramco on Dec. 1, 2015 to local and foreign contractors to officially roll out its In-Kingdom Total Value Add program, which this author had the privilege to attend as a keynote speaker, has come of age.

Now in its sixth full year, IKTVA has established itself as a concept and a brand in the energy sector, and holds annual meetings. It has been a story of tangible, incremental success and is a cornerstone of Aramco’s strategic policy. The stated intent of the program is to localize 70 percent of the company’s supply chain content by 2021, while raising energy-related exports to 30 percent and creating thousands of jobs for young Saudis by the creation of an additional 500,000 new direct and indirect jobs from its own capital expenditure by 2020.Given that around 1.8 million Saudis worked in the private sector, such an incremental job creation by Saudi Aramco alone would represent a significant increase to wean Saudis from public sector job preferences. Over the next decade, the projected spend for Saudi Aramco is in the region of SR1.5 trillion ($400 billion).

Although IKTVA is specifically focused on Aramco’s energy-related procurement plans, the concept of “in-Kingdom” localization is now part of a much wider strategy to diversify the country’s economic base, create sustainable employment and reduce foreign reserve outflows.

Since its launch, IKTVA has created best-in-class infrastructure, streamlined business processes, pioneered industry initiatives that ensure sustainability and enabled new opportunities, especially for the SME sector. According to CEO Amin Nasser, the roots of IKTVA are now well established and the COVID-19 pandemic showed the resilience of the program in helping the company to meet its supply chain disruption challenges.

In 2022, Aramco seeks to build on this progress under the theme of “Paving the Way to Economic Success” to strengthen its readiness and resilience. Innovation and sustainability are also key objectives and IKTVA is a mechanism for embracing new technologies and the circular carbon economy.

Saudi Arabia has made its IKTVA objectives explicit: Increase local content and create new jobs from current and planned projects. The choice is stark for international contractors: join the Kingdom in fulfilling this “made in Saudi Arabia” vision or lose out on lucrative project awards.

The rewards are tempting for those that comply. Aramco said in 2015 that some $334 billion, later raised to $400 billion, had been earmarked for its capital program expenditure for the 2015-25 period of the IKTVA launch. It also provided a detailed breakdown for an average yearly spend of $33 billion over the period, with a high level of transparency not often seen in the Gulf region.

It is not only in the energy sector that localization has been given a high priority, but also in other large expenditure government sectors, including defense procurement with the introduction of the AFED program to increase local content.

IKTVA’s results to date have been laudable. Local suppliers have doubled their local spend on materials and services, increased their spending on Saudi workers by 60 percent, while the training and development of Saudis has increased fourfold.

From a modest start in 2015, the IKTVA program has become a viable and strategic element of what can be achieved with perseverance without compromising Aramco’s high vendor standards.

Dr. Mohamed Ramady

There are more than 100 IKTVA action plans being executed covering multiple services and commodities. While creating quality jobs, building a well-trained workforce and stimulating economic growth are key objectives, localization is ultimately about sustainability, according to Aramco executives. Closing supply chain gaps is also paramount, with the company creating more than 140 investment opportunities, which attracted more than 460 investments with an estimated capital expenditure of $6.5 billion.

Some analysts believe IKTVA is about increasing Saudization, but in essence it is about localization and keeping the supply chain near to home, making it more reliable and adding to GDP growth. Having company inventories rooted in the local marketplace greatly increases reliability and improves cost-efficiency. The COVID-19 pandemic, supply chain disruptions and cost increases have shown this IKTVA objective to be correct.

In the final analysis, governments and institutions like Saudi Aramco have to create the appropriate enabling climate for localization measures to succeed. These include creating appropriate business ecosystems for local suppliers to participate, especially by fostering high quality SMEs, re-investment by in-Kingdom suppliers, having the right environment for foreign direct investment, improved logistics and transportation, and a capable and technically educated labor force.

Above all, a synchronized strategic direction and focus is required that promotes and encourages international contractors to undertake local higher risk/higher value industries.

Collaboration has been a byword for IKTVA and the program has seen Aramco partner with entities such as the Saudi Industrial Development Fund, the Saudi Arabian General Investment Authority, MODON, the Local Content and Government Procurement Authority, Monshaat, the General Authority for Statistics, the Export Authority, and the Royal Commission to share best practices and achieve success in localization.

Also, Saudi Aramco is developing the King Salman Energy Park — an energy industry hub and city that will help it and other major companies in the Kingdom to localize their supply chains and allow for a continued increase in local procurement.

From a modest start in 2015, the IKTVA program has become a viable and strategic element of what can be achieved with perseverance without compromising Aramco’s high vendor standards.

• Dr. Mohamed Ramady is a former senior banker and Professor of Finance and Economics, King Fahd University of Petroleum and Minerals, Dhahran.

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view

Saudi Aramco balances competing priorities as IKTVA enters 6th year

Saudi Aramco is playing an active role in the diversification of the Saudi economy — ironically, away from a dependence on oil and its derivatives. (SPA)
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Updated 24 January 2022

Saudi Aramco balances competing priorities as IKTVA enters 6th year

  • New and existing energy sources need to act in parallel for a long time, says CEO

LONDON: The focal point of Saudi Aramco’s forthcoming In-Kingdom Total Value Add Forum will be the company’s initiative, launched in 2015, to further develop a local supply chain. 
In Aramco’s own words, the intention is to “transform and diversify the Kingdom’s economy through partnership and collaboration, creating high-skilled jobs for the Saudi population (and building) a resilient economy for the future.” 
The IKTVA program opens many opportunities for both companies and workers in Saudi Arabia, and reflects the objectives of the Kingdom’s Vision 2030 — but what of Aramco itself?
As the world’s leading crude oil supplier, with an output of some 10 million barrels per day, Aramco currently has a daily turnover of SR32.6 billion ($8.7 billion). That adds up to some $317.5 billion per annum, up from gross revenue of $205 billion and net revenues of $49 billion in the financial year 2020 — the last full year reported. 

With an income of such magnitude, Aramco would seemingly have little to worry about.
However, broader global issues require Aramco to come up with innovative strategies to overcome both present and future headwinds.
The 2021 United Nations Climate Change Conference, better known as COP26, articulated an “anti-oil” sentiment held by many countries, with a broad consensus to transition the global economy away from fossil fuels in favor of more environmentally friendly energy sources including solar, wind, tidal and geothermal. 
There is a shift, which began in earnest by Tesla and now includes legacy auto manufacturers such as VW, Volvo and Mercedes, from petrol/diesel engines to battery-powered electric vehicles. This trend is growing at an exponential pace, with Forbes reporting that almost 20 percent of cars purchased in China in the fourth quarter of 2021 were electric. This is likely the shape of things to come for the rest of the world.
These developments put Aramco in the spotlight as a giant of the carbon fuel sector, alongside a possible danger of becoming the world’s leading supplier of a gradually redundant commodity. 
However, the reality behind the headlines is that global oil demand is actually on an upward tangent, as the world emerges from an industrial dip caused by the two-year COVID-19 pandemic. 
According to a report from the US Energy Information Administration released on Jan. 11: “Rising economic activity and the easing of pandemic-related restrictions on other activities resulted in global oil consumption rising by 5.5 percent in 2021 from 2020.”
The same report goes on to state that with oil consumption outpacing production, the fourth quarter of 2021 saw significant increases in prices of the commodity, with Brent crude oil spot increasing from an average of $43 per barrel in the third quarter of 2020 to an average of $79 per barrel in the fourth quarter of 2021. 
Current oil prices are even higher, with the various grades of Arabian crude hovering between $87 and $89 per barrel.

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The EIA predicts that total world petroleum consumption of 96.9 million barrels per day in 2021 will slightly increase to 100.5 mbpd in 2022.  Is that level of demand sustainable? Aramco, for one, believes the answer is yes. 
“(Energy) alternatives are nowhere near ready to carry a big enough load, so new and existing energy sources will need to operate in parallel for a long time,” Aramco CEO Amin H. Nasser declared at the World Petroleum Council Congress, held in Houston in December 2021. 
Nasser went on to say that while “Aramco is committed to a net-zero economy … there are still no truly viable alternatives to conventional fuels in aviation, shipping, and even trucking.”
He added: “Oil and gas will be needed for decades to come, and accelerating the reduction in their emissions is a strategic and urgent necessity for climate goals to be met. We are not short of opportunities, such as producing lower carbon products like blue hydrogen and blue ammonia; developing more efficient and lower emission internal combustion engines; and making the Circular Carbon Economy that G20 world leaders endorsed last year a reality.”  
In short, Aramco seeks to maintain its dominant position in the global oil sector while aiming to emerge as a future leading producer of clean fuels — a two-pronged approach that is evident in several recent deals in both Europe and Asia.
With regards to oil supply, in the past fortnight Aramco acquired a range of assets from Poland’s state-owned energy corporation Orlen PKN, including a major oil refinery and hundreds of petrol stations, in a deal worth $288 million. A contract was also signed for Aramco to supply Orlen with 200-337,000 barrels of oil per day, adding more purchases to those agreed earlier. 
In terms of “new” energy, Aramco has also recently entered into agreements with two large South Korean entities — Korea Electric Power Corporation and the S-Oil Corporation — to conduct feasibility studies for the future supply of blue hydrogen, a petrol substitute with far lower carbon emissions.   
As Saudi Aramco balances these competing global priorities, it is simultaneously playing an active role in the diversification of the Saudi economy — ironically, away from a dependence on oil and its derivatives, and with an emphasis on small-to-medium sized enterprises as opposed to major conglomerates.
The company has a lot on its plate and the IKTVA Forum will no doubt offer a platform to further clarify its strategy and philosophy going forward.

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Dual impact from oil and non-oil sectors ‘to propel Saudi GDP growth by 10 percent’

Updated 21 May 2022

Dual impact from oil and non-oil sectors ‘to propel Saudi GDP growth by 10 percent’

  • Capital Economics says it will be the highest annual growth rate in over a decade, if this happens

RIYADH: Saudi Arabia’s gross domestic product is expected to grow by 10 percent this year, driven by increased activities in the oil and non-oil sectors, according to a recent note from Capital Economics.

The London-based independent research firm said it will be the highest annual growth rate in over a decade, if this happens.

Capital Economics expects the Kingdom to achieve the projected 10-percent growth due to a  significant increase in oil output combined with an expected loosening of fiscal policy that is set to encourage growth in the non-oil sector.

This projection follows the flash estimate for the first quarter GDP released earlier this month which showed the economy grew 2.2 percent since the last quarter of 2021, and 9.6 percent year-on-year — the highest growth rate in 11 years.

In regards to performance on a quarter-on-quarter basis, the growth is attributed to a 2.9 percent rise in oil GDP due to increased output on the back of the OPEC+ deal and a 2.5 percent growth in non-oil activities.

The increase in energy prices, which has been the largest since the 1973 oil crisis, together with the war in Ukraine — which altered the global patterns on trade, production and consumption — have contributed to this record GDP growth.

SPEEDREAD

The projection by London-based Capital Economicsfollows the flash estimate for the first quarter GDP released earlier this month which showed the economy grew 2.2 percent since the last quarter of 2021, and 9.6 percent year-on-year — the highest growth rate in 11 years.

Though Saudi Arabia still hasn’t met its OPEC+ quota, it is one of the few members raising produc- tion significantly. With other member countries struggling to meet their quotas and an expected decline in Russian output, Capital Economics predicts the Kingdom will increase oil production faster than anticipated under the current OPEC+ agreement.

According to the World Bank, energy prices are expected to rise more than 50 percent in 2022, before easing in 2023 and 2024.

As oil prices remain elevated, policymakers are expected to relax fiscal policy to stimulate non-oil activities, with a reduction in the value-added tax a possibility, the note from Capital Economics pointed out.

The Kingdom’s non-oil sector has also expanded at the fastest rate in over four years, according to the Saudi Arabia PMI survey.

This has been due to new business and activity that boosted sharply as client demand recov- ered after COVID-19.

The increase in business also came in line with Vision 2030, a reform plan that aims to diversify the country’s economic resources.

The 10 percent figure projected by Capital Economics is much higher than recent projections from the IMF, which predicted the Saudi economy to grow by 7.6 percent in 2022, as mentioned in its World Economic Outlook released in April 2022.

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Flash Entertainment plans a KSA office as sector booms

Updated 21 May 2022

Flash Entertainment plans a KSA office as sector booms

  • The new office will be a stand-alone; it will create jobs for Saudi citizens: CEO

Flash Entertainment plans to open a stand-alone office in Saudi Arabia within 3 months as the Kingdom is becoming a hotspot for events and leisure.

The entertainment firm, based in the UAE, is one of the Middle East’s leading live entertainment companies known for organizing some of the biggest global events, including several Formula One Abu Dhabi Grands Prix, the FIFA Club World Cup, UAE National Day, the AFC Asian Cup — arguably the biggest event in the region prior to the upcoming Qatar World Cup — and even Pope Francis’s visit to the UAE in 2019, which saw over 180,000 people in attendance.

“The new office will be the Saudi headquarters, it’s a stand alone, it’s not a branch,” the company’s CEO John Lickrish told Arab News. “We have a branch office in Dubai but here we wanted to set up our own office.” The new office will create 25 jobs for Saudi citizens. Lickrish who was in Riyadh for the fourth edition of the Saudi Entertain- ment and Amusement Expo this week was attending the event to touch base with the local commu- nity in the sector.

“I’m here to touch base with the local community suppliers and decision makers and try to make people aware that we’re entering the market,” he said. “We have done events here but now that we’re establishing an office, we want to integrate the GCC into a network of reliable promoters and suppliers that we can count on, and that’s the real goal of this.”

HIGHLIGHTS

This year’s event brought together some of the leading products, services, and technology brands in the industry from more than 25 countries, as part of the Kingdom’s plans to become the entertainment and leisure hub of the Middle East.

The show offers a global platform for top manufacturers and suppliers of entertainment and leisure products and services to do business with investors, distributors, government officials and owners of malls, cinemas and family entertainment centers, as well as key procurement professionals involved in small and mega Saudi entertainment and leisure projects.

The SEA Expo, held at the Riyadh International Convention and Exhibition Center, is the first trade event dedicated to Saudi Arabia’s burgeoning entertainment and leisure industry, with sellers from around the world showcasing the latest and greatest advances in the sector.

This year’s event brought together some of the leading products, services, and technology brands in the industry from more than 25 countries, as part of the Kingdom’s plans to become the entertainment and leisure hub of the Middle East.

The show offers a global platform for top manufacturers and suppliers of entertainment and leisure products and services to do business with investors, distributors, government officials and owners of malls, cinemas and family entertainment centers, as well as key procurement professionals involved in small and mega Saudi entertainment and leisure projects.

“The office will mostly have people from KSA,” Lickrish said. “We are going to be training them in our systems and processes, but they need to be here on the ground. Right now, we’re looking at 25 (local hires) based on our business plan for the next three years. From there, the sky is the limit.”

Flash Entertainment covers everything from event ideation, event management, marketing and communications, ticketing and sales, talent procurement and full operational and production delivery, as well as managing a portfolio of assets, including the Etihad Park and the multi-purpose state-of-the-art Etihad Arena on Yas Island, Abu Dhabi.

A location for the office has yet to be decided, however, with Jeddah and Dammam as potential cities to set up the shop.

“This is a big populous, so for us, that’s interesting, and it’s an emerging market in the region as well.” Lickrish said. “I think what is important for us now is really setting the foundations, making sure that the country and the region is represented as not only capable but excelling in this field. And then we’ll go on to the regional talent and develop the local markets.” According to Lickrish, the company created the first citywide integrated enter- tainment program for Formula One in 2009 that has since been emulated with subsequent grands prix around the world. “So that was an innovation that we brought into the global market.”

Lickrish himself has been in the entertainment business for over 30 years and in the region for 14. He hopes to bring his exper- tise to Saudi Arabia that plans to invest $64 billion in the devel- opment of the entertainment industry over the next decade as part of Vision 2030.

“My goal is to see a self- sustaining, vibrant, regional business that has international recognition and ultimately a footprint globally,” he said. “We want to be giving them a unique experience, as well as a cultural and international experience.”


FII Institute unveils new inclusive ESG framework and scoring methodology

Updated 21 May 2022

FII Institute unveils new inclusive ESG framework and scoring methodology

  • The institute is investing $527,515 in Timbeter, a leading green tech company specializing in timber measurement
  • Timbeter provides an AI-driven photo-optics app that accurately determines quantities of logs in an area with precise length and diameter

LONDON: The Future Investment Initiative Institute hosted a summit in London about Environmental, Social and Governance in emerging markets, involving world leaders, global CEOs, international investors, thought leaders and heads of sustainability.

The event unveiled a new inclusive ESG framework and scoring methodology to inform and accelerate investments in emerging economies.

The new methodology aims to give unbiased ratings for companies in emerging markets who currently receive less than 10 percent of ESG flows, despite being home to nearly 90 percent of the world’s population and roughly half of global GDP.

ESG rating agencies are one of the main barriers to increasing investment in emerging markets. Currently, mainstream rating agencies employ key perfor- mance indicators not relevant to emerging markets. The existing frameworks focus too much on disclosure and ignore year-over- year performance improvement.

The new framework, developed with the support of Ernst & Young, values performance improvement over time more than breadth of disclosure, emphasizing sectoral challenges rather than country risks, to ensure fair competition between companies in both emerging markets and developed markets.

The FII Institute is investing €500,000 ($527,515) in Timbeter, a leading green tech company specializing in timber measurement. Timbeter provides an artificial intelligence-driven photo-optics application that accurately determines quantities of logs in an area with precise length and diameter.

Timbeter is a software as a service workflow management solution for the timber industry, founded in 2013 at the Nordic Hackathon by Anna-Greta Tsakhna, its CEO, and Martin Kambla, CTO.

Forestry continues to be an important and controversial issue, with world forests decreasing by a third in size over the last century due to reckless practices.

This technology is key to a more proactive management of forests and a more sustainable sector.

Meanwhile, the ESG white paper is designed to encourage greater ESG investment in emerging markets. It calls on investors to publicly commit to raising the portion of capital allocated to emerging markets from less than 10 percent today to a minimum of 30 percent of committed and invested capital by 2030. It also calls on governments to encourage emerging market-headquartered companies to become more proactive at disclosing relevant information through their normal reporting channels.

Richard Attias, CEO of the FII Institute, said: “Central to our work at FII Institute is to increase awareness about the weaknesses in current ESG standards and their impact on global sustainability prospects, and to advocate for an inclusive and equitable application of ESG through driving real action by key players globally.

“ESG has been one of the fastest-growing investment strategies over the past few years, accounting for one-third of all assets under management. But this growth is not even. Working with our partners at EY, we identified and removed the barriers to ESG investment in emerging markets, which are often overlooked,” he added.

“By launching the Inclusive ESG Framework and Scoring Methodology, investing in a global sustainable solutions company, and publishing our recent ESG white paper — we are making tangible actions to create a better future for humanity. And we are confident that our partners around the world will help us drive those actions further.”


World Economic Forum to return in-person as it aims to shed light on ‘History at a Turning Point’

Updated 18 May 2022

World Economic Forum to return in-person as it aims to shed light on ‘History at a Turning Point’

  • This year’s meeting will bring together about 2,500 leaders and experts from around the world, including more than 50 heads of state and government, more than 1,250 leaders from the private sector and nearly 100 Global Innovators and Technology Pioneers

LONDON: The World Economic Forum announced on Wednesday that the theme of its annual meeting for 2022 will be ‘History at a Turning Point: Government Policies and Business Strategies’ in its return to an in-person conference since the pandemic forced it to go virtual since 2020.

“The Annual Meeting is the first summit that brings global leaders together in this new situation characterized by an emerging multipolar world as a result of the pandemic and war,” said Klaus Schwab, the WEF’s founder and executive chairman.

This year’s meeting — which is happening in the spring rather than its usual January slot — returns after a two-year hiatus and will bring together about 2,500 leaders and experts from around the world, including more than 50 heads of state and government, more than 1,250 leaders from the private sector and nearly 100 Global Innovators and Technology Pioneers.

“The fact that nearly 2,500 leaders from politics, business, civil society and media come together in person demonstrates the need for a trusted, informal and action-oriented global platform to confront the issues in a crisis-driven world,” Schwab said.

Civil society will be represented by more than 200 leaders from NGOs, social entrepreneurs, academia, labour organizations, faith-based and religious groups, and at least 400 media leaders and reporting press. The Annual Meeting will also bring together younger generations, with 100 members of the Forum’s Global Shaper and Young Global Leader communities participating.

Against a backdrop of the global pandemic, the Russian invasion of Ukraine and geo-economic challenges, the meeting convenes at a strategic point where public figures and global leaders will meet in person to reconnect, exchange insights, gain fresh perspectives and advance solutions.

Topics that will be discussed at the annual meeting range from COVID-19 and climate change to education, technology and energy governance.

These include the Reskilling Revolution, an initiative to provide 1 billion people with better education, skills and jobs by 2030; an initiative on universal environmental, social and governance (ESG) metrics and disclosures to measure stakeholder capitalism; and the One Trillion Trees initiative, 1t.org, to protect our trees and forests and restore the planet’s ecosystems.

The programme will have six thematic pillars, including fostering global and regional cooperation; securing the economic recovery and shaping a new era of growth; building healthy and equitable societies; safeguarding climate, food and nature; driving industry transformation, and finally; harnessing the power of the Fourth Industrial Revolution.


Bank of England official warns of tough times for crypto

Updated 17 May 2022

Bank of England official warns of tough times for crypto

  • G7 to discuss crypto-asset regulation, says French central banker

RIYADH: Investors in crypto currencies should expect more difficult times ahead as tightening financial conditions around the world stoke appetite for safer assets, Bank of England Deputy Gov. Jon Cunliffe said on Tuesday.

Asked at a Wall Street Journal conference if rising interest rates would ramp up pressure on crypto currencies, Cunliffe said: “Yes, I think as this process continues, as (quantitative tightening) starts in the US ... I think we’ll see a move out of risky assets.” Cunliffe added that the conflict in Ukraine also had the potential to cause a renewed flight to safer assets.

Bitcoin, the world’s largest cryptocurrency, fell as low as $25,401 on Thursday, its lowest since Dec. 2020. It hit a record high of $69,000 in November. 

However, it traded higher on Tuesday, up 0.2 percent to $30,418 as of 08:52 a.m. Riyadh time.

Ether, the second most traded cryptocurrency, was priced at $2,077, up 0.32 percent, according to data from CoinDesk.

G7 meeting

The regulation of crypto-assets is likely to be discussed at a meeting of Group of Seven finance chiefs this week in Germany, French central bank head Francois Villeroy de Galhau said on Tuesday.

“What happened in the recent past is a wake-up call for the urgent need for global regulation,” Villeroy told an emerging markets conference in Paris, referring to recent turbulence in crypto-asset markets.

“Europe paved the way with MICA (regulatory framework for crypto-assets), we will probably ... discuss these issues among many others at the G7 meeting in Germany this week,” he added.

Grayscale to launch digital assets

Grayscale will list an exchange-traded fund in Europe made up of companies representing the “Future of Finance,” the world’s largest cryptocurrency asset manager said in a statement on Monday. 

The ETF, tracking the “Bloomberg Grayscale Future of Finance Index,” will be listed on the London Stock Exchange, Italy’s Borsa Italiana and Germany’s Deutsche Börse Xetra and begin trading on May 17. It is the first time that US-based Grayscale has listed a fund in Europe.

The index contains a mixture of companies involved in digital currencies including asset managers, exchanges, brokers, technology firms, as well as firms directly involved in cryptocurrency mining. “For us, the digital economy is primarily being driven through the proliferation of digital assets,” said Grayscale CEO Michael Sonnenshein.

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