Localizing industries is the key to resilience, so how can we speed it up?

When global transport networks were hit in the early days of the COVID-19 pandemic, many industries suffered. Global supply chain bottlenecks, across many industries, drove home the importance of localization and served as a catalyst for change. Those which thrived, at least in Saudi Arabia, were the industries that had higher localization levels.

The plan to localize industries in the Kingdom falls under Saudi Vision 2030, which aims to diversify the economy and create more job opportunities for locals, as well as position the country as an industrial hub for the region.

Localization has also proven to make industries resilient in the face of crises, as we have seen with the oil and gas industry over the past two years. The Kingdom continued to provide the world with a reliable energy supply despite the challenges imposed by the pandemic.

That success was mainly due to its drive to increase domestic value creation through programs such Saudi Aramco’s In Kingdom Total Value Add (IKTVA) program, which launched in 2015. Such a program, if applied to other industries, could further drive localization efforts in the country, bringing us closer to our goal of becoming an industrialized nation.

The great thing about IKTVA is the flexibility that it provides to companies and the sense of ownership that it gives them in their localization plans. It allows Saudi Aramco suppliers to develop a five-year action plan that addresses their in-Kingdom investments, local hiring, supplier development, research and development, as well as procurement efforts. The program provides companies with incentives to reach their targets, because their IKTVA score is linked to their potential to do business with Aramco.

A complete transformation and localization of industries will take time, but it is great to see that the private sector has already made progress. The rate of Saudization in the private sector was about 17 percent the year that Saudi Aramco launched its IKTVA program. That figure now exceeds 23 percent. In addition to that, the local purchases of goods and services from Aramco’s suppliers have tripled since 2015, Amin Nasser, president and CEO of Aramco, said at the IKTVA Forum and & Exhibition in 2020.

It would be great to see such figures replicated and increased across industries around the Kingdom, but to see that we must overcome some key challenges, such as filling gaps in the supply chain and finding highly skilled workers that will help us localize our industries.

Manufacturing is a complex process and even if companies manage to localize their manufacturing in Saudi Arabia, it is inevitable that they will need to import some parts or components from abroad, because they are either unavailable in the country or local alternatives do not meet required standards. These are the gaps in the supply chain that must be addressed in order to bring us closer to our goal of becoming a manufacturing hub and taking ownership of our industries.

An efficient way to address supply chain gaps and cut our import levels is to create joint ventures with foreign suppliers and encourage them to manufacture their products in the Kingdom, bringing the know-how and transferring their knowledge to the Saudi workforce.

One example in which that strategy succeeded in the energy industry was the formation of Enpro Saudi Arabia Limited, a joint venture between Enpro Industries Pvt. Ltd. India and Bandariyah Intl. Company Ltd., for the manufacturing of lubrication skids and gas seal panels in Saudi Arabia.

With the global economy entering a recovery phase, the supply bottlenecks will eventually be cleared, but that should not result in a slowdown of the localization drive.

Mahmoud Sulimani

Under Siemens Energy’s supplier development program, Enpro Saudi Arabia has emerged as a market leader in the country. With continued support and guidance, Enpro successfully developed local manufacturing capabilities and achieved the status of an Aramco-qualified manufacturer.

With this successful supplier development, it was not only Siemens Energy that benefited from localized key equipment for the oil and gas industry, but all relevant industry original equipment manufacturers. Enpro Saudi Arabia has so far achieved 30 percent localization and continues to improve that figure. By 2024, the supplier will have increased its localization of sub-suppliers, manpower and fabrication by an additional 9 percent for gas seal systems. Over the same time period, the company’s lube oil systems will see a 5 percent increase in localization.

We need to see more joint ventures like this, across industries, in order to address supply chain gaps that are slowing down our progress in localizing industries in the Kingdom.

The other challenge facing the localization of industries is finding enough highly skilled Saudi workers — trained according to the latest market demands — to fill key positions in the industry to enable the Kingdom to compete globally. There are many megaprojects underway in the Kingdom and not enough talent to go around, which makes the environment for talent very competitive and leads many companies to resort to hiring expats.

Solving this issue will require collaboration between private and public sectors to create training programs that develop young Saudis and increase their skills according to market needs, to ensure that the talent pool is ready for workforce requirements.

One successful model is the Misk development program, where top Saudi talents are selected to train abroad at some of the world’s leading companies, gaining international exposure and bringing their new skills back to the Kingdom.

Creating fast track training programs has also proven successful among many companies and may help in filling the skills gap in the country, focusing on certain competencies that we need to develop in our industries. Such a condensed program would prepare students with the required skills in 18-24 months’ time instead of five years. Corporates need to identify which skills need to be developed and recruit fresh graduates to these programs.

The Kingdom is blessed with a young, energetic population who want to see their country transform for the better. And together with visionary leadership to drive the transformation, these are the two main ingredients for success when it comes to localizing industry. We have both in abundance, so I am confident that we will reach our goals in time.

A few months ago, Siemens Energy celebrated the completion of an expansion of its industrial hub for the region, which localized the energy value chain under one roof, making us more self-reliant and resilient in the face of challenges. During the expansion ceremony, Prince Abdulaziz bin Salman, Saudi energy minister, announced a plan for a wider localization program that will see 70 percent of the energy sector’s products localized by 2030.

With the global economy entering a recovery phase, the supply bottlenecks will eventually be cleared, but that should not result in a slowdown of the localization drive. We need to always remember our ultimate goal of becoming an industrial hub for the region and let that ambition drive our action, as opposed to reacting to market circumstances.

• Mahmoud Sulaimani is a Managing Director, Siemens Energy Saudi Arabia.