National Industrial Strategy NIS 2020 Doha 22 November

National Industrial Strategy NIS 2020 Doha 22 November 2009

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ Saudi Arabia is the largest economy in the MENA region and the 23 rd largest in the world(1) • Several world class industries are already established in Saudi Arabia with focus ranging from oil and petrochemicals, construction, investments and banking, to retail • KSA is home to several world renowned multinational companies • KSA has embarked on numerous initiatives to further diversify and expand its industrial sector and economy – Industrial Cities and zones such as Jubail and Yanbu; a national cluster program has been initiated to spur industrial growth (NICDP); Economic Cities (KAEC, Jizan, Medinah Knowledge City) • Numerous initiatives are being implemented to expand KSA’s knowledge, research, and innovation capabilities – KAUST, KACST, KFUPM, DTV, KSU, KAAU • These programs aim to leverage the large number of young Saudis who will be critical in expanding the Kingdom’s knowledge based industries (1)- Based on total GDP, World Bank 2008 2 • According to World Bank’s “Doing Business” Report, Saudi Arabia is ranked the 13 th most competitive country in the world, up from 67 th in 2004 • KSA is ranked 61 st in “getting credit” and 73 rd in “employing workers”

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ The Kingdom into 2020 The Home Front: ü The Goal of Economic Diversification ü Oil and Related Activities still Dominate the Economy ü An expanded and successful petrochemical industry. However, other industries have not achieved a similar scale success ü Contribution of Manufacturing Industry to GDP is Weak ü Contribution of Manufacturing Industry to Overall Employment is Low ü Employment Of Saudis in Manufacturing Industry is Low 3

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ ü The reliance on the oil sector and the petrochemical industries focused the majority of investments in key urban areas, which resulted in less economic growth and diversification in other regions of the kingdom ü Industrial exports, especially medium and high tech exports, are very low. ü Time for the National Industrial Strategy 4

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ Key Statistics – Census 2007 q 23, 980, 038 total inhabitants q 17, 493, 364 Saudis: q 0 -14 years: 37. 2% (3, 278, 597 M and 3, 233, 499 F) q 15 -64 years: 59. 3% (5, 234, 345 M and 5, 137, 350 F) q > 65 years: 3. 5% (308, 339 M and 301, 234 F) q Average is 21. 4 years (22. 9 M and 19. 6 F) q Population growth rate: 2. 3% 5

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ “ Industry is our strategic option to diversify our economy ” INDUSTRY 2020 6

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ ü KSA is bestowed with natural wealth, but additional efforts are needed for it to become a competitive player in the global economy ü There is a strong need for diversification and the continued development of associated innovation platforms, industrial infrastructure, SMEs, human capital, and business regulations. ü A paradigm shift is required to address the coming challenges and move towards a path of knowledge based industries In harnessing its current comparative advantage, the Kingdom is well positioned to branch off into more diversified and knowledge based industries that will enable the transition from acquired wealth to sustainable wealth 7

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ Unprecedented favorable context Policy formulation and commitment at the highest levels Reasonable financial resources Consensus among Stakeholders that industry is the catalyst for achieving economic diversification Strong regional and global linkages (GCC, Arab world, WTO, Asia) Fully-integrated vision of the Kingdom’s future (Vision 2020) Strategic Accumulated Strong experience geographical natural location and in good resource existing infrastructure base industries base This is an optimal mix of favorable conditions to opt for an aggressively promising future 8

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ National Consensus Ø Industry is the strategic choice for sustaining growth Ø Industrialization does not imply disregarding the oil sector, but to developing a framework for the use of this important sector in restructuring the economy to sustain future growth Ø The oil sector will remain an important growth vehicle not through its contribution to an increased purchasing power but as a driver for the creation of new channels for growth (integration in global value chains, creating competitive clusters, creating a national innovation system, … etc) Ø Industry is the primary driver of growth , since it enjoys various forward and backward linkages with other sectors in the economy … 9

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ New Phase of Industrialization Value Added Manufacturing Acquired Wealth International Petrochemical Industry Oil & Basic Manufacturing 1940 10 1970 2010 Inherited Wealth

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ Vision "A globally competitive industry , based on innovation and acting as a major tool in transforming national resources into sustainable wealth" 11

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ Strategic Goal “To increase the contribution of the industrial sector to the GDP to 20% by 2020 from the current 11%” 12

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ National Industrial Strategy ( NIS ) A globally competitive industry , based on innovation and acting as a major tool in transforming national resources into sustainable wealth Increase contribution of industrial sector to the GDP to 20% by 2020 from the current 11% Saudi Workforce Industrial Exports High-Tech MVA • Increasing the number of Saudi industrial workers by 5 folds • Industrial products to amount to 35% of total exports • Mid to high-tech content to reach 60% • Triple the industrial base, measured in MVA 13

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ The NIS is only a catalyst for change; we need buy-in and participation from all sectors of Saudi Arabia in order to make this work Key Stakeholders • Government Agencies • Private Sector Industries, Businesses, and Financial Institutions • Public Sector Companies and Conglomerates • Academic and Research Institutions • International, Investment and Trade Organizations • Media and Public Relation Bodies • General Public Strategy Successful NIS Implementation • We have extensively engaged key stakeholders across all sectors • Work group members are key stakeholders who are embedded within project teams in order to help contribute to the NIS • Steering Committee has been established and coordination of activities have begun 14

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ Components of NIS Enablers and Drivers Industry Focused • Business Environment – Regulations and policies which will encourage growth and participation within targeted industries • Innovation – Provide platforms to launch and drive knowledge based industries • Human Capital – Provide the skilled labour employed by knowledge based industries • Infrastructure – Policy for industrial infrastructure which will be necessary to enable the success of target industries • Industrial Clusters – knowledge based industrial clusters • New Verticals – Identify new industrial sectors for KSA • Small-to-Medium Enterprises – Encourage entrepreneurial activities and provide support for target industries Governance 15

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ GDP Employment | Technology | Exports Industry clusters Components are building blocks towards common objectives New Verticals SMEs Innovation Human Capital Infrastructure Regulatory Requirements Governance

National Industrial Strategy Implementation Plans Ø Timeline Ø KPI s Ø Budget 17 Private and Confidential ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ National Industrial Cluster Program ü Auto Value Chain ü Plastics & flexible Packaging ü Household Appliances ü Metal Products 18 Private and Confidential

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ I. Industrial and investment business environment 1. Industrial Legislations 2. Incentives and Bylaws Supporting the Establishment of Companies and Industrial Investment 3. Encouragement of Industrial FDI’s 19 Private and Confidential

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ II. Industrial clusters, platforms and diversification 1. Technology Clusters Program 2. Advanced Technologies Program 3. Industrial Promotion 20 Private and Confidential

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ III. Industrial private sector and SME's 1. 2. 3. 4. Industrial SME’s Support Program Industrial SME’s Incubators program Business Resources Centers Program Competitiveness and Industrial Development Center Program 5. Industrial Financing Mechanisms Program 21 Private and Confidential

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ IV. National and regional innovation 1. Industrial Innovation Coordination 2. Industrial Research, Development and Consultations 3. Industrial Innovation Financing 4. Industrial Technology Centers 22 Private and Confidential

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ V. Human resources and industrial skills 1. Industrial Manpower Capabilities Building Program 2. Jobs Creation for Saudis in the Industrial Sector Throughout the Kingdom Program 3. Complementary Training Program 4. Industrial Skills Establishments Program 23 Private and Confidential

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ VI. Infrastructure, production services and industrial support 1. Industrial Cities, Platforms and Knowledge Zones Throughout the Kingdom Program 2. Enhancing Industrial Services and Support Activities 3. Power for the Industry 24 Private and Confidential

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ VII. New & Knowledge Based Industries 1. Characterization and Description of the Strategic Sectors 2. Forecasting Future Knowledge Based Industries in KSA 25 Private and Confidential

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ VIII. Industrial governance 1. Governance Program 2. Execution Evaluation and Follow Up Program 3. National Industrial Strategy Fund 26 Private and Confidential

National Industrial Strategy New Verticals 27 ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ We have used the following analytical framework to define new industry verticals and actionable priority projects Interviews, workshop, research Drivers Megatrend Existing Markets New “Market Pull” Needs Emerging “Technology Push” Drivers Output Solution Platforms New Industry Verticals Definitions • Drivers are the market, environmental and technology forces that form “megatrends” • Megatrends are the macro market changes that affect existing markets and create new “market pull” needs with a particular performance requirement • Solution platforms are broad definitions on how those market needs can be met • “Technology push” drivers are the (sometimes disruptive) technologies that must be employed to create solution platforms • New industry verticals are collections of solution platforms, which create common products and services for solutions to meet market needs 28

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ Based on the portfolio of ‘solution platforms’ for KSA, we would ultimately consider these potential industries for future development Recommended Industries § § § § advanced chemicals and materials renewable power water food computer application development healthcare advanced electronics and machinery § Our analysis shows that nanotechnlogy, biotechnology, advanced materials, water and oil and gas technologies have the broadest application in our industry recommendations. These are technology focus areas highlighted as important in the KACST National Science, Technology and Innovation Policy (NSTIP), and also reflect the importance other academic institutions have given these technologies (e. g. KAUST, KFUPM). 29

National Industrial Strategy Innovation 30 ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ The recommendations aim to create an environment in Saudi Arabia that enables creativity and innovation to flourish l Governing Institutions Organizations, leveraging existing structures, will seek to align and maximize the impact of innovation initiatives, and will include: – National Innovation Center – align and coordinate innovation initiatives in KSA – Emerging Countries Innovation Council – connect KSA with innovation initiatives in other emerging economies – Specialized Technology Centers – align and focus innovation efforts related to specific technologies and platforms – Industrial Innovation Commercialization Centers – promote innovation commercialization and business l Programs for Innovation Culture 31 Different programs, using a variety of mechanisms and communication means, will promote innovation among: – Students – publications, shows and competitions to promote innovation and creativity, as well as to make science and technology careers attractive to students – Corporations – encourage corporations to be innovative and also to hire, promote and retain talent based on innovation – Saudi society in general – promote creativity, innovation and entrepreneurial behavior

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ The recommendations are designed to create funding mechanisms for innovation and selected platforms where KSA should focus its innovation efforts l Funding and support mechanisms designed to address needs of innovation-related projects, especially for entrepreneurs, start ups, innovative/mature SMEs, etc. including: – Capital support: matching Riyal funding, seed funding, equity financing, direct payment of expenses, equity shares to expert advisors – Non-capital support: internship program, business training programs, networking events – Exit route: SME stock exchange l Specific areas on which Saudi Arabia should focus its innovation efforts to generate attractive and feasible businesses opportunities – Upstream Oil – maximize oil recovery – Engineered Plastics – develop new plastics focused on dowstream applications and support for converters – Halal Life – food and non-food certification, standards, products and ingredients – Energy Factory of the World – technologies for alternative energy sources – Water for Life – water conservation, reuse/recycling and desalination – Wellbeing – no immediate opportunities, future opportunities should be pursued Funding Mechanisms and Support Innovation Platforms 32

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ Scenarios Overview In order to fully test the robustness of the strategy and implementation plans, we ran a scenario process to: l Developed five plausible future scenarios to test recommendations against l Performed detailed assessment of implications of each scenario on each axis l Identified strategic options to consider and incorporate into current and future plans 33 Key Insights A benign economic environment could be problematic for the NIDP as it creates no impetus for change All axes need to outline future checkpoints to reassess the validity of their recommendations The NIDP must be a flexible organisation which can adapt to changing circumstances and objectives With an unchanged business environment, KSA may struggle in most of the scenarios High pressure scenarios create the ‘burning platform’ needed to drive reform in innovation, training and SMEs Level of government spending has significant impact on the NIDP, forcing prioritisation of activities

National Industrial Strategy In Conclusion…. 34 ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ Features of the NIS Ø It enjoys a “ national consensus “ Ø It affirms the importance of oil as a valuable economic resource to fuel future growth Ø It is a partnership between the government and the private sector Ø The aim is to foster economic security and economic competitiveness Ø It will imply an aggressive industrialization drive 35

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ GCC Countries Profile of Manufacturing Industries - Investment (2008) Total Investments ) Million ($ 100, 000 90, 000 80, 000 70, 000 60, 000 50, 000 40, 000 30, 000 20, 000 10, 000 0 Kuwait Qatar Oman Saudi Arabia Total Investments (Million $) Source: GOIC 37 Bahrain UAE

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ GCC Countries Profile of Manufacturing Industries – Investment/Job (2008) 700000 Top 3: 1. Chemical & plastic products 2. Non-metallic mineral products, except oil 3. Basic mineral industries 600000 500000 400000 300000 200000 100000 0 Kuwait Qatar Investment/job Source: GOIC 38 Oman Investment/job in top 3 Saudi Arabia Bahrain Investment/job in other UAE

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ GCC Countries Manufacturing Industry Profile: Experience (2008) Ø GCC countries have invested in a variety of industries. The overwhelming investment went into: ü Chemical & plastic products ü Non-metallic mineral products, except oil ü Basic mineral industries Ø Those industries, however, accounted for – on average – 35% of labor in manufacturing industries, and contributed marginally to employment of nationals 39

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ GCC Countries Manufacturing Industry: Imperatives Ø Investment in industry must create employment opportunities for youth of GCC Ø GCC countries have a diverse portfolios of incentives and comparative advantages. Going the distance alone will not do Ø Size of GCC market is small compared to MENA, and MENA’s is small compared to World. Need to broaden focus 40

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ GCC Countries Manufacturing Industry: Comparative Advantages Ø GCC’s comparative advantages encompass: ü Natural resources, such as hydrocarbons, minerals, coastlines, etc ü Experience, such as in logistics, oil, gas, and petrochemicals, finance, etc ü Favorable geographical location ü Economic growth forecast for the next 10 years and beyond ü Young population 41

National Industrial Strategy ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ GCC Countries Manufacturing Industry: Integration Ø No single GCC country has all ingredients readily available Ø Either invest in learning and doing each and every aspect of industrial and economic development, or complement and integrate with other GCC countries Ø The National Industrial Strategy (NIS) of KSA presents a vehicle for moving forward, both for economic diversification and industrial development Ø The NIS is a framework for integration of GCC industrial development 42

National Industrial Strategy 44 Private and Confidential ﺍﻻﺳﺘﺮﺍﺗﻴﺠﻴﺔ ﺍﻟﻮﻃﻨﻴﺔ ﻟﻠﺼﻨﺎﻋﺔ